MYERS INDUSTRIES INC, 10-Q filed on 8/4/2017
Quarterly Report
Document and Entity Information
6 Months Ended
Jun. 30, 2017
Jul. 31, 2017
Document And Entity Information [Abstract]
 
 
Entity Registrant Name
MYERS INDUSTRIES INC 
 
Entity Central Index Key
0000069488 
 
Current Fiscal Year End Date
--12-31 
 
Entity Filer Category
Accelerated Filer 
 
Document Type
10-Q 
 
Document Period End Date
Jun. 30, 2017 
 
Document Fiscal Year Focus
2017 
 
Document Fiscal Period Focus
Q2 
 
Amendment Flag
false 
 
Entity Common Stock, Shares Outstanding
 
30,255,099 
Condensed Consolidated Statements of Operations (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2017
Jun. 30, 2016
Jun. 30, 2017
Jun. 30, 2016
Income Statement [Abstract]
 
 
 
 
Net sales
$ 142,303 
$ 144,117 
$ 284,006 
$ 295,322 
Cost of sales
103,020 
99,581 
202,720 
202,615 
Gross profit
39,283 
44,536 
81,286 
92,707 
Selling, general and administrative expenses
33,159 
32,041 
67,804 
70,538 
Impairment charges
544 
1,329 
544 
9,874 
Operating income
5,580 
11,166 
12,938 
12,295 
Interest expense, net
1,785 
2,053 
3,760 
4,072 
Income from continuing operations before income taxes
3,795 
9,113 
9,178 
8,223 
Income tax expense
1,783 
3,429 
4,038 
5,875 
Income from continuing operations
2,012 
5,684 
5,140 
2,348 
Income (loss) from discontinued operations, net of income tax
(19)
(190)
(33)
(247)
Net income
$ 1,993 
$ 5,494 
$ 5,107 
$ 2,101 
Income per common share from continuing operations:
 
 
 
 
Basic
$ 0.07 
$ 0.19 
$ 0.17 
$ 0.08 
Diluted
$ 0.07 
$ 0.19 
$ 0.17 
$ 0.08 
Income (loss) per common share from discontinued operations:
 
 
 
 
Basic
$ 0.00 
$ (0.01)
$ 0.00 
$ (0.01)
Diluted
$ 0.00 
$ (0.01)
$ 0.00 
$ (0.01)
Net income per share:
 
 
 
 
Basic
$ 0.07 
$ 0.18 
$ 0.17 
$ 0.07 
Diluted
$ 0.07 
$ 0.18 
$ 0.17 
$ 0.07 
Dividends declared per share
$ 0.14 
$ 0.14 
$ 0.27 
$ 0.27 
Condensed Consolidated Statements of Comprehensive Income (Loss) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2017
Jun. 30, 2016
Jun. 30, 2017
Jun. 30, 2016
Statement Of Income And Comprehensive Income [Abstract]
 
 
 
 
Net income
$ 1,993 
$ 5,494 
$ 5,107 
$ 2,101 
Other comprehensive income
 
 
 
 
Foreign currency translation adjustment
210 
1,917 
1,111 
6,832 
Total other comprehensive income
210 
1,917 
1,111 
6,832 
Comprehensive income
$ 2,203 
$ 7,411 
$ 6,218 
$ 8,933 
Condensed Consolidated Statements of Financial Position (USD $)
In Thousands, unless otherwise specified
Jun. 30, 2017
Dec. 31, 2016
Current Assets
 
 
Cash
$ 4,673 
$ 7,888 
Restricted cash
8,642 
8,635 
Accounts receivable, less allowances of $1,555 and $1,563, respectively
79,220 
73,818 
Inventories
 
 
Finished and in-process products
32,108 
31,826 
Raw materials and supplies
16,176 
14,197 
Inventory net
48,284 
46,023 
Prepaid expenses and other current assets
3,722 
4,787 
Total Current Assets
144,541 
141,151 
Other Assets
 
 
Goodwill
59,592 
59,219 
Intangible assets, net
44,039 
47,994 
Deferred income taxes
247 
216 
Notes receivable
18,536 
18,275 
Other
9,825 
3,347 
Total other non current assets
132,239 
129,051 
Property, Plant and Equipment, at Cost
 
 
Land
7,877 
8,916 
Buildings and leasehold improvements
60,261 
65,566 
Machinery and equipment
305,031 
319,606 
Property, Plant and Equipment, at cost
373,169 
394,088 
Less allowances for depreciation and amortization
(279,143)
(282,606)
Property, plant and equipment, net
94,026 
111,482 
Total Assets
370,806 
381,684 
Current Liabilities
 
 
Accounts payable
54,650 
48,988 
Accrued expenses
 
 
Employee compensation
14,408 
11,861 
Income taxes
1,154 
Taxes, other than income taxes
1,916 
2,178 
Accrued interest
3,035 
3,202 
Other current liabilities
12,550 
13,083 
Total Current Liabilities
87,712 
79,312 
Long-term debt
170,114 
189,522 
Other liabilities
7,726 
9,235 
Deferred income taxes
10,442 
10,582 
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 30,252,632 and 30,019,561; net of treasury shares of 7,699,825 and 7,932,896, respectively)
18,388 
18,234 
Additional paid-in capital
205,715 
202,033 
Accumulated other comprehensive loss
(33,063)
(34,174)
Retained deficit
(96,228)
(93,060)
Total Shareholders’ Equity
94,812 
93,033 
Total Liabilities and Shareholders’ Equity
$ 370,806 
$ 381,684 
Condensed Consolidated Statements of Financial Position (Parenthetical) (USD $)
In Thousands, except Share data, unless otherwise specified
Jun. 30, 2017
Dec. 31, 2016
Current Assets
 
