MYERS INDUSTRIES INC, 10-K filed on 3/9/2017
Annual Report
Document and Entity Information (USD $)
12 Months Ended
Dec. 31, 2016
Feb. 28, 2017
Jun. 30, 2016
Document And Entity Information [Abstract]
 
 
 
Entity Registrant Name
MYERS INDUSTRIES INC 
 
 
Entity Central Index Key
0000069488 
 
 
Document Type
10-K 
 
 
Document Period End Date
Dec. 31, 2016 
 
 
Amendment Flag
false 
 
 
Document Fiscal Year Focus
2016 
 
 
Document Fiscal Period Focus
FY 
 
 
Current Fiscal Year End Date
--12-31 
 
 
Entity Well-known Seasoned Issuer
No 
 
 
Entity Voluntary Filers
No 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Filer Category
Accelerated Filer 
 
 
Entity Public Float
 
 
$ 427,319,986 
Entity Common Stock, Shares Outstanding
 
30,022,022 
 
Consolidated Statements of Operations (USD $)
In Thousands, except Per Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2016
Dec. 31, 2015
Dec. 31, 2014
Income Statement [Abstract]
 
 
 
Net sales
$ 558,062 
$ 601,538 
$ 623,649 
Cost of sales
393,422 
423,260 
462,370 
Gross profit
164,640 
178,278 
161,279 
Selling expenses
60,440 
60,752 
60,261 
General and administrative expenses
78,158 
86,665 
78,400 
Operating expenses excluding impairment charges
138,598 
147,417 
138,661 
Impairment charges
9,874 
Operating income
16,168 
30,861 
22,618 
Interest
 
 
 
Income
(1,774)
(1,317)
(127)
Expense
9,947 
10,316 
8,662 
Interest expense, net
8,173 
8,999 
8,535 
Income from continuing operations before income taxes
7,995 
21,862 
14,083 
Income tax expense
6,470 
7,809 
5,122 
Income from continuing operations
1,525 
14,053 
8,961 
Income (loss) from discontinued operations, net of income tax
(468)
3,709 
(17,642)
Net income (loss)
$ 1,057 
$ 17,762 
$ (8,681)
Income per common share from continuing operations:
 
 
 
Basic
$ 0.05 
$ 0.46 
$ 0.28 
Diluted
$ 0.05 
$ 0.45 
$ 0.27 
Income (loss) per common share from discontinued operations:
 
 
 
Basic
$ (0.02)
$ 0.12 
$ (0.55)
Diluted
$ (0.02)
$ 0.12 
$ (0.54)
Net income (loss) per share:
 
 
 
Basic
$ 0.03 
$ 0.58 
$ (0.27)
Diluted
$ 0.03 
$ 0.57 
$ (0.27)
Dividends declared per share
$ 0.54 
$ 0.54 
$ 0.52 
Consolidated Statements of Comprehensive Income (Loss) (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2016
Dec. 31, 2015
Dec. 31, 2014
Statement Of Income And Comprehensive Income [Abstract]
 
 
 
Net income (loss)
$ 1,057 
$ 17,762 
$ (8,681)
Other comprehensive income (loss)
 
 
 
Foreign currency translation adjustment
5,105 
(27,622)
(13,318)
Pension liability, net of tax expense (benefit) of ($95) in 2016, $113 in 2015 and ($448) in 2014
(169)
200 
(797)
Total other comprehensive income (loss)
4,936 
(27,422)
(14,115)
Comprehensive income (loss)
$ 5,993 
$ (9,660)
$ (22,796)
Consolidated Statements of Comprehensive Income (Loss) (Parenthetical) (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2016
Dec. 31, 2015
Dec. 31, 2014
Statement Of Income And Comprehensive Income [Abstract]
 
 
 
Tax expense (benefit) on pension liability
$ (95)
$ 113 
$ (448)
Consolidated Statements of Financial Position (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2016
Dec. 31, 2015
Current Assets
 
 
Cash
$ 7,888 
$ 7,344 
Restricted cash
8,635 
8,627 
Accounts receivable, less allowances of $1,563 and $559, respectively
73,818 
77,633 
Inventories
 
 
Finished and in-process products
31,826 
39,840 
Raw materials and supplies
14,197 
14,898 
Inventory net
46,023 
54,738 
Prepaid expenses and other assets
4,787 
5,966 
Total Current Assets
141,151 
154,308 
Other Assets
 
 
Goodwill
59,219 
64,035 
Intangible assets, net
47,994 
58,530 
Deferred income taxes
216 
840 
Notes receivable
18,275 
17,981 
Other
3,347 
2,324 
Total other non current assets
129,051 
143,710 
Property, Plant and Equipment, at Cost
 
 
Land
8,916 
7,960 
Buildings and leasehold improvements
65,566 
62,519 
Machinery and equipment
319,606 
345,277 
Property, Plant and Equipment, at cost
394,088 
415,756 
Less allowances for depreciation and amortization
(282,606)
(284,983)
Property, plant and equipment, net
111,482 
130,773 
Total Assets
381,684 
428,791 
Current Liabilities
 
 
Accounts payable
48,988 
71,310 
Accrued expenses
 
 
Employee compensation
11,861 
17,832 
Taxes, other than income taxes
2,178 
1,733 
Accrued interest
3,202 
2,709 
Other
13,083 
23,228 
Total Current Liabilities
79,312 
116,812 
Long-term debt
189,522 
191,881 
Other liabilities
9,235 
12,354 
Deferred income taxes
10,582 
10,041 
Shareholders’ Equity
 
 
Serial Preferred Shares (authorized 1,000,000 shares; none issued and outstanding)
Common Shares, without par value (authorized 60,000,000 shares; outstanding 30,019,561 and 29,521,566; net of treasury shares of 7,932,896 and 8,430,891, respectively)
18,234 
17,895 
Additional paid-in capital
202,033 
196,743 
Accumulated other comprehensive loss
(34,174)
(39,110)
Retained deficit
(93,060)
(77,825)
Total Shareholders’ Equity
93,033 
97,703 
Total Liabilities and Shareholders’ Equity
$ 381,684 
$ 428,791 
Consolidated Statements of Financial Position (Parenthetical) (USD $)
In Thousands, except Share data, unless otherwise specified
Dec. 31, 2016
Dec. 31, 2015
Current Assets
 
 
Allowances for accounts receivable
$ 1,563 
$ 559 
Shareholders’ Equity
 
 
Preferred Shares, shares authorized (in shares)
1,000,000 
1,000,000 
Preferred Shares, shares issued (in shares)
Preferred Shares, shares outstanding (in shares)
Common Shares, shares authorized (in shares)
60,000,000 
60,000,000 
Common Shares, shares outstanding (in shares)
30,019,561 
29,521,566 
Common shares, treasury (in shares)
7,932,896 
8,430,891 
Consolidated Statements of Shareholders' Equity (USD $)
In Thousands, except Share data, unless otherwise specified
Total
Common Stock [Member]
Additional Paid-In Capital [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Retained Deficit [Member]
Beginning balance at Dec. 31, 2013
$ 235,507 
$ 20,313 
$ 266,276 
$ 2,427 
$ (53,509)
Ending balance, shares at Dec. 31, 2013
 
33,572,778 
 
 
 
Stockholders' Equity [Roll Forward]
 
 
 
 
 
Net income (loss)
(8,681)
(8,681)
Issuances under option plans
2,792 
138 
2,654 
Issuances under option plans, shares
228,064 
227,664 
 
 
 
Dividend reinvestment plan
134 
130 
Dividend reinvestment plan, shares
 
7,159 
 
 
 
Restricted stock vested
75 
(75)
Restricted stock vested, shares
 
123,829 
 
 
 
Restricted stock and stock option grants
2,835 
10 
2,825 
Restricted stock and stock option grants (shares)
 
15,055 
 
 
 
Tax benefit from options
679 
679 
Foreign currency translation adjustment
(13,318)
(13,318)
Repurchase of common stock
(54,897)
(1,660)
(53,237)
Repurchase of common stock (shares)
 
(2,742,506)
 
 
 
Stock contributions
200 
194 
Stock contributions, shares
 
9,376 
 
 
 
Shares withheld for employee taxes on equity awards
(1,083)
(31)
(1,052)
Shares withheld for employee taxes on equity awards, shares
 
(50,393)
 
 
 
Declared dividends
(16,800)
(16,800)
Pension liability, net of tax expense (benefit) of ($95) in 2016, $113 in 2015 and ($448) in 2014
(797)
(797)
Ending balance at Dec. 31, 2014
146,571 
18,855 
218,394 
(11,688)
(78,990)
Ending balance, shares at Dec. 31, 2014
 
