| Leases
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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.
During the fourth quarter of 2017, the Company completed the sale of certain subsidiaries in Brazil. As further discussed in Note 4, the results of operations and cash flows of these subsidiaries have been classified as discontinued operations in the consolidated financial statements for all periods presented.
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.
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 early adopted this standard in the fourth quarter of 2017. The adoption of this standard did not have a significant impact on the Company’s consolidated financial statements.
Accounting Standards Not Yet Adopted
In February 2018, the FASB issued ASU 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220). This ASU allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. The new standard also requires certain disclosures about stranded tax effects. This ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted. The ASU should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act of 2017 (as further discussed in Note 11) is recognized. The Company is currently evaluating the impact the adoption of this standard will have on its consolidated financial statements.
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 a material 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 has elected not to early adopt this guidance for fiscal year 2017 and will continue to evaluate 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 should be applied using a retrospective transition method to each period presented and 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 presentation within 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 does not anticipate that adoption of this standard will have a material 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 a 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 will adopt the new guidance effective January 1, 2018 under the modified retrospective approach. As part of the implementation plan developed, the Company identified its revenue streams and completed its contract review for each of these revenue streams to assess the impact of the new guidance on its consolidated financial statements. 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. Based on the results of these reviews, the adoption of this standard will not have a material impact on the timing or measurement of revenue recognition in the Company’s consolidated financial statements. Additionally, the standard requires new disclosures related to revenue, which the Company is in the process of finalizing.
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 similar assets or liabilities in markets that are not active or inputs that are observable either directly or indirectly. |
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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 10, 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, 2017 and 2016, the aggregate fair value of the Company's outstanding fixed rate senior unsecured notes was estimated at $78.0 million and $98.0 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 2017 accounts for approximately 5% of net sales with no other customer greater than 4%. Outside of the United States, only customers located in Canada, which account for approximately 2.4% of net sales, 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 $0.7 million, $0.8 million and $0.3 million for 2017, 2016 and 2015, respectively, and is recorded within selling expenses in the Consolidated Statement of Operations. Deductions from the allowance for doubtful accounts, net of recoveries, were approximately $0.7 million, $0.4 million and $0.5 million for 2017, 2016 and 2015, respectively.
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 30 percent of our inventories are valued using the LIFO method of determining cost. Cost of other inventories is determined using methods that approximate the FIFO method.
Inventories at December 31 consist of the following:
|
|
December 31, |
|
|
December 31, |
|
||
|
|
2017 |
|
|
2016 |
|
||
Finished and in-process products |
|
$ |
30,874 |
|
|
$ |
31,081 |
|
Raw materials and supplies |
|
|
16,151 |
|
|
|
13,704 |
|
|
|
$ |
47,025 |
|
|
$ |
44,785 |
|
If the FIFO method of inventory cost valuation had been used exclusively by the Company, inventories would have been $5.6 million and $4.7 million higher than reported at December 31, 2017 and 2016, respectively. Cost of sales decreased by $0.1 million and less than $0.1 million in 2017 and 2015, respectively, as a result of the liquidation of LIFO inventories. Cost of sales increased by $0.1 million in 2016 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 |