 
Allowances for accounts receivable
$ 1,555 
$ 1,563 
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)
30,252,632 
30,019,561 
Common shares, treasury (in shares)
7,699,825 
7,932,896 
Condensed Consolidated Statement of Shareholders' Equity (USD $)
In Thousands, unless otherwise specified
Total
Common Shares [Member]
Additional Paid-In Capital [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Retained Deficit [Member]
Beginning balance at Dec. 31, 2016
$ 93,033 
$ 18,234 
$ 202,033 
$ (34,174)
$ (93,060)
Stockholders' Equity [Roll Forward]
 
 
 
 
 
Net income
5,107 
5,107 
Foreign currency translation adjustment
1,111 
1,111 
Shares issued under incentive plans, net of shares withheld for tax
1,728 
136 
1,592 
Stock compensation expense
2,108 
18 
2,090 
Declared dividends - $0.27 per share
(8,275)
(8,275)
Ending balance at Jun. 30, 2017
$ 94,812 
$ 18,388 
$ 205,715 
$ (33,063)
$ (96,228)
Condensed Consolidated Statement of Shareholders' Equity (Parenthetical)
6 Months Ended
Jun. 30, 2017
Dividends declared per share (in dollars per share)
$ 0.27 
Retained Deficit [Member]
 
Dividends declared per share (in dollars per share)
$ 0.27 
Condensed Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
6 Months Ended
Jun. 30, 2017
Jun. 30, 2016
Cash Flows From Operating Activities
 
 
Net income
$ 5,107 
$ 2,101 
Income (loss) from discontinued operations, net of income tax
(33)
(247)
Income from continuing operations
5,140 
2,348 
Adjustments to reconcile income from continuing operations to net cash provided by (used for) operating activities
 
 
Depreciation
11,755 
12,283 
Amortization
4,572 
4,981 
Accelerated depreciation associated with restructuring activities
1,929 
Non-cash stock-based compensation expense
1,817 
2,064 
(Gain) loss on fixed asset sales
(1,365)
Deferred taxes
101 
(1,354)
Excess tax benefit from stock-based compensation
Accrued interest income on note receivable
(654)
(628)
Impairment charges
544 
9,874 
Other
132 
(273)
Payments on performance based compensation
(992)
(1,794)
Other long-term liabilities
(204)
(726)
Cash flows provided by (used for) working capital
 
 
Accounts receivable
(4,957)
1,623 
Inventories
(2,132)
(12)
Prepaid expenses and other current assets
835 
2,475 
Accounts payable and accrued expenses
7,113 
(33,938)
Net cash provided by (used for) operating activities - continuing operations
23,634 
(3,072)
Net cash provided by (used for) operating activities - discontinued operations
Net cash provided by (used for) operating activities
23,634 
(3,072)
Cash Flows From Investing Activities
 
 
Capital expenditures
(2,345)
(10,565)
Proceeds from sale of property, plant and equipment
1,920 
178 
Proceeds (payments) related to sale of business
(4,034)
Net cash provided by (used for) investing activities - continuing operations
(425)
(14,421)
Net cash provided by (used for) investing activities - discontinued operations
Net cash provided by (used for) investing activities
(425)
(14,421)
Cash Flows From Financing Activities
 
 
Net borrowing (repayments) on credit facility
(18,942)
23,838 
Cash dividends paid
(8,147)
(8,112)
Proceeds from issuance of common stock
2,001 
610 
Excess tax benefit from stock-based compensation
(5)
Shares withheld for employee taxes on equity awards
(273)
(617)
Deferred financing costs
(1,030)
Net cash provided by (used for) financing activities - continuing operations
(26,391)
15,714 
Net cash provided by (used for) financing activities - discontinued operations
Net cash provided by (used for) financing activities
(26,391)
15,714 
Foreign exchange rate effect on cash
(33)
934 
Net increase (decrease) in cash
(3,215)
(845)
Cash at January 1
7,888 
7,344 
Cash at June 30
$ 4,673 
$ 6,499 
Summary of Significant Accounting Policies
Summary of Significant Accounting Policies

1.  Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of Myers Industries, Inc. and all wholly owned subsidiaries (collectively, the “Company”), and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures are adequate to make the information not misleading. These interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2016.

In the opinion of the Company, the accompanying condensed consolidated financial statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly the financial position as of June 30, 2017, and the results of operations and cash flows for the periods presented. The results of operations for the three and six months ended June 30, 2017 are not necessarily indicative of the results of operations that will occur for the year ending December 31, 2017.

Accounting Standards Adopted

In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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. The Company adopted this ASU effective January 1, 2017 and elected to recognize forfeitures as they occur. The cash flow classification requirements of ASU 2016-09 were applied prospectively. The adoption of this ASU did not have a material impact on the Company’s results of operations, cash flows or financial position.

Accounting Standards Not Yet Adopted

In March 2017, the FASB issued ASU 2017-07, Compensation – Retirement Benefits (Topic 715) – Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.  This ASU requires that an employer report the service cost component in the same line item(s) as other compensation costs arising from services rendered by the pertinent employees during the period.  The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented.  The ASU also allows only the service cost component to be eligible for capitalization when applicable. The ASU is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods.  The ASU should be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement and prospectively, on and after the effective date, for the capitalization of the service cost component of net periodic pension cost and net periodic postretirement benefit in assets.  The Company does not anticipate that adoption of this standard will have an impact on its consolidated financial statements as the pension plan is frozen.