31,162,962 
 
 
 
Stockholders' Equity [Roll Forward]
 
 
 
 
 
Net income (loss)
17,762 
17,762 
Issuances under option plans
2,775 
162 
2,613 
Issuances under option plans, shares
239,508 
239,908 
 
 
 
Dividend reinvestment plan
149 
144 
Dividend reinvestment plan, shares
 
8,968 
 
 
 
Restricted stock vested
78 
(78)
Restricted stock vested, shares
 
120,723 
 
 
 
Restricted stock and stock option grants
5,277 
5,277 
Restricted stock and stock option grants (shares)
 
 
 
 
Tax benefit from options
38 
38 
Foreign currency translation adjustment
(27,622)
(27,622)
Repurchase of common stock
(30,023)
(1,193)
(28,830)
Repurchase of common stock (shares)
 
(1,992,379)
 
 
 
Stock contributions
148 
143 
Stock contributions, shares
 
8,250 
 
 
 
Shares withheld for employee taxes on equity awards
(975)
(17)
(958)
Shares withheld for employee taxes on equity awards, shares
 
(26,866)
 
 
 
Declared dividends
(16,597)
(16,597)
Pension liability, net of tax expense (benefit) of ($95) in 2016, $113 in 2015 and ($448) in 2014
200 
200 
Ending balance at Dec. 31, 2015
97,703 
17,895 
196,743 
(39,110)
(77,825)
Ending balance, shares at Dec. 31, 2015
29,521,566 
29,521,566 
 
 
 
Stockholders' Equity [Roll Forward]
 
 
 
 
 
Net income (loss)
1,057 
1,057 
Issuances under option plans
3,235 
205 
3,030 
Issuances under option plans, shares
334,836 
374,958 
 
 
 
Dividend reinvestment plan
139 
133 
Dividend reinvestment plan, shares
 
10,520 
 
 
 
Restricted stock vested
104 
(104)
Restricted stock vested, shares
 
169,929 
 
 
 
Stock compensation expense
3,357 
24 
3,333 
Tax benefit from options
64 
64 
Foreign currency translation adjustment
5,105 
5,105 
Shares withheld for employee taxes on equity awards
(1,166)
(1,166)
Shares withheld for employee taxes on equity awards, shares
 
(57,412)
 
 
 
Declared dividends
(16,292)
(16,292)
Pension liability, net of tax expense (benefit) of ($95) in 2016, $113 in 2015 and ($448) in 2014
(169)
(169)
Ending balance at Dec. 31, 2016
$ 93,033 
$ 18,234 
$ 202,033 
$ (34,174)
$ (93,060)
Ending balance, shares at Dec. 31, 2016
30,019,561 
30,019,561 
 
 
 
Consolidated Statement of Shareholders' Equity (Parenthetical) (USD $)
In Thousands, except Per Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2016
Dec. 31, 2015
Dec. 31, 2014
Dividends declared per share (in dollars per share)
$ 0.54 
$ 0.54 
$ 0.52 
Tax expense (benefit) on pension liability
$ (95)
$ 113 
$ (448)
Retained Deficit [Member]
 
 
 
Dividends declared per share (in dollars per share)
$ 0.54 
$ 0.54 
$ 0.52 
Accumulated Other Comprehensive Income (Loss) [Member]
 
 
 
Tax expense (benefit) on pension liability
$ 95 
$ 113 
$ 448 
Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2016
Dec. 31, 2015
Dec. 31, 2014
Cash Flows From Operating Activities
 
 
 
Net income (loss)
$ 1,057 
$ 17,762 
$ (8,681)
Income (loss) from discontinued operations, net of income taxes
(468)
3,709 
(17,642)
Income from continuing operations
1,525 
14,053 
8,961 
Adjustments to reconcile income from continuing operations to net cash provided by (used for) operating activities
 
 
 
Depreciation
24,607 
24,712 
24,173 
Amortization
9,858 
10,267 
6,999 
Non-cash stock-based compensation expense
3,357 
4,934 
3,115 
Deferred taxes
(243)
(315)
(2,665)
Excess tax benefit from stock-based compensation
(64)
(38)
(679)
Impairment charges
9,874 
Other
653 
762 
562 
Payments on performance based compensation
(1,794)
(1,303)
(1,293)
Accrued interest income on note receivable
(1,268)
(1,060)
Other long-term liabilities
(579)
1,106 
341 
Cash flows provided by (used for) working capital
 
 
 
Accounts receivable
4,311 
3,499 
2,710 
Inventories
9,720 
5,271 
2,377 
Prepaid expenses and other assets
1,083 
573 
(966)
Accounts payable and accrued expenses
(27,319)
(13,107)
8,122 
Net cash provided by (used for) operating activities - continuing operations
33,721 
49,354 
51,757 
Net cash provided by (used for) operating activities - discontinued operations
(11,622)
(13,062)
Net cash provided by (used for) operating activities
33,721 
37,732 
38,695 
Cash Flows From Investing Activities
 
 
 
Capital expenditures
(12,523)
(23,727)
(24,170)
Acquisition of business, net of cash acquired
(156,620)
Proceeds from sale of property, plant and equipment
468 
1,261 
566 
Proceeds (payments) related to sale of business
(4,034)
70,762 
Net cash provided by (used for) investing activities - continuing operations
(16,089)
48,296 
(180,224)
Net cash provided by (used for) investing activities - discontinued operations
(581)
11,626 
Net cash provided by (used for) investing activities
(16,089)
47,715 
(168,598)
Cash Flows From Financing Activities
 
 
 
Proceeds from long-term debt
89,000 
Net borrowing (repayments) on credit facility
(3,804)
(37,110)
106,493 
Cash dividends paid
(16,221)
(16,675)
(15,707)
Proceeds from issuance of common stock
3,374 
2,924 
2,926 
Excess tax benefit from stock-based compensation
64 
38 
679 
Repurchase of common stock
(30,023)
(54,897)
Shares withheld for employee taxes on equity awards
(1,166)
(975)
(1,083)
Deferred financing costs
(547)
Net cash provided by (used for) financing activities - continuing operations
(17,753)
(81,821)
126,864 
Net cash provided by (used for) financing activities - discontinued operations
Net cash provided by (used for) financing activities
(17,753)
(81,821)
126,864 
Foreign exchange rate effect on cash
665 
(958)
1,176 
Net increase (decrease) in cash
544 
2,668 
(1,863)
Cash at January 1
7,344 
4,676 
6,539 
Cash at December 31
7,888 
7,344 
4,676 
Supplemental Disclosures of Cash Flow Information
 
 
 
Interest
8,917 
10,131 
4,973 
Income taxes
$ 8,136 
$ 10,138 
$ 11,355 
Summary of Significant Accounting Policies
Summary of Significant Accounting Policies

1.  Summary of Significant Accounting Policies

Basis of Presentation

The consolidated financial statements include the accounts of Myers Industries, Inc. and all wholly owned subsidiaries (collectively, the “Company”). All intercompany accounts and transactions have been eliminated in consolidation. All subsidiaries that are not wholly owned and are not included in the consolidated operating results of the Company are immaterial investments which have been accounted for under the equity or cost method. The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures at the date of the financial statements and the reported amount of revenues and expenses during the reported period. Actual results could differ from those estimates.

Certain items previously reported in specific financial statement captions have been reclassified to conform to the fiscal 2016 presentation.

Accounting Standards Adopted

In September 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-16, Simplifying the Accounting for Measurement-Period Adjustments in relation to business combinations. Under existing standards, the measurement-period adjustments are calculated as if they were known at the acquisition date, and are recognized by revising information in prior periods. Under the new standard, measurement-period adjustments continue to be calculated as if they were known at the acquisition date, but are recognized in the reporting period in which they are determined, with no revisions to prior periods relating to the business combination. In addition to the disclosure requirement explaining the nature and amount of the measurement-period adjustments, additional disclosures are required to explain the impact on current period income statement line items of adjustments that would have been recognized in prior periods if such period information had been revised. ASU 2015-16 became effective for annual reporting periods, including interim reporting periods within those periods, beginning after December 15, 2015. Adoption of ASU 2015-16 in the first quarter of 2016 did not have an impact on the Company's results of operations, cash flows or financial position.