The Company’s property, plant and equipment by major asset class at December 31 consists of:
|
|
December 31, |
|
|
December 31, |
|
||
|
|
2017 |
|
|
2016 |
|
||
Land |
|
$ |
7,815 |
|
|
$ |
8,916 |
|
Buildings and leasehold improvements |
|
|
59,730 |
|
|
|
65,425 |
|
Machinery and equipment |
|
|
260,880 |
|
|
|
299,065 |
|
|
|
|
328,425 |
|
|
|
373,406 |
|
Less allowances for depreciation and amortization |
|
|
(244,521 |
) |
|
|
(267,140 |
) |
|
|
$ |
83,904 |
|
|
$ |
106,266 |
|
At December 31, 2017 and 2016, the Company had approximately $6.9 million and $6.2 million, respectively, of capitalized software costs included in machinery and equipment. Amortization expense related to capitalized software costs was approximately $1.0 million, $0.6 million and $0.5 million in 2017, 2016 and 2015, 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 sale, 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 2 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, 2015 |
|
$ |
(9,825 |
) |
|
$ |
(1,863 |
) |
|
$ |
(11,688 |
) |
Other comprehensive income 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 |
) |
Other comprehensive income before reclassifications |
|
|
2,391 |
|
|
|
(31 |
) |
|
|
2,360 |
|
Amounts reclassified from accumulated other comprehensive income, net of tax of ($24) (1) (2) |
|
|
17,201 |
|
|
|
72 |
|
|
|
17,273 |
|
Net current-period other comprehensive income (loss) |
|
|
19,592 |
|
|
|
41 |
|
|
|
19,633 |
|
Balance at December 31, 2017 |
|
$ |
(12,750 |
) |
|
$ |
(1,791 |
) |
|
$ |
(14,541 |
) |
|
(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 12, Retirement Plans for additional details. |
|
(2) |
Cumulative translation adjustment associated with the sale of the Brazil Business, as further discussed in Note 4, was included in the carrying value of assets disposed of. |
Shipping and Handling
Costs for shipments to customers are classified as selling expenses for the Company’s manufacturing business and as cost of sales for the Company’s distribution business in the accompanying Consolidated Statements of Operations. The Company incurred costs for shipments to customers of approximately $8.2 million, $8.9 million and $8.5 million in selling expenses for the years ended December 31, 2017, 2016 and 2015, respectively and $6.0 million, $6.1 million, and $6.2 million in cost of sales for the years ended December 31, 2017, 2016 and 2015. All other internal distribution costs are recorded in selling expenses.
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 the change is enacted.
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 $0.6 million, $0.1 million and $6.6 million of accrued capital expenditures in 2017, 2016 and 2015, respectively.
|
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. This building was recorded at its fair value, less estimated costs to sell, of $3.2 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. In December 2017, the building was sold for approximately $3.1 million, which resulted in an additional loss on sale of $0.1 million.
During 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.
|
3. 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.
The Company conducted its annual impairment assessment as of October 1 for all of its reporting units, noting no impairment in continuing operations in 2017, 2016 or 2015.
During the 2017 annual review of goodwill, management performed a qualitative assessment for all of its reporting units. After considering changes to assumptions used in the most recent quantitative annual testing for each reporting unit, including macroeconomic conditions, industry and market considerations, overall financial performance, the magnitude of the excess of fair value over the carrying amount of each reporting unit as determined in the most recent quantitative annual testing, and other factors, management concluded that it was not more likely than not that the fair values of the reporting units were less than their respective carrying values and, therefore, did not perform a quantitative analysis in 2017. A quantitative analysis was performed at October 1, 2016 and 2015.
The change in the carrying amount of goodwill for the years ended December 31, 2017 and 2016 is as follows:
|
|
Distribution |
|
|
Material Handling |
|
|
Total |
|
|||
January 1, 2016 |
|
$ |
505 |
|
|
$ |
58,382 |
|
|
$ |
58,887 |
|
Foreign currency translation |
|
|
— |
|
|
|
332 |
|
|
|