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 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 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. Additional disclosures will also be required to help users of financial statements understand the nature, amount, and timing of revenue and cash flows arising from contracts. The new guidance 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 under the modified retrospective approach and has developed an implementation plan. As part of this plan, the Company has identified its revenue streams and substantially completed its initial contract review for each of these revenue streams to assess the impact of the new guidance on its results of operations. This assessment included the potential impact of whether revenue from certain product lines would be required to be recognized over time rather than at a point in time. The next phase of the implementation plan will be to update and finalize this contract review and to design and implement any changes to processes or controls necessary for adoption of the new standard. In addition, the Company is assessing what incremental disaggregated revenue disclosures will be required in the Consolidated Financial Statements.

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 the 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 Agreement, as defined in Note 11, 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 June 30, 2017 and December 31, 2016, the aggregate fair value of the Company's $100.0 million fixed rate senior unsecured notes was estimated at $101.3 million and $98.0 million, 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 the quarter ended June 30, 2017, approximately $1.3 million of trade accounts receivables had been sold under the terms of the factoring agreement for cash proceeds of $1.2 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 Condensed Consolidated Statements of Cash Flows (Unaudited). The Company pays an administrative fee based on the dollar value of the receivables sold. Administrative fees related to the program for the three months ended June 30, 2017 were approximately $0.1 million. These fees are included in Selling, General and Administrative expenses in the accompanying Condensed Consolidated Statements of Operations (Unaudited).

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) are as follows:

 

 

 

Foreign

Currency

 

 

Defined Benefit

Pension Plans

 

 

Total

 

Balance at January 1, 2017

 

$

(32,342

)

 

$

(1,832

)

 

$

(34,174

)

Other comprehensive income before reclassifications

 

 

1,111

 

 

 

 

 

 

1,111

 

Net current-period other comprehensive income

 

 

1,111

 

 

 

 

 

 

1,111

 

Balance at June 30, 2017

 

$

(31,231

)

 

$

(1,832

)

 

$

(33,063

)

 

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.

Impairment Charges
Impairment Charges

2.  Impairment Charges

During the second quarter of 2017, an underutilized building at the Company’s Scarborough, Ontario, Canada location, in the Material Handling Segment, was identified for closure and classified as held for sale as of June 30, 2017, in Other Assets in the Condensed Consolidated Statements of Financial Position (Unaudited). This building has been recorded at its fair value, less estimated costs to sell, of $3.1 million (based primarily on a third party offer considered to be a Level 2 input), which resulted in an impairment charge of approximately $0.5 million recognized in the second quarter of 2017.

During the first quarter of 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. During the first quarter of 2016, a step two analysis was performed 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, which was reported in Impairment Charges in the Condensed Consolidated Statements of Operations (Unaudited) in the first half of 2016.  

During the second quarter of 2016, the Company 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.

Discontinued Operations
Discontinued Operations

3.  Discontinued Operations

On February 17, 2015, the Company sold its Lawn and Garden business 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 with 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 indemnification claims are resolved, as described in Note 10.  The fair market value of the notes at February 17, 2015 was $17.8 million and is included in Notes Receivable in the accompanying Condensed Consolidated Statements of Financial Position (Unaudited), in which the carrying value of $18.5 million represents the fair value at the date of sale plus accretion as of June 30, 2017. 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 the first half of 2016.

 

Restructuring
Restructuring

4.  Restructuring

On March 9, 2017, the Company announced a restructuring plan (the “Plan”) to improve the Company’s organizational structure and operational efficiency within the Material Handling Segment, which related primarily to anticipated facility shutdowns and associated activities.  Total restructuring costs expected to be incurred are approximately $8.7 million, which includes employee severance and other employee-related costs of approximately $3.6 million, $2.5 million related to equipment relocation and facility shut down costs and non-cash charges, primarily accelerated depreciation charges on property, plant and equipment, of approximately $2.6 million.  The Company expects to incur approximately $3.6 million during the second half of 2017 under the Plan, as all remaining actions under the Plan are expected to be substantially completed by the end of the year.

During the three and six months ended June 30, 2017, the Company recognized gains of $0.6 million and $1.3 million, respectively, on asset dispositions in connection with closing a manufacturing plant in Bluffton, Indiana.  Restructuring charges related to this plant were $3.3 million and $4.4 million for the three and six months ended June 30, 2017, respectively, and were included in Cost of Sales in the accompanying Condensed Consolidated Statements of Operations (Unaudited). In addition, the Bluffton facility and certain related equipment have been classified as held for sale as of June 30, 2017, and reflected at their net book value of approximately $3.4 million in Other Assets in the Condensed Consolidated Statements of Financial Position (Unaudited).  Based on a preliminary sales agreement with a third party entered into in July 2017, the expected net proceeds of the sale exceed the net book value, and thus, no impairment of these assets has been recorded.  

In the second quarter of 2017, the Company finalized the specific actions to be taken under the Plan to reduce headcount in its Scarborough, Ontario, Canada location.  These actions resulted in the recognition of $0.7 million of severance and related costs, which were included in Cost of Sales in the accompanying Condensed Consolidated Statements of Operation (Unaudited).

The table below summarizes restructuring activity for the six months ended June 30, 2017:

 

 

 

Employee Reduction

 

 

Accelerated Depreciation

 

 

Other Exit Costs

 

 

Total

 

Balance at January 1, 2017

 

$

 

 

$

 

 

$

 

 

$

 

Charges to expense

 

 

1,688

 

 

 

1,929

 

 

 

1,442

 

 

 

5,059

 

Cash payments

 

 

(48

)

 

 

 

 

 

(971

)

 

 

(1,019

)

Non-cash utilization

 

 

 

 

 

(1,929

)

 

 

 

 

 

(1,929

)

Balance at June 30, 2017

 

$

1,640

 

 

$

 

 

$

471

 

 

$

2,111

 

 

In addition to the restructuring costs noted above, the Company has also incurred other associated costs of the Plan of $0.2 million and $0.7 million for the three and six months ended June 30, 2017, respectively, which are included in Selling, General and Administrative expenses in the accompanying Condensed Consolidated Statements of Operation (Unaudited), and are primarily related to third party consulting costs.  Additional estimated costs of $0.5 million are expected to be incurred throughout the remainder of 2017.