In April 2015, the FASB issued ASU 2015-03, Interest - Imputation of Interest (Subtopic 835-03) - Simplifying the Presentation of Debt Issuance Costs, which requires unamortized debt issuance costs to be presented as a reduction of the corresponding debt liability rather than a separate asset. The Company adopted ASU 2015-03 retrospectively in the first quarter of 2016. As a result of the retrospective adoption, the Company reclassified unamortized debt issuance cost of $1,125 as of December 31, 2015 from other non-current assets to a reduction of long-term debt in the Consolidated Statements of Financial Position. Adoption of ASU 2015-03 did not have an impact on the Company’s results of operations or cash flows.

In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern. The new standard provides guidance on determining when and how to disclose going concern uncertainties in the financial statements. Under ASU 2014-15, management will be required to perform interim and annual assessments of the Company’s ability to continue as a going concern within one year of the date the financial statements are issued. ASU 2014-15 became effective for annual periods ending after December 15, 2016, and interim periods thereafter. The adoption of this standard did not have an impact on the Company’s financial statement disclosures.

Accounting Standards Not Yet Adopted

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350) Simplifying the Test for Goodwill Impairment.  This ASU eliminates Step 2 of the goodwill impairment test and requires a goodwill impairment to be measured as the amount by which a reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of its goodwill. The ASU is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019.  The guidance allows for early adoption for impairment testing dates after January 1, 2017.  While the Company is currently evaluating the timing of adoption, it does not believe that the adoption of this guidance will have a material impact on its consolidated financial statements.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230) Restricted Cash. This ASU requires that companies include amounts generally described as restricted cash and restricted cash equivalents, along with cash and cash equivalents, when reconciling the beginning-of-period and end-of-period amounts shown on the statement of cash flows.  The ASU is effective for annual reporting periods beginning after December 15, 2017 and interim periods within those annual periods. To the extent there are changes in the Company’s restricted cash balances, adoption of this standard will impact the statement of cash flows.

In October 2016, the FASB issued ASU 2016-16, Accounting for Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory (Topic 740). This ASU requires immediate recognition of the income tax consequences of intercompany asset transfers other than inventory. The ASU is effective for annual reporting periods beginning after December 15, 2017 and interim periods within those annual periods. The Company is currently evaluating the impact this standard will have on its consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows – Classification of Certain Cash Receipts and Cash Payments, which clarifies how entities should classify certain cash receipts and cash payments on the statement of cash flows.  The new guidance also clarifies how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flows.  This ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within that reporting period, with early adoption permitted.  The Company does not anticipate that adoption of this standard will have a significant impact on its consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments, which introduces new guidance for the accounting for credit losses on instruments.  The new guidance introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments. This ASU is effective for fiscal years beginning after December 15, 2019 including interim periods within that reporting period, with early adoption permitted for fiscal years beginning after December 15, 2018. The Company is currently evaluating the impact that adoption of this standard will have on its consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation - Improvements to Employee Share-Based Payment Accounting, which involves several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Under the new standard, income tax benefits and deficiencies are to be recognized as income tax expense or benefit in the income statement and the tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur. An entity should also recognize excess tax benefits regardless of whether the benefit reduces taxes payable in the current period. Excess tax benefits should be classified along with other income tax cash flows as an operating activity. In regards to forfeitures, the entity may make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur. This ASU is effective for fiscal years beginning after December 15, 2016 including interim periods within that reporting period, with early adoption permitted. The Company plans to elect to recognize forfeitures as they occur and is currently evaluating the impact that the adoption of this standard will have on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). Under ASU 2016-02, an entity will be required to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. ASU 2016-02 offers specific accounting guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. The new standard is effective for the Company beginning January 1, 2019 and requires a modified retrospective approach. The Company is currently evaluating the impact the adoption of this standard will have on its consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, to clarify the principles used to recognize revenue for all entities. Under ASU 2014-09, an entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The new guidance also includes enhanced disclosure requirements, and is effective January 1, 2018, with early adoption permitted for January 1, 2017. Entities have the option to apply the new guidance under a retrospective approach to each prior reporting period presented, or a modified retrospective approach with the cumulative effect of initially applying the new guidance recognized at the date of initial application within the Consolidated Statements of Shareholders’ Equity. The Company plans to adopt the new guidance effective January 1, 2018. The Company has made substantial progress in its evaluation of the new standard and expects to complete its evaluation of the impact on the Company’s consolidated financial statements during the first half of 2017.  The Company currently plans to adopt the new guidance under the modified retrospective approach.

Translation of Foreign Currencies

All asset and liability accounts of consolidated foreign subsidiaries are translated at the current exchange rate as of the end of the accounting period and income statement items are translated monthly at an average currency exchange rate for the period. The resulting translation adjustment is recorded in other comprehensive income (loss) as a separate component of shareholders' equity.

Fair Value Measurement

The Company follows guidance included in Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures, for its financial assets and liabilities, as required. The guidance established a common definition for fair value to be applied under U.S. GAAP requiring the use of fair value, established a framework for measuring fair value, and expanded disclosure requirements about such fair value measurements. The guidance did not require any new fair value measurements, but rather applied to all other accounting pronouncements that require or permit fair value measurements. Under ASC 820, the hierarchy that prioritizes the inputs to valuation techniques used to measure fair value is divided into three levels:

 

Level 1:

Unadjusted quoted prices in active markets for identical assets or liabilities.

 

Level 2:

Unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active or inputs that are observable either directly or indirectly.

 

Level 3:

Unobservable inputs for which there is little or no market data or which reflect the entity’s own assumptions.

The Company has financial instruments, including cash, accounts receivable, accounts payable and accrued expenses. The fair value of these financial instruments approximate carrying value due to the nature and relative short maturity of these assets and liabilities.

The fair value of debt under the Company’s Loan Amendment approximates carrying value due to the floating rates and relative short maturity (less than 90 days) of the revolving borrowings under this agreement. The fair value of the Company’s fixed rate senior unsecured notes was estimated using market observable inputs for the Company’s comparable peers with public debt, including quoted prices in active markets and interest rate measurements which are considered level 2 inputs. At December 31, 2016 and 2015, the aggregate fair value of the Company's $100.0 million fixed rate senior unsecured notes was estimated at $98.0 million and $102.1 million, respectively.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentration of credit risk primarily consist of trade accounts receivable. The concentration of accounts receivable credit risk is generally limited based on the Company’s diversified operations, with customers spread across many industries and countries. The Company’s largest single customer in 2016 accounts for approximately 4% of net sales with no other customer greater than 3%. Outside of the United States, only customers located in Brazil and Canada, which account for approximately 3.9% and 4.4% of net sales, respectively, are significant to the Company’s operations. In addition, management has established certain requirements that customers must meet before credit is extended. The financial condition of customers is continually monitored and collateral is usually not required. The Company evaluates the collectability of accounts receivable based on a combination of factors. In circumstances where the Company is aware of a specific customer’s inability to meet its financial obligations, a specific allowance for doubtful accounts is recorded against amounts due to reduce the net recognized receivable to the amount the Company reasonably believes will be collected. Additionally, the Company also reviews historical trends for collectability in determining an estimate for its allowance for doubtful accounts. If economic circumstances change substantially, estimates of the recoverability of amounts due the Company could be reduced by a material amount. Expense related to bad debts was approximately $0.9 million, $0.3 million and $0.4 million for the years 2016, 2015 and 2014, respectively. Deductions from the allowance for doubtful accounts, net of recoveries, were approximately $0.4 million, $0.5 million and $0.9 million for the years 2016, 2015 and 2014, respectively.

Factoring

The Company's wholly-owned subsidiaries Plasticos Novel Do Nordeste S.A. and Plasticos Novel Do Parana S.A. (collectively, "Novel") entered into a factoring agreement to sell, without recourse, certain of their Brazilian real-based trade accounts receivables to unrelated third party financial institutions as part of its working capital management. The sale of these receivables accelerated the collection of cash and reduced credit exposure. Under the terms of the factoring agreements, the Company retains no rights or interest and has no obligations with respect to the sold receivables. As such, the factoring of trade receivables under these agreements are accounted for as a sale. The Company accounts for its trade receivable factoring program as required under ASC 860, Transfers and Servicing. During 2016, $5.8 million of trade accounts receivables had been sold under the terms of the factoring agreement for cash proceeds of $5.3 million. During 2015, $5.8 million of trade accounts receivables had been sold under the terms of the factoring agreement for cash proceeds of $5.4 million. The receivables sold pursuant to the factoring agreements have been recorded as a reduction of trade accounts receivable and as cash provided by operating activities in the accompanying Consolidated Statements of Cash Flows. The Company pays an administrative fee based on the dollar value of the receivables sold. Administrative fees related to the program for 2016 and 2015 were approximately $0.5 million and $0.4 million, respectively. These fees are included in general and administrative expenses in the accompanying Consolidated Statements of Operations.