332 |
|
December 31, 2016 |
|
$ |
505 |
|
|
$ |
58,714 |
|
|
$ |
59,219 |
|
Foreign currency translation |
|
|
— |
|
|
|
752 |
|
|
|
752 |
|
December 31, 2017 |
|
$ |
505 |
|
|
$ |
59,466 |
|
|
$ |
59,971 |
|
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 $9,972 and $10,050 at December 31, 2017 and 2016, 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, 2017 and 2016 consisted of the following:
|
|
|
|
|
|
2017 |
|
|
2016 |
|
||||||||||||||||||
|
|
Weighted Average Remaining Useful Life (years) |
|
|
Gross |
|
|
Accumulated Amortization |
|
|
Net |
|
|
Gross |
|
|
Accumulated Amortization |
|
|
Net |
|
|||||||
Trade Names – Indefinite Lived |
|
|
|
|
|
$ |
9,972 |
|
|
$ |
— |
|
|
$ |
9,972 |
|
|
$ |
10,050 |
|
|
$ |
— |
|
|
$ |
10,050 |
|
Trade Names |
|
|
7.5 |
|
|
|
80 |
|
|
|
(40 |
) |
|
|
40 |
|
|
|
80 |
|
|
|
(34 |
) |
|
|
46 |
|
Customer Relationships |
|
|
2.0 |
|
|
|
41,043 |
|
|
|
(27,396 |
) |
|
|
13,647 |
|
|
|
39,774 |
|
|
|
(21,127 |
) |
|
|
18,647 |
|
Technology |
|
|
6.2 |
|
|
|
24,980 |
|
|
|
(9,590 |
) |
|
|
15,390 |
|
|
|
24,980 |
|
|
|
(7,037 |
) |
|
|
17,943 |
|
Patents |
|
|
0.0 |
|
|
|
11,730 |
|
|
|
(11,730 |
) |
|
|
— |
|
|
|
11,730 |
|
|
|
(11,548 |
) |
|
|
182 |
|
|
|
|
|
|
|
$ |
87,805 |
|
|
$ |
(48,756 |
) |
|
$ |
39,049 |
|
|
$ |
86,614 |
|
|
$ |
(39,746 |
) |
|
$ |
46,868 |
|
Intangible amortization expense was $8,378, $9,277 and $9,447 in 2017, 2016 and 2015, respectively. Estimated annual amortization expense for intangible assets with finite lives for the next five years is: $8,198 in 2018; $7,824 in 2019; $4,946 in 2020; $2,278 in 2021 and $2,278 in 2022.
|
4. Discontinued Operations
On December 18, 2017, the Company, collectively with its wholly owned subsidiary, Myers Holdings Brasil, Ltda. (“Holdings”), completed the sale of its subsidiaries, Myers do Brasil Embalagens Plasticas Ltda. and Plasticos Novel do Nordeste Ltda. (collectively, the “Brazil Business”), to Novel Holdings – Eireli (“Buyer”), an entity controlled by a member of the Brazil Business’ management team. The divestiture of the Brazil Business will allow the Company to focus resources on its core businesses and additional growth opportunities. The Brazil Business is a leading designer and manufacturer of reusable plastic shipping containers, plastic pallets, crates and totes used for closed-loop shipping and storage in Brazil’s automotive, distribution, food, beverage and agriculture industries. The sale of the Brazil Business included manufacturing facilities and offices located in Lauro de Freitas City, Bahia, Brazil; Ibipora, Parana, Brazil; and Jaguarinuna, Brazil. The Brazil Business was part of the Company’s Material Handling Segment.
Pursuant to the terms of the Quota Purchase Agreement by and among the Company, Holdings and Buyer (the “Purchase Agreement”), the Buyer paid a purchase price of one U.S. Dollar to the Company and has assumed all liabilities and obligations of the Brazil Business, whether arising prior to or after the closing of the transaction. There are no additional amounts due, or to be settled, under the terms of the Purchase Agreement with the Buyer. The Company recorded a loss on the sale of the Brazil Business during the fourth quarter of 2017 of $35.0 million, which included $1.2 million of cash held by the Brazil Business and approximately $0.3 million of costs to sell. In addition, the Company recorded a U.S. tax benefit of approximately $15 million as a result of a worthless stock deduction related to the Company’s investment in the Brazil Business.
The Company has agreed to be the guarantor under a factoring arrangement between the Buyer and Banco Alfa de Investimento S.A. until December 31, 2019 for up to $7 million, in the event the Buyer is unable to meet its obligations under this arrangement. The Company also holds a first lien against certain machinery and equipment, exercisable only upon default by the Buyer under the guaranty. Based on the nature of the guaranty, as well as the existence of the lien, the Company believes the fair value of the guaranty is immaterial (based primarily on Level 3 inputs), and thus has recorded no liability related to this guaranty in the Consolidated Statement of Financial Position. This guaranty also creates a variable interest to the Company in the Brazil Business. Based on the terms of the transaction and the fact that the Company has no management involvement or voting interests in the Brazil Business following the sale, the Company does not have any power to direct the significant activities of the Brazil Business, and is thus not the primary beneficiary.