Inventories
Inventories

5.  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. An actual valuation of inventory under the LIFO method can be made only at the end of each year based on inventory levels and costs at that time. Accordingly, interim LIFO calculations must necessarily be based on management’s estimates of expected year-end inventory levels and costs. Because these are based on estimates, interim results, which were immaterial, are subject to change in the final year-end LIFO inventory valuation and therefore, no adjustment was recorded as of June 30, 2017, as consistent with prior interim reporting periods.

Other Accrued Expenses
Other Accrued Expenses

6.  Other Accrued Expenses

The balance in other accrued expenses is comprised of the following:

 

 

 

June 30,

 

 

December 31,

 

 

 

2017

 

 

2016

 

Deposits and amounts due to customers

 

$

2,597

 

 

$

2,688

 

Dividends payable

 

 

4,389

 

 

 

4,260

 

Accrued litigation and professional fees

 

 

514

 

 

 

452

 

Other accrued expenses

 

 

5,050

 

 

 

5,683

 

 

 

$

12,550

 

 

$

13,083

 

 

Goodwill and Intangible Assets
Goodwill and Intangible Assets

7.  Goodwill and Intangible Assets

The change in goodwill for the six months ended June 30, 2017 was as follows:

 

 

 

Distribution

 

 

Material

Handling

 

 

Total

 

January 1, 2017

 

$

505

 

 

$

58,714

 

 

$

59,219

 

Foreign currency translation

 

 

 

 

 

373

 

 

 

373

 

June 30, 2017

 

$

505

 

 

$

59,087

 

 

$

59,592

 

 

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 has indefinite-lived trade names which had a carrying value of $10.9 million at both June 30, 2017 and December 31, 2016.

 

See Note 2 for discussion of goodwill, trade names and other long-lived asset impairment charges in the first half of 2016.

Net Income (Loss) per Common Share
Net Income (Loss) per Common Share

8.  Net Income (Loss) per Common Share

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

 

 

 

For the Three Months Ended June 30,

 

 

For the Six Months Ended June 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Weighted average common shares outstanding basic

 

 

30,154,965

 

 

 

29,623,177

 

 

 

30,097,638

 

 

 

29,586,708

 

Dilutive effect of stock options and restricted stock

 

 

317,671

 

 

 

466,397

 

 

 

297,779

 

 

 

426,131

 

Weighted average common shares outstanding diluted

 

 

30,472,636

 

 

 

30,089,574

 

 

 

30,395,417

 

 

 

30,012,839

 

 

Options to purchase 281,700 shares of common stock that were outstanding for the three and six months ended June 30, 2017, and 648,084 and 780,751 for the three and six months ended June 30, 2016, respectively, were not included in the computation of diluted earnings per share as the exercise prices of these options were greater than the average market price of common shares, and were therefore anti-dilutive.

Stock Compensation
Stock Compensation

9.  Stock Compensation

Subject to shareholder approval, which was received on April 26, 2017, the Board of Directors approved the Company’s Amended and Restated 2017 Incentive Stock Plan (the “2017 Plan”) on March 2, 2017. The 2017 Plan authorizes the Compensation Committee of the Board of Directors to issue up to 5,126,950 shares of various stock awards including stock options, performance stock units, restricted stock units and other forms of equity-based awards to key employees and directors. Options granted and outstanding vest over the requisite service period and expire ten years from the date of grant.

In March 2017, the Company granted 397,759 stock options with a weighted average exercise price of $14.30 and a weighted average fair value of $4.47. The fair value of options granted is estimated using a binomial lattice option pricing model. Also in March 2017, the Company granted 87,887 and 140,746 time-based and performance-based restricted stock units, respectively, with a weighted average fair value of $14.30. There were no stock-based awards granted in the second quarter of 2017.

Stock compensation expense was approximately $0.9 million and $0.8 million for the three months ended June 30, 2017 and 2016, respectively, and $1.8 million and $2.1 million for the six months ended June 30, 2017 and 2016, respectively. These expenses are included in Selling, General and Administrative expenses in the accompanying Condensed Consolidated Statements of Operations (Unaudited). Total unrecognized compensation cost related to non-vested stock-based compensation arrangements at June 30, 2017 was approximately $7.7 million, which will be recognized over the next three years, as such compensation is earned.

 

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.

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 would 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.  In the second quarter of 2017, the Company, based on the status of its discussions with the EPA, determined that field work on the RI/FS will likely begin in 2018 with no changes to the cost estimates to perform the RI/FS.  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 claims.  

As of June 30, 2017, the Company has a total reserve of $2.4 million related to the New Idria Mine, of which $0.3 million is classified in Other Current Liabilities and $2.1 million is classified in Other Liabilities on the Condensed Consolidated Statements of Financial Position (Unaudited).

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 that the final remediation strategy has not yet been determined.

New Almaden Mine

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 in the second and third quarters of 2016.  As of June 30, 2017, 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 Condensed Consolidated Statements of Financial Position (Unaudited).  

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 2018.  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 3, 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. As described in Note 3, approximately $8.6 million of the sale proceeds were placed in escrow and due to be settled in August 2016, but have been extended until the Claims are resolved. The Company believes these Claims are without merit and intends to vigorously defend its position.