Inventories

Inventories are valued at the lower of cost or market for last-in, first-out (“LIFO”) inventory and lower of cost or net realizable value for first-in, first-out (“FIFO”) inventory. Approximately 40 percent of our inventories are valued using the LIFO method of determining cost. All other inventories are valued at the FIFO method of determining cost.

If the FIFO method of inventory cost valuation had been used exclusively by the Company, inventories would have been $4.7 million, $5.1 million and $6.8 million higher than reported at December 31, 2016, 2015 and 2014, respectively. LIFO inventories increased cost of sales and decreased income from continuing operations before income taxes by $0.1 million in 2016. Cost of sales decreased by less than $0.1 million in 2015 and $0.4 million in 2014 as a result of the liquidation of LIFO inventories.

Property, Plant and Equipment

Property, plant and equipment are carried at cost less accumulated depreciation and amortization. The Company provides for depreciation and amortization on the basis of the straight-line method over the estimated useful lives of the assets as follows:

 

Buildings

20 to 40 years

Machinery and Equipment

3 to 10 years

Leasehold Improvements

5 to 10 years

 

At December 31, 2016 and 2015, the Company had approximately $4.1 million of capitalized software costs included in machinery and equipment on the accompanying Consolidated Statements of Financial Position. Amortization expense related to capitalized software costs was approximately $0.6 million, $0.5 million and $0.3 million in 2016, 2015 and 2014, respectively.

Long-Lived Assets

The Company reviews its long-lived assets and identifiable intangible assets with finite lives for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Determination of potential impairment related to assets to be held and used is based upon undiscounted future cash flows resulting from the use and ultimate disposition of the asset. For assets held for disposal, the amount of potential impairment may be based upon appraisal of the asset, estimated market value of similar assets or estimated cash flow from the disposition of the asset. Refer to Note 3 for discussion of the impairment charges.

Revenue Recognition

The Company recognizes revenues from the sale of products, net of actual and estimated returns, at the point of passage of title and risk of loss, which is generally at time of shipment, and collectability of the fixed or determinable sales price is reasonably assured.

Accumulated Other Comprehensive Income (Loss)

Changes in accumulated other comprehensive income (loss) and are as follows:

 

 

 

Foreign

Currency

 

 

Defined Benefit

Pension Plans

 

 

Total

 

Balance at January 1, 2014

 

$

3,493

 

 

$

(1,066

)

 

$

2,427

 

Other comprehensive income (loss) before reclassifications

 

 

(13,318

)

 

 

(826

)

 

 

(14,144

)

Amounts reclassified from accumulated other comprehensive income, net of tax of ($16) (1)

 

 

 

 

 

29

 

 

 

29

 

Net current-period other comprehensive income (loss)

 

 

(13,318

)

 

 

(797

)

 

 

(14,115

)

Balance at December 31, 2014

 

 

(9,825

)

 

 

(1,863

)

 

 

(11,688

)

Other comprehensive income (loss) before reclassifications

 

 

(17,131

)

 

 

144

 

 

 

(16,987

)

Amounts reclassified from accumulated other comprehensive income, net of tax of ($32) (1)

 

 

(10,491

)

 

 

56

 

 

 

(10,435

)

Net current-period other comprehensive income (loss)

 

 

(27,622

)

 

 

200

 

 

 

(27,422

)

Balance at December 31, 2015

 

 

(37,447

)

 

 

(1,663

)

 

 

(39,110

)

Other comprehensive income (loss) before reclassifications

 

 

5,105

 

 

 

(222

)

 

 

4,883

 

Amounts reclassified from accumulated other comprehensive income, net of tax of ($30) (1)

 

 

 

 

 

53

 

 

 

53

 

Net current-period other comprehensive income (loss)

 

 

5,105

 

 

 

(169

)

 

 

4,936

 

Balance at December 31, 2016

 

$

(32,342

)

 

$

(1,832

)

 

$

(34,174

)

 

(1)

The accumulated other comprehensive income (loss) components related to defined benefit pension plans are included in the computation of net periodic pension cost. (See Note 13-Retirement Plans for additional details.) Cumulative translation adjustment associated with the sale of the Lawn and Garden business was included in the carrying value of assets disposed of.

Shipping and Handling

Shipping and handling expenses are primarily classified as selling expenses in the accompanying Consolidated Statements of Operations. The Company incurred shipping and handling costs of approximately $16.8 million, $16.4 million and $19.4 million for the years ended December 31, 2016, 2015, and 2014, respectively.

Stock Based Compensation

The Company has stock plans that provide for the granting of stock-based compensation to employees and to non-employee directors. Shares issued for option exercises or restricted shares may be either from authorized but unissued shares or treasury shares. The Company records the costs of the plan under the provisions of ASC 718, Compensation — Stock Compensation. For transactions in which the Company obtains employee services in exchange for an award of equity instruments, the Company measures the cost of the services based on the grant date fair value of the award. The Company recognizes the cost over the period during which an employee is required to provide services in exchange for the award, referred to as the requisite service period (usually the vesting period).

Income Taxes

Income taxes are accounted for under the liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those differences are expected to be received or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

The Company evaluates its tax positions in accordance with ASC 740, Income Taxes. ASC 740 provides detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in an enterprise’s financial statements. Income tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized under ASC 740. The Company recognizes potential accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense.

Cash and Cash Equivalents

The Company considers all highly liquid instruments purchased with a maturity of three months or less to be cash equivalents. Cash equivalents are stated at cost, which approximates market value. The Company maintains operating cash and reserves for replacement balances in financial institutions which, from time to time, may exceed federally insured limits. The Company periodically assesses the financial condition of these institutions and believes that the risk of loss is minimal.

Cash flows used in investing activities excluded $0.1 million, $6.6 million and $0.2 million of accrued capital expenditures in 2016, 2015 and 2014, respectively.

Acquisitions
Acquisitions

2.  Acquisitions

On July 2, 2014, CA Acquisition Inc., now known as Scepter Canada Inc., and a wholly-owned subsidiary of Myers Industries, Inc., completed the purchase of substantially all of the assets and assumption of certain liabilities of Scepter Corporation and certain real property of SHI Properties Inc., both located in Scarborough, Ontario, Canada. Contemporaneously with the asset acquisition, Crown US Acquisition Company, now known as Scepter US Holding Company, and another wholly-owned subsidiary of Myers Industries, Inc., completed the purchase of all of the issued and outstanding membership interests of Eco One Leasing, LLC and Scepter Manufacturing, LLC, both located in Miami, Oklahoma. Eco One Leasing, LLC was subsequently merged into Scepter Manufacturing, LLC. The total purchase price for these acquisitions (collectively, “Scepter”) was approximately $156.6 million in cash, which includes a final working capital adjustment of approximately $1.2 million. The acquisition of Scepter was funded from net proceeds from additional borrowings of approximately $134.1 million under the Fourth Amended and Restated Loan Agreement and cash on hand of $22.5 million.

The operating results of Scepter have been included within our Consolidated Statements of Operations and within the Company's Material Handling Segment since the date of acquisition. The Consolidated Statement of Operations for the Company for the year ended December 31, 2014 included net sales of $39.4 million and an operating loss of $5.4 million related to Scepter. Scepter's operating results included $2.3 million of inventory purchase accounting fair value adjustments charged to cost of sales as the inventory was sold. In addition, transactional costs of approximately $3.6 million for the year ended December 31, 2014 are included in general and administrative expenses in the accompanying Consolidated Statements of Operations.

 

The following unaudited pro forma information presents a summary of the consolidated results of operations for the Company as if the acquisition of Scepter had occurred on January 1, 2014.

 

 

 

For the Year Ended

 

 

 

December 31, 2014

 

Net sales

 

$

675,046

 

 

 

 

 

 

Income from continuing operations

 

$

16,206

 

 

 

 

 

 

Net income per share from continuing operations:

 

 

 

 

Basic

 

$

0.50

 

Diluted

 

$

0.50

 

 

The unaudited pro forma consolidated results are based on the Company’s historical financial statements and those of Scepter and do not necessarily indicate the results of operations that would have resulted had the acquisition actually been completed at the beginning of the applicable period presented. The unaudited pro forma results reflect the business combination accounting effects from the acquisition including amortization charges from the acquired intangible assets, inventory purchase accounting adjustments charged to cost of sales as the inventory is sold and increased interest expense associated with debt incurred to fund the acquisition. The unaudited pro forma consolidated results do not give effect to the synergies of the acquisition and are not indicative of the results of operations in future periods.