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 consisted of the following:

 

 

 

June 30,

 

 

December 31,

 

 

 

2017

 

 

2016

 

Loan Agreement

 

$

72,001

 

 

$

90,686

 

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

 

 

 

 

172,001

 

 

 

190,686

 

Less unamortized deferred financing costs

 

 

1,887

 

 

 

1,164

 

 

 

$

170,114

 

 

$

189,522

 

 

In March 2017, the Company entered into a Fifth Amended and Restated Loan Agreement (the “Loan Agreement”).  The Loan Agreement replaced the pre-existing $300 million senior revolving credit facility with a $200 million facility and extended the term from December 2018 to March 2022.  In addition, the Loan Agreement provides for a maximum Leverage Ratio of 3.75 for the first and second quarters of 2017, stepping down to 3.5 in the third quarter of 2017, and 3.25 thereafter.

Under the terms of the Loan Agreement, the Company may borrow up to $200.0 million, reduced for letters of credit issued. As of June 30, 2017, the Company had $123.6 million available under the Loan Agreement. 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 June 30, 2017. Borrowings under the Loan Agreement bear interest at the LIBOR rate, prime rate, federal funds effective rate, the Canadian deposit offered rate, or the euro currency reference rate depending on the type of loan requested by the Company, plus the applicable margin as set forth in the Loan Agreement. The average interest rate on borrowings under our loan agreements were 4.87% and 4.51% for the three months ended June 30, 2017 and 2016, respectively, and 4.99% and 4.58% for the six months ended June 30, 2017 and 2016, respectively, which includes a quarterly facility fee on the used and unused portion.

 

Retirement Plans
Retirement Plans

12.  Retirement Plans

The Company and certain of its subsidiaries have pension and profit sharing plans covering substantially all of their employees. The Company’s frozen defined benefit pension plan (“The Pension Agreement between Akro-Mils and United Steelworkers of America Local No. 1761-02”) provides benefits primarily based upon a fixed amount for each year of service as of the date the plan was frozen.

Net periodic pension cost are as follows:

 

 

 

For the Three Months Ended June 30,

 

 

For the Six Months Ended June 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Interest cost

 

$

63

 

 

$

68

 

 

$

126

 

 

$

136

 

Expected return on assets

 

 

(74

)

 

 

(80

)

 

 

(148

)

 

 

(160

)

Amortization of net loss

 

 

24

 

 

 

21

 

 

 

48

 

 

 

41

 

Net periodic pension cost

 

$

13

 

 

$

9

 

 

$

26

 

 

$

17

 

Company contributions

 

$

 

 

$

 

 

$

 

 

$

 

 

The Company does not expect to make a contribution to the plan in 2017.

 

Income Taxes
Income Taxes

13.  Income Taxes

The Company’s effective tax rate was 47.0% and 44.0% for the three and six months ended June 30, 2017, respectively, compared to 37.6% and 71.4% for the three and six months ended June 30, 2016, respectively.  The effective income tax rate for the first half of 2017 and 2016 was different than the Company’s statutory rate, primarily due to losses in jurisdictions where the tax benefits are not currently recognized.   

The total amount of gross unrecognized tax benefits that would reduce the Company’s effective tax rate was $0.5 million at June 30, 2017 and December 31, 2016. Accrued interest expense included within Accrued Income Taxes in the Company's Condensed Consolidated Statements of Financial Position (Unaudited) was less than $0.1 million at both June 30, 2017 and December 31, 2016.  It is reasonably possible that the Company will recognize tax benefits within the next twelve months in the range of zero to $0.5 million resulting from the possible expiration of certain statutes of limitation.

The Company and its subsidiaries file U.S. Federal, state and local, and non-U.S. income tax returns. As of June 30, 2017, the Company is no longer subject to U.S. Federal examination by tax authorities for tax years before 2013. The Company is subject to state and local examinations for tax years of 2012 through 2016. In addition, the Company is subject to non-U.S. income tax examinations for tax years of 2011 through 2016.

Industry Segments
Industry Segments

14.  Industry Segments

Using the criteria of ASC 280, Segment Reporting, the Company manages its business under two operating segments, Material Handling and Distribution, consistent with the manner in which our Chief Operating Decision Maker (“CODM”) evaluates performance and makes resource allocation decisions. None of the reportable segments include operating segments that have been aggregated.  These segments contain individual business components that have been combined on the basis of common management, customers, products, production processes and other economic characteristics. The Company accounts for intersegment sales and transfers at cost plus a specified mark-up.

The Material Handling Segment manufactures a broad selection of plastic reusable containers, pallets, small parts bins, bulk shipping containers, storage and organization products and rotationally-molded plastic tanks for water, fuel and waste handling. This segment conducts its primary operations in the United States, but also operates in Brazil and Canada. Markets served encompass various niches of industrial manufacturing, food processing, retail/wholesale products distribution, agriculture, automotive, recreational vehicles, marine vehicles, healthcare, appliance, bakery, electronics, textiles, consumer, and others. Products are sold both directly to end-users and through distributors.

The Distribution Segment is engaged in the distribution of equipment, tools, and supplies used for tire servicing and automotive undervehicle repair and the manufacture of tire repair and retreading products. The product line includes categories such as tire valves and accessories, tire changing and balancing equipment, lifts and alignment equipment, service equipment and tools, and tire repair/retread supplies. The Distribution Segment operates domestically through sales offices, and four regional distribution centers in the United States and in foreign countries through export sales. In addition, the Distribution Segment operates directly in certain foreign markets, principally Central America, through foreign branch operations. Markets served include retail and truck tire dealers, commercial auto and truck fleets, auto dealers, general service and repair centers, tire retreaders, and government agencies.