Impairment Charges
Impairment Charges

3.  Impairment Charges

During the year ended December 31, 2016, the Company reviewed its long-lived assets, intangible assets and goodwill at Plasticos Novel do Nordeste S.A. (”Novel”), a reporting unit within the Material Handling Segment for impairment. The testing for impairment was performed as a result of the presence of impairment indictors resulting from the communication of a reduction in capital spending in the near-term from a significant customer in March 2016, which resulted in a significant reduction in Novel’s forecasted revenue and income.

The Company first conducted a review for impairment of indefinite-lived intangibles and other long-lived assets related to Novel, including amortizable intangible assets and fixed assets which indicated that the carrying amounts of such assets may not be recoverable and required an assessment of fair value of the assets for purposes of measuring an impairment charge. The estimated fair value of indefinite-lived intangibles was determined using a relief from royalty payments income approach and the other long-lived assets was determined, in part, using an analysis of projected cash flows, a market approach and a cost approach. These valuation methods use Level 3 inputs under the fair value hierarchy discussed in Note 1.

To test for potential impairment for goodwill, the Company performed an interim impairment test as of March 31, 2016. The step one goodwill impairment test was performed using a discounted cash flow (“DCF”) valuation model. The significant assumptions in the DCF model are the annual revenue growth rate, the annual operating income margin and the discount rate used to determine the present value of the cash flow projections. The discount rate was based on the estimated weighted average cost of capital as of the testing date for market participants in the industry in which the Novel reporting unit operates. Based on the estimated fair value generated by the DCF model, the Novel reporting unit’s fair value did not exceed its carrying value as of March 31, 2016 and therefore a step two analysis was required to be performed. The decline in fair value of the reporting unit resulted primarily from lower projected operating results and cash flows than those utilized from the 2015 annual impairment test, directly related to the triggering event outlined above. A step two analysis was completed to allocate estimated fair value to assets and liabilities in order to estimate an implied value of goodwill.  As a result of these impairment reviews, the Company concluded that the goodwill, intangibles and other long-lived assets related to Novel were impaired and recorded a non-cash impairment charge of $8.5 million in 2016. In addition, in 2016 the Company also recorded impairment charges of $1.3 million, primarily related to long-lived assets associated with the exit of a non-strategic product line in the Material Handling Segment. These impairment charges were reported in Impairment charges in the Consolidated Statements of Operations for the year ended December 31, 2016.  

Goodwill and Intangible Assets
Goodwill and Intangible Assets

4.  Goodwill and Intangible Assets

The Company tests for impairment of goodwill and indefinite-lived intangible assets on at least an annual basis, unless significant changes in circumstances indicate a potential impairment may have occurred sooner. Such changes in circumstances may include, but are not limited to, significant changes in economic and competitive conditions, the impact of the economic environment on the Company’s customer base or its businesses, or a material negative change in its relationships with significant customers.  See Note 3 for further discussion.  

The Company conducted its annual impairment assessment as of October 1 for all of its reporting units, noting no impairment in 2015 or 2014.  In addition, the Company determined that no additional goodwill impairment charges were required for 2016, beyond the impairment charges discussed in Note 3.    

During the 2016 annual review of goodwill, management performed a two-step quantitative test for all of its reporting units. In evaluating goodwill for impairment using the two-step test, the Company uses a combination of valuation techniques primarily using discounted cash flows to estimate the fair values of its business reporting units and market based multiples as supporting evidence. The variables and assumptions used, all of which are level 3 fair value inputs, include the projections of future revenues and expenses, working capital, terminal values, discount rates and long term growth rates. The market multiples observed in sale transactions are determined separately for each reporting unit, and are based on the weighted average cost of capital for each of the Company’s reporting units, which ranged from 10.5% to 15.75% in 2016. In addition the Company makes certain judgments about the selection of comparable companies used in determining market multiples in valuing our reporting units, as well as certain assumptions to allocate shared assets and liabilities to calculate values for each of our reporting units. The underlying assumptions used are based on historical actual experience and future expectations. The Company compares the fair value of each of its reporting units to their respective carrying values, including related goodwill. The Company also compares our book value and the estimates of fair value of the reporting units to our market capitalization as of and at dates near the annual testing date. Management uses this comparison as additional evidence of the fair value of the Company, as our market capitalization may be suppressed by other factors such as the control premium associated with a controlling shareholder, our leverage or general expectations regarding future operating results and cash flows. In situations where the implied value of the Company under the Income or Market Approach are significantly different than our market capitalization, the Company re-evaluates and adjusts, if necessary, the assumptions underlying the Income and Market Approach models. The estimate of the fair values of these reporting units, and the related goodwill, could change over time based on a variety of factors, including the aggregate market value of the Company’s common stock, actual operating performance of the underlying businesses or the impact of future events on the cost of capital and the related discount rates used.

The change in the carrying amount of goodwill for the years ended December 31, 2016 and 2015 is as follows:

 

 

 

Distribution

 

 

Material

Handling

 

 

Total

 

January 1, 2015

 

$

505

 

 

$

66,134

 

 

$

66,639

 

Measurement period adjustments

 

 

 

 

 

(300

)

 

 

(300

)

Foreign currency translation

 

 

 

 

 

(2,304

)

 

 

(2,304

)

December 31, 2015

 

$

505

 

 

$

63,530

 

 

$

64,035

 

Foreign currency translation

 

 

 

 

 

860

 

 

 

860

 

Impairment charges

 

 

 

 

 

(5,676

)

 

 

(5,676

)

December 31, 2016

 

$

505

 

 

$

58,714

 

 

$

59,219

 

 

Intangible assets other than goodwill primarily consist of trade names, customer relationships, patents, and technology assets established in connection with acquisitions. These intangible assets, other than certain trade names, are amortized over their estimated useful lives. The Company performs an annual impairment assessment for the indefinite lived trade names which had a carrying value of $10,878 and $10,859 at December 31, 2016 and 2015, respectively. In performing this assessment the Company uses an income approach, based primarily on level 3 inputs, to estimate the fair value of the trade name. The Company records an impairment charge if the carrying value of the trade name exceeds the estimated fair value at the date of assessment.

Intangible assets at December 31, 2016 and 2015 consisted of the following:

 

 

 

 

 

 

 

2016

 

 

2015

 

 

 

Weighted

Average Remaining Useful

Life (years)

 

 

Gross

 

 

Accumulated

Amortization

 

 

Net

 

 

Gross

 

 

Accumulated

Amortization

 

 

Net

 

Trade Names - Indefinite Lived

 

 

 

 

 

$

10,878

 

 

$

 

 

$

10,878

 

 

$

10,859

 

 

$

 

 

$

10,859

 

Trade Names

 

 

8.5

 

 

 

80

 

 

 

(34

)

 

 

46

 

 

 

280

 

 

 

(142

)

 

 

138

 

Customer Relationships

 

 

2.8

 

 

 

39,774

 

 

 

(21,127

)

 

 

18,647

 

 

 

40,427

 

 

 

(16,165

)

 

 

24,262

 

Technology

 

 

7.2

 

 

 

25,760

 

 

 

(7,519

)

 

 

18,241

 

 

 

27,177

 

 

 

(5,166

)

 

 

22,011

 

Patents

 

 

0.2

 

 

 

11,724

 

 

 

(11,542

)

 

 

182

 

 

 

11,724

 

 

 

(10,464

)

 

 

1,260

 

 

 

 

 

 

 

$

88,216

 

 

$

(40,222

)

 

$

47,994

 

 

$

90,467

 

 

$

(31,937

)

 

$

58,530

 

 

Intangible amortization expense was $9,492, $9,802 and $6,466 in 2016, 2015 and 2014, respectively. Estimated annual amortization expense for intangible assets with finite lives for the next five years is: $8,315 in 2017; $8,032 in 2018; $7,659 in 2019; $4,886 in 2020 and $2,324 in 2021.

 

Discontinued Operations
Discontinued Operations

5.  Discontinued Operations

On June 20, 2014, the Company completed the sale of the assets and associated liabilities of its wholly-owned subsidiaries WEK Industries, Inc. and Whiteridge Plastics LLC (collectively “WEK”) for approximately $20.7 million, which includes a working capital adjustment of approximately $0.8 million. Of the total proceeds from the sale of WEK, approximately $1.0 million was held in escrow until it was received in December 2015. The Company recorded a gain on the sale of WEK in 2014 of approximately $3.0 million, net of tax of $1.6 million, which was included in income (loss) from discontinued operations in the Consolidated Statements of Operations.

During the second quarter of 2014, the Company’s Board of Directors approved the commencement of the sale process to divest its Lawn and Garden business to allow it to focus resources on its core growth platforms. The business was sold February 17, 2015 to an entity controlled by Wingate Partners V, L.P., a private equity firm, for $110.0 million, subject to a working capital adjustment. The terms of the agreement include a $90.0 million cash payment, promissory notes totaling $20.0 million that mature in August 2020, a 6% interest rate and approximately $8.6 million placed in escrow that was due to be settled by August 2016, but has been extended until certain indemnification claims are resolved, as discussed in Note 10-Contingencies. The fair market value of the notes at February 17, 2015 was $17.8 million and is included in Notes Receivable in the accompanying Consolidated Statements of Financial Position, in which the carrying value represents the fair value at date of sale plus accretion as of the balance sheet date. The fair value of the notes receivable was calculated using level 2 inputs as defined in Note 1. The final working capital adjustment resulted in a cash payment to the buyer of approximately $4.0 million in 2016. The total gain on the sale of the Lawn and Garden business in 2015 was $4.7 million, net of tax, and is included in income (loss) from discontinued operations in the accompanying Consolidated Statements of Operations.

Summarized selected financial information for the Lawn and Garden business and WEK for the years ended December 31, 2016, 2015 and 2014 are presented in the following table:

 

 

 

 

 

For the Year Ended December 31,

 

 

 

 

 

2016

 

 

2015*

 

 

2014**

 

Net sales

 

 

 

$

 

 

$

29,335

 

 

$

204,716

 

Loss from discontinued operations before income taxes

 

 

 

$

 

 

$

(1,214

)

 

$

(30,038

)

Income tax expense (benefit)

 

 

 

 

 

 

 

(262

)

 

 

(9,408

)

Loss from discontinued operations

 

 

 

 

 

 

 

(952

)

 

 

(20,630

)

Gain (loss) on sale of discontinued operations, inclusive of tax

   provision (benefit) of $0.2 million, ($2.8) million and $1.6 million for the

   years ended December 31, 2016, 2015 and 2014, respectively

 

 

 

 

(468

)

 

 

4,661

 

 

 

2,988

 

Income (loss) from discontinued operations, net of income taxes

 

 

 

$

(468

)

 

$

3,709

 

 

$

(17,642

)

 

*

Includes Lawn and Garden operating results through February 17, 2015.

**

Includes WEK operating results through June 20, 2014.

Net Income (Loss) Per Common Share
Net Income (Loss) Per Common Share

6.  Net Income (Loss) Per Common Share

Net income (loss) per common share, as shown on the accompanying Consolidated Statements of Operations, is determined on the basis of the weighted average number of common shares outstanding during the periods as follows:

 

 

For the Year Ended December 31,

 

 

2016

 

 

2015

 

 

2014

 

Weighted average common shares outstanding basic

 

29,750,378

 

 

 

30,616,485

 

 

 

32,232,965

 

Dilutive effect of stock options and restricted stock

 

217,534

 

 

 

327,208

 

 

 

471,047

 

Weighted average common shares outstanding diluted

 

29,967,912

 

 

 

30,943,693

 

 

 

32,704,012

 

 

Options to purchase 551,761, 463,200 and 198,500 shares of common stock that were outstanding at December 31, 2016, 2015 and 2014, respectively, were not included in the computation of diluted earnings per share as the exercise prices of these options was greater than the average market price of common shares, and were therefore anti-dilutive.

Restructuring
Restructuring

7.  Restructuring

The charges related to various restructuring programs implemented by the Company are included in selling, general and administrative (“SG&A”) expenses and cost of sales depending on the type of cost incurred. The restructuring charges recognized in the years ended 2015 and 2014 are presented in the following table.  There were no restructuring charges in the year ended 2016.

 

 

 

2015

 

 

2014

 

Segment

 

Cost of

sales

 

 

SG&A

 

 

Total

 

 

Cost of

sales

 

 

SG&A

 

 

Total

 

Distribution

 

$

 

 

$

124

 

 

$

124

 

 

$

 

 

$

764

 

 

$

764

 

Material Handling

 

 

1,340

 

 

 

912

 

 

 

2,252

 

 

 

189

 

 

 

260

 

 

 

449

 

Corporate

 

 

 

 

 

35

 

 

 

35

 

 

 

 

 

 

 

 

 

 

Total

 

$

1,340

 

 

$

1,071

 

 

$

2,411

 

 

$

189

 

 

$

1,024

 

 

$

1,213

 

 

In 2015, the Material Handling Segment consolidated two manufacturing plants, streamlined Brazilian operations, closed a Canadian branch operation and sold a product line. The Company recorded $2.3 million of restructuring cost for these initiatives, primarily related to severance and moving expenses for equipment and inventory.

 

During 2014, the Distribution Segment closed its Canadian branches operating under the name Myers Tire Supply International.  The restructuring actions included closure, lease cancellation and employee related costs, which amounted to approximately $0.8 million.  Restructuring actions under the plan have been completed.

Also during 2014, the Material Handling Segment restructured its sales and finance organization within several of its businesses.  Restructuring costs of $0.4 million were incurred related to these actions.

Other Accrued Expenses
Other Accrued Expenses

8.  Other Accrued Expenses

As of December 31, 2016 and 2015, the balance in other accrued expenses is comprised of the following:

 

 

 

December 31,

 

 

December 31,

 

 

 

2016

 

 

2015

 

Deposits and amounts due to customers

 

$

2,688

 

 

$

9,351

 

Dividends payable

 

 

4,260

 

 

 

4,190

 

Accrued litigation and professional fees

 

 

452

 

 

 

308

 

Other accrued expenses

 

 

5,683

 

 

 

9,379

 

 

 

$

13,083

 

 

$

23,228

 

 

Stock Compensation
Stock Compensation

9.  Stock Compensation

The Company’s Amended and Restated 2008 Incentive Stock Plan (the “2008 Plan”) authorizes the Compensation Committee of the Board of Directors to issue up to 4,000,000 shares of various types of stock based awards including stock options, restricted stock, restricted stock units and stock appreciation rights to key employees and directors. Options granted and outstanding vest over the requisite service period and expire ten years from the date of grant.

The following tables summarize stock option activity in the past three years:

Options granted in 2016, 2015, and 2014:

 

Year

 

Options

 

 

Exercise

Price

 

2016

 

 

271,350

 

 

$

11.62

 

2015

 

 

208,200

 

 

$

18.67

 

2014

 

 

209,500

 

 

$

20.93

 

 

Options exercised in 2016, 2015, and 2014:

 

Year

 

Options

 

 

Exercise

Price

2016

 

 

334,836

 

 

$9.00 to $14.77

2015

 

 

239,508

 

 

$9.97 to $17.02

2014

 

 

228,064

 

 

$9.97 to $17.02

 

In addition, options totaling 162,565, 71,567 and 43,252 expired or were forfeited during the years ended December 31, 2016, 2015 and 2014, respectively.

Options outstanding and exercisable at December 31, 2016, 2015, and 2014 were as follows:

 

Year

 

Outstanding

 

 

Range of Exercise

Prices

 

Exercisable

 

 

Weighted Average

Exercise Price

 

2016

 

 

1,183,830

 

 

$9.97 to $20.93

 

 

934,898

 

 

$

14.88

 

2015

 

 

1,409,881

 

 

$9.00 to $20.93

 

 

1,231,544

 

 

$

13.47

 

2014

 

 

1,512,756

 

 

$9.00 to $20.93

 

 

1,066,219

 

 

$

11.58

 

 

Stock compensation expense was approximately $3,357, $4,934 and $3,115 for the years ended December 31, 2016, 2015 and 2014, respectively. These expenses are included in selling, general and administrative expenses in the accompanying Consolidated Statements of Operations. Total unrecognized compensation cost related to non-vested share based compensation arrangements at December 31, 2016 was approximately $4,119 which will be recognized over the next three years, as such compensation is earned.

The fair value of options granted is estimated using an option pricing model based on assumptions set forth in the following table. The Company uses historical data to estimate employee exercise and departure behavior. The risk free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant and through the expected term. The dividend yield rate is based on the Company’s historical dividend yield. The expected volatility is derived from historical volatility of the Company’s shares and those of similar companies measured against the market as a whole. In 2016, 2015 and 2014, the Company used the binomial lattice option pricing model based on assumptions set forth in the following table.