Summarized segment detail for the three and six months ended June 30, 2017 and 2016 are presented in the following table:

 

 

 

For the Three Months Ended June 30,

 

 

For the Six Months Ended June 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Net Sales

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Material Handling

 

$

103,074

 

 

$

100,907

 

 

$

206,254

 

 

$

209,931

 

Distribution

 

 

39,258

 

 

 

43,234

 

 

 

77,832

 

 

 

85,455

 

Inter-company sales

 

 

(29

)

 

 

(24

)

 

 

(80

)

 

 

(64

)

Total net sales

 

$

142,303

 

 

$

144,117

 

 

$

284,006

 

 

$

295,322

 

 

Income (loss) from continuing operations before income taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Material Handling

 

$

7,426

 

 

$

14,333

 

 

$

19,514

 

 

$

21,774

 

Distribution

 

 

3,025

 

 

 

3,966

 

 

 

4,563

 

 

 

6,502

 

Corporate

 

 

(4,871

)

 

 

(7,133

)

 

 

(11,139

)

 

 

(15,981

)

Total operating income

 

 

5,580

 

 

 

11,166

 

 

 

12,938

 

 

 

12,295

 

Interest expense, net

 

 

(1,785

)

 

 

(2,053

)

 

 

(3,760

)

 

 

(4,072

)

Income from continuing operations before income taxes

 

$

3,795

 

 

$

9,113

 

 

$

9,178

 

 

$

8,223

 

 

Summary of Significant Accounting Policies (Policies)

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of Myers Industries, Inc. and all wholly owned subsidiaries (collectively, the “Company”), and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures are adequate to make the information not misleading. These interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2016.

In the opinion of the Company, the accompanying condensed consolidated financial statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly the financial position as of June 30, 2017, and the results of operations and cash flows for the periods presented. The results of operations for the three and six months ended June 30, 2017 are not necessarily indicative of the results of operations that will occur for the year ending December 31, 2017.

Accounting Standards Adopted

In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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. The Company adopted this ASU effective January 1, 2017 and elected to recognize forfeitures as they occur. The cash flow classification requirements of ASU 2016-09 were applied prospectively. The adoption of this ASU did not have a material impact on the Company’s results of operations, cash flows or financial position.

Accounting Standards Not Yet Adopted

In March 2017, the FASB issued ASU 2017-07, Compensation – Retirement Benefits (Topic 715) – Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.  This ASU requires that an employer report the service cost component in the same line item(s) as other compensation costs arising from services rendered by the pertinent employees during the period.  The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented.  The ASU also allows only the service cost component to be eligible for capitalization when applicable. The ASU is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods.  The ASU should be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement and prospectively, on and after the effective date, for the capitalization of the service cost component of net periodic pension cost and net periodic postretirement benefit in assets.  The Company does not anticipate that adoption of this standard will have an impact on its consolidated financial statements as the pension plan is frozen.

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 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 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. Additional disclosures will also be required to help users of financial statements understand the nature, amount, and timing of revenue and cash flows arising from contracts. The new guidance 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 under the modified retrospective approach and has developed an implementation plan. As part of this plan, the Company has identified its revenue streams and substantially completed its initial contract review for each of these revenue streams to assess the impact of the new guidance on its results of operations. This assessment included the potential impact of whether revenue from certain product lines would be required to be recognized over time rather than at a point in time. The next phase of the implementation plan will be to update and finalize this contract review and to design and implement any changes to processes or controls necessary for adoption of the new standard. In addition, the Company is assessing what incremental disaggregated revenue disclosures will be required in the Consolidated Financial Statements.

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 the 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 Agreement, as defined in Note 11, 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 June 30, 2017 and December 31, 2016, the aggregate fair value of the Company's $100.0 million fixed rate senior unsecured notes was estimated at $101.3 million and $98.0 million, 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 the quarter ended June 30, 2017, approximately $1.3 million of trade accounts receivables had been sold under the terms of the factoring agreement for cash proceeds of $1.2 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 Condensed Consolidated Statements of Cash Flows (Unaudited). The Company pays an administrative fee based on the dollar value of the receivables sold. Administrative fees related to the program for the three months ended June 30, 2017 were approximately $0.1 million. These fees are included in Selling, General and Administrative expenses in the accompanying Condensed Consolidated Statements of Operations (Unaudited).

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) are as follows:

 

 

 

Foreign

Currency

 

 

Defined Benefit

Pension Plans

 

 

Total

 

Balance at January 1, 2017

 

$

(32,342

)

 

$

(1,832

)

 

$

(34,174

)

Other comprehensive income before reclassifications

 

 

1,111

 

 

 

 

 

 

1,111

 

Net current-period other comprehensive income

 

 

1,111

 

 

 

 

 

 

1,111

 

Balance at June 30, 2017

 

$

(31,231

)

 

$

(1,832

)

 

$

(33,063

)

 

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.

Summary of Significant Accounting Policies (Tables)
The balances in the Company's accumulated other comprehensive income (loss)

Accumulated Other Comprehensive Income (Loss)

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

 

 

 

Foreign

Currency

 

 

Defined Benefit

Pension Plans

 

 

Total

 

Balance at January 1, 2017

 

$

(32,342

)

 

$

(1,832

)

 

$

(34,174

)

Other comprehensive income before reclassifications

 

 

1,111

 

 

 

 

 

 

1,111

 

Net current-period other comprehensive income

 

 

1,111

 

 

 

 

 

 

1,111

 

Balance at June 30, 2017

 

$

(31,231

)

 

$

(1,832

)

 

$

(33,063

)

 

Restructuring (Tables)
Summary of Restructuring Activity

The table below summarizes restructuring activity for the six months ended June 30, 2017:

 

 

Employee Reduction

 

 