 

 

2016

 

 

2015

 

 

2014

 

Risk free interest rate

 

1.80

%

 

 

2.10

%

 

 

2.80

%

Expected dividend yield

 

4.60

%

 

 

2.90

%

 

 

2.50

%

Expected life of award (years)

8.00

 

 

 

8.00

 

 

 

7.00

 

Expected volatility

 

50.00

%

 

 

50.00

%

 

 

50.00

%

Fair value per option

$

3.45

 

 

$

6.03

 

 

$

7.05

 

 

The following table provides a summary of stock option activity for the period ended December 31, 2016:

 

 

 

Shares

 

 

Average

Exercise

Price

 

 

Weighted

Average

Life (in Years)

 

Outstanding at December 31, 2015

 

 

1,409,881

 

 

$

14.12

 

 

 

 

 

Options granted

 

 

271,350

 

 

 

11.62

 

 

 

 

 

Options exercised

 

 

(334,836

)

 

 

9.66

 

 

 

 

 

Canceled or forfeited

 

 

(70,965

)

 

 

15.37

 

 

 

 

 

Expired

 

 

(91,600

)

 

 

17.05

 

 

 

 

 

Outstanding at December 31, 2016

 

 

1,183,830

 

 

 

14.50

 

 

 

6.20

 

Exercisable at December 31, 2016

 

 

934,898

 

 

$

14.88

 

 

 

5.47

 

 

The intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise price of the option. The intrinsic value of stock options exercised in 2016, 2015 and 2014 was $1,809, $1,151 and $1,744, respectively.

The following table provides a summary of combined restricted stock units and restricted stock activity for the year ended December 31, 2016:

 

 

 

Shares

 

 

Average

Grant-Date

Fair Value

 

Unvested shares at December 31, 2015

 

 

229,390

 

 

 

 

 

Granted

 

 

247,594

 

 

$

11.85

 

Vested

 

 

(115,241

)

 

 

16.19

 

Forfeited

 

 

(30,333

)

 

 

14.69

 

Unvested shares at December 31, 2016

 

 

331,410

 

 

 

 

 

 

Restricted stock units are rights to receive shares of common stock, subject to forfeiture and other restrictions, which vest over a two or three year period. Restricted shares are considered to be non-vested shares under the accounting guidance for share-based payment and are not reflected as issued and outstanding shares until the restrictions lapse. At that time, the shares are released to the grantee and the Company records the issuance of the shares. Restricted stock awards are valued based on the market price of the underlying shares on the grant date. Compensation expense is recognized on a straight-line basis over the requisite service period. At December 31, 2016, restricted stock awards had vesting periods up through December 2019.

 

Included in the 2016 grants are 91,700 performance-based restricted stock units. The fair value of these awards is calculated using the market price of the underlying common stock on the date of grant. In determining fair value, the Company does not take into account performance-based vesting requirements. For these awards, the performance-based vesting requirements determines the number of shares that ultimately vest, which can vary from 0% to 200% of target depending on the level of achievement of established performance criteria. Compensation expense is recognized over the requisite service period subject to adjustment based on the probable number of shares expected to vest under the performance condition.

Contingencies
Contingencies

10.  Contingencies

The Company is a defendant in various lawsuits and a party to various other legal proceedings, in the ordinary course of business, some of which are covered in whole or in part by insurance. We believe that the outcome of these lawsuits and other proceedings will not individually or in the aggregate have a future material adverse effect on our consolidated financial position, results of operations or cash flows.

New Idria Mercury Mine

In September 2015, the U.S. Environmental Protection Agency (“EPA”) formally informed a subsidiary of the Company, Buckhorn, Inc. (“Buckhorn”) via a notice letter and related documents (the “Notice Letter”) that it considers Buckhorn to be a potentially responsible party (“PRP”) in connection with the New Idria Mercury Mine site (“New Idria Mine”).  New Idria Mining & Chemical Company (“NIMCC”), which owned and/or operated the New Idria Mine through 1976 was merged into Buckhorn Metal Products Inc. in 1981, which was subsequently acquired by Myers Industries in 1987.  As a result of the EPA Notice Letter, Buckhorn and the Company are engaged in negotiations with the EPA with respect to a draft Administrative Order proposed by the EPA for the Remedial Investigation/Feasibility Study (“RI/FS”) to determine the extent of remediation necessary and the screening of alternatives.  The New Idria Mine is located near Hollister, California and was added to the Superfund National Priorities List by the EPA in October 2011, at which time the Company recognized expense of $1.9 million related to performing the RI/FS.   In the second quarter of 2016, the Company, based on discussions with the EPA, determined that the RI/FS will begin in 2017 and therefore obtained updated estimated costs to perform the RI/FS.  As a result of the updated estimated costs, the Company recorded additional expense of $1.0 million in the second quarter of 2016.  As part of the Notice Letter, the EPA also made a claim for approximately $1.6 million in past costs for actions it claims it has taken in connection with the New Idria Mine since 1993.  While the Company is challenging these past cost claims, in 2015 the Company recognized expense of $1.3 million related to these past claims.  

As of December 31, 2016 and 2015, the Company has a total reserve of $2.5 million and $2.0 million, respectively, related to the New Idria Mine.  As of December 31, 2016, $0.3 million is classified in Other Current Liabilities and $2.2 million is classified in Other Liabilities on the Consolidated Statements of Financial Position.

As negotiations with the EPA proceed it is possible that adjustments to the aforementioned reserves will be necessary to reflect new information. Estimates of the Company’s liability are based on current facts, laws, regulations and technology. Estimates of the Company’s environmental liabilities are further subject to uncertainties regarding the negotiations with EPA, the nature and extent of site contamination, the range of remediation alternatives available, evolving remediation standards, imprecise engineering evaluation and cost estimates, the extent of remedial actions that may be required, the number and financial condition of other PRPs that may be named as well as the extent of their responsibility for the remediation, and the availability of insurance coverage for these expenses.

At this time, we have not accrued for remediation costs in connection with this site as we are unable to estimate the liability, given the circumstances referred to above, including the fact the final remediation strategy has not yet been determined.

New Almaden Mine (formerly referred to as Guadelupe River Watershed)

A number of parties, including the Company and its subsidiary, Buckhorn (as successor to NIMCC), were alleged by trustee agencies of the United States and the State of California to be responsible for natural resource damages due to environmental contamination of areas comprising the historical New Almaden mercury mines located in the Guadalupe River Watershed region in Santa Clara County, California (“County”). In 2005, Buckhorn and the Company, without admitting liability or chain of ownership of NIMCC, resolved the trustees’ claim against them through a consent decree that required them to contribute financially to the implementation by the County of an environmentally beneficial project within the impacted area.  Buckhorn and the Company negotiated an agreement with the County, whereby Buckhorn and the Company agreed to reimburse one-half of the County’s original cost estimate of $1.6 million of implementing the project. As a result, in 2005, the Company recognized expense of $0.8 million representing its share of the initial estimated project costs, of which approximately $0.5 million has been paid to date. In April 2016, the Company was notified by the County that the original cost estimate may no longer be appropriate due to expanded scope and increased costs of construction and provided a revised estimate of between $3.3 million and $4.4 million.  The Company completed a detailed review of the support provided by the County for the revised estimate and as a result, recognized additional expense of $1.2 million during the year ended December 31, 2016.  As of December 31, 2016, the Company has a total reserve of $1.5 million related to the New Almaden Mine, of which $0.2 million is classified in Other Current Liabilities and $1.3 million is classified in Other Liabilities on the Consolidated Statements of Financial Position.  

The project has not yet been implemented though significant work on design and planning has been performed. Field work on the project is expected to commence in 2017.  As work on the project occurs, it is possible that adjustments to the aforementioned reserves will be necessary to reflect new information.  In addition, the Company may have claims against and defenses to claims by the County under the 2005 agreement that could reduce or offset its obligation for reimbursement of some of these potential additional costs. With the assistance of environmental consultants, the Company will closely monitor this matter and will continue to assess its reserves as additional information becomes available.