Accelerated Depreciation

 

 

Other Exit Costs

 

 

Total

 

Balance at January 1, 2017

 

$

 

 

$

 

 

$

 

 

$

 

Charges to expense

 

 

1,688

 

 

 

1,929

 

 

 

1,442

 

 

 

5,059

 

Cash payments

 

 

(48

)

 

 

 

 

 

(971

)

 

 

(1,019

)

Non-cash utilization

 

 

 

 

 

(1,929

)

 

 

 

 

 

(1,929

)

Balance at June 30, 2017

 

$

1,640

 

 

$

 

 

$

471

 

 

$

2,111

 

 

Other Accrued Expenses (Tables)
Schedule of Other Accrued Expenses

The balance in other accrued expenses is comprised of the following:

 

 

 

June 30,

 

 

December 31,

 

 

 

2017

 

 

2016

 

Deposits and amounts due to customers

 

$

2,597

 

 

$

2,688

 

Dividends payable

 

 

4,389

 

 

 

4,260

 

Accrued litigation and professional fees

 

 

514

 

 

 

452

 

Other accrued expenses

 

 

5,050

 

 

 

5,683

 

 

 

$

12,550

 

 

$

13,083

 

 

Goodwill and Intangible Assets (Tables)
The change in goodwill

The change in goodwill for the six months ended June 30, 2017 was as follows:

 

 

 

Distribution

 

 

Material

Handling

 

 

Total

 

January 1, 2017

 

$

505

 

 

$

58,714

 

 

$

59,219

 

Foreign currency translation

 

 

 

 

 

373

 

 

 

373

 

June 30, 2017

 

$

505

 

 

$

59,087

 

 

$

59,592

 

 

Net Income (Loss) per Common Share (Tables)
Weighted average number of common shares outstanding during the period

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

 

 

 

For the Three Months Ended June 30,

 

 

For the Six Months Ended June 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Weighted average common shares outstanding basic

 

 

30,154,965

 

 

 

29,623,177

 

 

 

30,097,638

 

 

 

29,586,708

 

Dilutive effect of stock options and restricted stock

 

 

317,671

 

 

 

466,397

 

 

 

297,779

 

 

 

426,131

 

Weighted average common shares outstanding diluted

 

 

30,472,636

 

 

 

30,089,574

 

 

 

30,395,417

 

 

 

30,012,839

 

 

Long-Term Debt and Loan Agreements (Tables)
Schedule of Long Term Debt

Long-term debt consisted of the following:

 

 

 

June 30,

 

 

December 31,

 

 

 

2017

 

 

2016

 

Loan Agreement

 

$

72,001

 

 

$

90,686

 

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

 

 

 

 

172,001

 

 

 

190,686

 

Less unamortized deferred financing costs

 

 

1,887

 

 

 

1,164

 

 

 

$

170,114

 

 

$

189,522

 

 

Retirement Plans (Tables)
Net periodic pension cost

Net periodic pension cost are as follows:

 

 

 

For the Three Months Ended June 30,

 

 

For the Six Months Ended June 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Interest cost

 

$

63

 

 

$

68

 

 

$

126

 

 

$

136

 

Expected return on assets

 

 

(74

)

 

 

(80

)

 

 

(148

)

 

 

(160

)

Amortization of net loss

 

 

24

 

 

 

21

 

 

 

48

 

 

 

41

 

Net periodic pension cost

 

$

13

 

 

$

9

 

 

$

26

 

 

$

17

 

Company contributions

 

$

 

 

$

 

 

$

 

 

$

 

 

Industry Segments (Tables)
Schedule of Reporting Information by Segment

Summarized segment detail for the three and six months ended June 30, 2017 and 2016 are presented in the following table:

 

 

 

For the Three Months Ended June 30,

 

 

For the Six Months Ended June 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Net Sales

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Material Handling

 

$

103,074

 

 

$

100,907

 

 

$

206,254

 

 

$

209,931

 

Distribution

 

 

39,258

 

 

 

43,234

 

 

 

77,832

 

 

 

85,455

 

Inter-company sales

 

 

(29

)

 

 

(24

)

 

 

(80

)

 

 

(64

)

Total net sales

 

$

142,303

 

 

$

144,117

 

 

$

284,006

 

 

$

295,322

 

 

Income (loss) from continuing operations before income taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Material Handling

 

$

7,426

 

 

$

14,333

 

 

$

19,514

 

 

$

21,774

 

Distribution

 

 

3,025

 

 

 

3,966

 

 

 

4,563

 

 

 

6,502

 

Corporate

 

 

(4,871

)

 

 

(7,133

)

 

 

(11,139

)

 

 

(15,981

)

Total operating income

 

 

5,580

 

 

 

11,166

 

 

 

12,938

 

 

 

12,295

 

Interest expense, net

 

 

(1,785

)

 

 

(2,053

)

 

 

(3,760

)

 

 

(4,072

)

Income from continuing operations before income taxes

 

$

3,795

 

 

$

9,113

 

 

$

9,178

 

 

$

8,223

 

 

Summary of Significant Accounting Policies - Additional Information (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Jun. 30, 2017
Jun. 30, 2017
Carrying (Reported) Amount, Fair Value Disclosure [Member]
Less unamortized deferred financing fees [Member]
Dec. 31, 2016
Carrying (Reported) Amount, Fair Value Disclosure [Member]
Less unamortized deferred financing fees [Member]
Jun. 30, 2017
Estimate of Fair Value, Fair Value Disclosure [Member]
Less unamortized deferred financing fees [Member]
Dec. 31, 2016
Estimate of Fair Value, Fair Value Disclosure [Member]
Less unamortized deferred financing fees [Member]
Organization Consolidation And Presentation Of Financial Statements [Line Items]
 