Lawn and Garden Indemnification Claim

In connection with the sale of the Lawn and Garden business, as described in Note 5, the Company received a Notice of Indemnification Claims in April 2015, and a Second Notice of Indemnification Claims in July 2016 (collectively, the “Claims”), alleging breaches of certain representations and warranties under the agreement resulting in losses in the amount of approximately $10 million. The Company believes these Claims are without merit and intends to vigorously defend its position. As described in Note 5, approximately $8.6 million of the sale proceeds that were placed in escrow were due to be settled in August 2016, but has been extended until the Claims are resolved.  

Other

Buckhorn and Schoeller Arca Systems, Inc. (“SAS”) were plaintiffs in a patent infringement lawsuit against Orbis Corp. and Orbis Material Handling, Inc. (“Orbis”) for alleged breach by Orbis of an exclusive patent license agreement from SAS to Buckhorn. SAS is an affiliate of Schoeller Arca Systems Services B.V. (“SASS B.V.”), a Dutch company. SAS manufactures and sells plastic returnable packaging systems for material handling. In the course of the litigation, it was discovered that SAS had given a patent license agreement to a predecessor of Orbis that pre-dated the one that SAS sold to Buckhorn. As a result, judgment was entered in favor of Orbis, and the court awarded attorney fees and costs to Orbis in the amount of $3.1 million, plus interest and costs.

In May 2014, Orbis made demand to SAS that SAS pay the judgment in full, and subsequently in July 2014, Orbis made the same demand to Buckhorn. Buckhorn believed it was not responsible for any of the judgment because it was not a party to the Orbis license. Despite this belief, the Company recorded expense of $3.0 million during the third quarter of 2014 for the entire amount of the unpaid judgment. The United States Court of Appeals for the Federal Circuit reversed the judgment against Buckhorn on July 2, 2015, and found that Buckhorn was not liable to Orbis for any portion of the judgment entered in favor of Orbis. Accordingly, Myers reversed the accrual of $3.0 million during the second quarter of 2015, which was reflected as a reduction of general and administrative expenses in the accompanying Consolidated Statements of Operations. The Federal Circuit Court of Appeals rejected Orbis' petition for rehearing and rehearing en banc. All opportunities for Orbis to appeal have expired. The United States District Court for the Southern District of Ohio has now released Buckhorn’s appellate bond. Buckhorn was also pursuing legal action against SAS and SASS B.V. for fraudulently selling an exclusive patent license they could not sell and related claims. In 2016, the Company settled with SAS and SASS B.V. in return for a payment to the Company of $0.2 million, which was recorded as a reduction in general and administrative expenses in the Consolidated Statements of Operations. 

When a loss arising from these matters is probable and can reasonably be estimated, we record the amount of the estimated loss, or the minimum estimated liability when the loss is estimated using a range, and no point within the range is more probable of occurrence than another. As additional information becomes available, any potential liability related to these matters will be assessed and the estimates will be revised, if necessary.

Based on current available information, management believes that the ultimate outcome of these matters will not have a material adverse effect on our financial position, cash flows or overall trends in our results of operations. However, these matters are subject to inherent uncertainties, and unfavorable rulings could occur. If an unfavorable ruling were to occur, there exists the possibility of a material adverse impact on the financial position and results of operations of the period in which the ruling occurs, or in future periods.

Long-Term Debt and Loan Agreements
Long-Term Debt and Loan Agreements

11.  Long-Term Debt and Loan Agreements

Long-term debt at December 31, 2016 and 2015 consisted of the following:

 

 

 

December 31,

 

 

December 31,

 

 

 

2016

 

 

2015

 

Loan Agreement

 

$

90,686

 

 

$

93,512

 

4.67% Senior Unsecured Notes due 2021

 

 

40,000

 

 

 

40,000

 

5.25% Senior Unsecured Notes due 2024

 

 

11,000

 

 

 

11,000

 

5.30% Senior Unsecured Notes due 2024

 

 

29,000

 

 

 

29,000

 

5.45% Senior Unsecured Notes due 2026

 

 

20,000

 

 

 

20,000

 

 

 

 

190,686

 

 

 

193,512

 

Less unamortized deferred financing costs

 

 

1,164

 

 

 

1,631

 

 

 

$

189,522

 

 

$

191,881

 

 

On May 30, 2014, the Company entered into a First Amendment to the Fourth Amended and Restated Loan Amendment (the "Loan Amendment"). The Loan Amendment provided for a $300 million senior revolving credit facility expiring in December 2018. Amounts borrowed under the Loan Amendment are secured by pledges of stock of certain of our foreign and domestic subsidiaries.

Under the terms of the Loan Amendment, the Company may borrow up to $300 million, reduced for letters of credit issued. As of December 31, 2016, the Company had $204.9 million available under the Loan Amendment. The Company had $4.4 million of letters of credit issued related to insurance and other financing contracts in the ordinary course of business at December 31, 2016. Borrowings under the Loan Amendment bear interest at the LIBOR rate, prime rate, federal funds effective rate, the Canadian deposit offered rate, or the eurocurrency reference rate depending on the type of loan requested by the Company, in each case plus the applicable margin as set forth in the Loan Amendment. The average interest rate on borrowings under our loan agreements were 4.69% for 2016 and 4.59% for 2015, which includes a quarterly facility fee on the used and unused portion.

The Company’s Senior Unsecured Notes totaling $100 million range in face value from $11 million to $40 million, with interest rates ranging from 4.67% to 5.45%, payable semiannually, and maturing between 2021 and 2026. At December 31, 2013, the Company had received $11 million of its 5.25% Senior Unsecured Notes due January 15, 2024 under the note purchase agreement. The remaining proceeds of $89 million under the note purchase agreement were subsequently received in January 2014. At December 31, 2016, $100 million was outstanding.

Long-term debt of $189.5 million at December 31, 2016 includes $1.2 million of unamortized deferred financing costs, which is accounted for as a debt valuation account. Amounts outstanding at December 31, 2016 under the Loan Amendment and Senior Unsecured Notes mature in 2018 and 2021 to 2026, respectively.

As of December 31, 2016, the Company was in compliance with all of its debt covenants associated with its Loan Amendment and Senior Unsecured Notes. The most restrictive financial covenants for all of the Company’s debt are an interest coverage ratio (defined as earnings before interest, taxes, depreciation and amortization, as adjusted, divided by interest expense) and a leverage ratio (defined as total debt divided by earnings before interest, taxes, depreciation and amortization, as adjusted). The ratios as of December 31, 2016 are shown in the following table:

 

 

 

Required Level

 

Actual Level

 

Interest Coverage Ratio

 

3.00 to 1 (minimum)

 

 

8.30

 

Leverage Ratio

 

3.25 to 1 (maximum)

 

 

2.88

 

 

Income Taxes
Income Taxes

12.  Income Taxes

The effective tax rate from continuing operations was 80.9% in 2016, 35.7% in 2015 and 36.4% in 2014. A reconciliation of the Federal statutory income tax rate to the Company’s effective tax rate is as follows:

 

 

 

Percent of Income before

Income Taxes

 

 

 

2016

 

 

2015

 

 

2014

 

Statutory Federal income tax rate

 

 

35.0

%

 

 

35.0

%

 

 

35.0

%

State income taxes - net of Federal tax benefit

 

 

7.0

 

 

 

0.2

 

 

 

(4.5

)

Foreign tax rate differential

 

 

(0.7

)

 

 

(2.4

)

 

 

1.8

 

Domestic production deduction

 

 

(7.6

)

 

 

(4.0

)

 

 

(6.6

)

Non-deductible expenses

 

 

6.5

 

 

 

4.9

 

 

 

7.0

 

Asset impairment

 

 

26.0

 

 

 

 

 

 

 

Changes in unrecognized tax benefits

 

 

(1.9

)

 

 

(1.8

)

 

 

(2.5

)

Foreign tax incentives

 

 

(5.0

)

 

 

(2.3

)

 

 

(3.0

)

Valuation allowances

 

 

23.0

 

 

 

4.8

 

 

 

9.0

 

Other

 

 

(1.4

)

 

 

1.3

 

 

 

0.2

 

Effective tax rate for the year

 

 

80.9

%

 

 

35.7

%

 

 

36.4

%

 

Income from continuing operations before income taxes was attributable to the following sources:

 

 

 

2016

 

 

2015

 

 

2014

 

United States

 

$

17,010

 

 

$

19,546

 

 

$

21,074

 

Foreign

 

 

(9,015

)

 

 

2,316

 

 

 

(6,991

)

Totals

 

$

7,995

 

 

$

21,862

 

 

$

14,083

 

 

Income tax expense (benefit) from continuing operations consisted of the following:

 

 

 

2016

 

 

2015

 

 

2014

 

 

 

Current

 

 

Deferred