 
 
 
 
Notes payable, carrying amount
 
$ 100.0 
$ 100.0 
 
 
Notes payable, fair value disclosure
 
 
 
101.3 
98.0 
Receivables
 
 
 
 
 
Trade receivable sold under factoring agreement
1.3 
 
 
 
 
Cash proceeds from sale of receivables
1.2 
 
 
 
 
Administrative fees
$ 0.1 
 
 
 
 
Summary of Significant Accounting Policies - The Balances in the Company's Accumulated Other Comprehensive Income (Loss) (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2017
Jun. 30, 2016
Jun. 30, 2017
Jun. 30, 2016
Accumulated Other Comprehensive Income (Loss) [Roll Forward]
 
 
 
 
Beginning balance
 
 
$ 93,033 
 
Net current-period other comprehensive income
210 
1,917 
1,111 
6,832 
Ending balance
94,812 
 
94,812 
 
Foreign Currency [Member]
 
 
 
 
Accumulated Other Comprehensive Income (Loss) [Roll Forward]
 
 
 
 
Beginning balance
 
 
(32,342)
 
Other comprehensive income before reclassifications
 
 
1,111 
 
Net current-period other comprehensive income
 
 
1,111 
 
Ending balance
(31,231)
 
(31,231)
 
Defined Benefit Pension Plans [Member]
 
 
 
 
Accumulated Other Comprehensive Income (Loss) [Roll Forward]
 
 
 
 
Beginning balance
 
 
(1,832)
 
Other comprehensive income before reclassifications
 
 
 
Net current-period other comprehensive income
 
 
 
Ending balance
(1,832)
 
(1,832)
 
Accumulated Other Comprehensive Income (Loss) [Member]
 
 
 
 
Accumulated Other Comprehensive Income (Loss) [Roll Forward]
 
 
 
 
Beginning balance
 
 
(34,174)
 
Other comprehensive income before reclassifications
 
 
1,111 
 
Net current-period other comprehensive income
 
 
1,111 
 
Ending balance
$ (33,063)
 
$ (33,063)
 
Impairment Charges - Additional Information (Details) (USD $)
3 Months Ended 6 Months Ended
Jun. 30, 2017
Jun. 30, 2016
Jun. 30, 2017
Jun. 30, 2016
Impairment charges
$ 544,000 
$ 1,329,000 
$ 544,000 
$ 9,874,000 
Material Handling [Member]
 
 
 
 
Impairment charges
 
1,300,000 
 
 
Novel [Member]
 
 
 
 
Impairment charges
 
 
 
8,500,000 
Manufacturing Plant Closing [Member] |
Scarborough, Ontario, Canada [Member]
 
 
 
 
Impairment charges
500,000 
 
 
 
Other Assets [Member] |
Manufacturing Plant Closing [Member] |
Scarborough, Ontario, Canada [Member] |
Level 2 [Member]
 
 
 
 
Building classified as held for sale, fair value
$ 3,100,000 
 
$ 3,100,000 
 
Discontinued Operations - Additional Information (Details) (USD $)
0 Months Ended 6 Months Ended
Jun. 30, 2017
Dec. 31, 2016
Feb. 17, 2015
Lawn and Garden Business [Member]
Jun. 30, 2016
Lawn and Garden Business [Member]
Jun. 30, 2017
Lawn and Garden Business [Member]
Income Statement Balance Sheet And Additional Disclosures By Disposal Groups Including Discontinued Operations [Line Items]
 
 
 
 
 
Interest rate
 
 
6.00% 
 
 
Notes Receivable, Fair Value Disclosure
 
 
$ 17,800,000 
 
 
Notes receivable, carrying value
18,536,000 
18,275,000 
 
 
18,500,000 
Amount of consideration received
 
 
110,000,000 
 
 
Proceeds from divestiture of businesses
 
 
90,000,000 
 
 
Promissory note receivable
 
 
20,000,000 
 
 
Maturity date of promissory note receivable
 
 
2020-08 
 
 
Escrow deposit
 
 
8,600,000 
 
 
Escrow deposit due to be settled date
 
 
2016-08 
 
 
Adjustment to working capital
 
 
 
$ 4,000,000 
 
Restructuring - Additional Information (Details) (USD $)
6 Months Ended 3 Months Ended 6 Months Ended 1 Months Ended 3 Months Ended 6 Months Ended 3 Months Ended 12 Months Ended
Jun. 30, 2017
Jun. 30, 2017
Manufacturing Plant Closing [Member]
Jun. 30, 2017
Manufacturing Plant Closing [Member]
Jul. 31, 2017
Manufacturing Plant Closing [Member]
Held for Sale [Member]
Subsequent Event [Member]
Jun. 30, 2017
Manufacturing Plant Closing [Member]
Held for Sale [Member]
Other Assets [Member]
Jun. 30, 2017
Manufacturing Plant Closing [Member]
Cost of Sales [Member]
Jun. 30, 2017
Manufacturing Plant Closing [Member]
Cost of Sales [Member]
Jun. 30, 2017
Headcount Efficiencies [Member]
Jun. 30, 2017
Headcount Efficiencies [Member]
Cost of Sales [Member]
Scarborough, Ontario, Canada [Member]
Dec. 31, 2017
Scenario, Forecast [Member]
Dec. 31, 2017
Scenario, Forecast [Member]
Manufacturing Plant Closing [Member]
Restructuring Cost And Reserve [Line Items]
 
 
 
 
 
 
 
 
 
 
 
Expected restructuring charges in 2017
 
 
 
 
 
 
 
 
 
$ 8,700,000 
 
Restructuring charges in employee severance and other employee-related costs