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. (“L&G Buyer”), 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 9. The fair value of the notes at the date of sale was $17.8 million. The carrying value of the notes as of December 31, 2017 and 2016, was $18.7 million and $18.3 million, respectively, which represents the fair value at date of sale plus accretion and is included in Notes Receivable in the accompanying Consolidated Statements of Financial Position. The fair value of the notes receivable was calculated using Level 2 inputs as defined in Note 1. Interest income on the notes receivable was $1.3 million, $1.3 million, and $1.0 million during the years ended December 31, 2017, 2016 and 2015 and was recognized based on the stated interest rate above. 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 $0.5 million, net of tax, and is included in income (loss) from discontinued operations in the accompanying Consolidated Statements of 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.
Summarized selected financial information for Brazil Business, Lawn and Garden business and WEK for the years ended December 31, 2017, 2016 and 2015 are presented in the following table:
|
|
|
For the Year Ended December 31, |
|
|||||||||
|
|
|
2017* |
|
|
2016 |
|
|
2015** |
|
|||
Net sales |
|
|
$ |
29,976 |
|
|
$ |
23,683 |
|
|
$ |
59,853 |
|
Cost of sales |
|
|
|
25,359 |
|
|
|
20,941 |
|
|
|
50,772 |
|
Selling, general, and administrative |
|
|
|
6,748 |
|
|
|
5,438 |
|
|
|
13,898 |
|
(Gain) loss on disposal of assets |
|
|
|
(32 |
) |
|
|
226 |
|
|
|
62 |
|
Impairment charges |
|
|
|
— |
|
|
|
8,545 |
|
|
|
— |
|
Interest income, net |
|
|
|
(286 |
) |
|
|
(469 |
) |
|
|
(10 |
) |
Gain (loss) on the disposal of the discontinued operations |
|
|
|
(34,956 |
) |
|
|
— |
|
|
|
1,873 |
|
Loss from discontinued operations before income tax |
|
|
|
(36,769 |
) |
|
|
(10,998 |
) |
|
|
(2,996 |
) |
Income tax benefit |
|
|
|
(16,036 |
) |
|
|
(731 |
) |
|
|
(3,287 |
) |
Income (loss) from discontinued operations, net of income tax |
|
|
$ |
(20,733 |
) |
|
$ |
(10,267 |
) |
|
$ |
291 |
|
* |
Includes Brazil Business operating results through December 18, 2017. |
** |
Includes Lawn and Garden operating results through February 17, 2015. |
The assets and liabilities of discontinued operations are stated separately as of December 31, 2016 in the Consolidated Statement of Financial Position and are comprised of the following items:
|
|
December 31, 2016 |
|
|
Cash and cash equivalents |
|
$ |
5,484 |
|
Accounts receivable, net |
|
|
7,328 |
|
Inventories |
|
|
1,238 |
|
Prepaid expenses and other current assets |
|
|
148 |
|
Total current assets |
|
|
14,198 |
|
|
|
|
|
|
Intangible assets, net |
|
|
1,126 |
|
Deferred income taxes |
|
|
134 |
|
Property, plant and equipment, net |
|
|
5,215 |
|
Other |
|
|
34 |
|
Total noncurrent assets |
|
|
6,509 |
|
Total assets of the disposal group classified as discontinued operations |
|
$ |
20,707 |
|
|
|
|
|
|
Accounts payable |
|
$ |
1,415 |
|
Accrued expenses |
|
|
1,335 |
|
Total current liabilities |
|
|
2,750 |
|
|
|
|
|
|
Deferred income taxes |
|
|
249 |
|
Total noncurrent liabilities |
|
|
249 |
|
Total liabilities of the disposal group classified as discontinued operations |
|
$ |
2,999 |
|
|
6. Restructuring
The charges related to various restructuring programs implemented by the Company are included in cost of sales and selling, general and administrative (“SG&A”) expenses depending on the type of cost incurred. The restructuring charges recognized in the years ended 2017, 2016 and 2015 are presented in the following table.
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||||||||||||||||||||||||||
Segment |
|
|
Cost of sales |
|
|
SG&A |
|
|
Total |
|
|
Cost of sales |
|
|
SG&A |
|
|
Total |
|
|
Cost of sales |
|
|
SG&A |
|
|
Total |
|
|||||||||
Distribution |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
124 |
|
|
$ |
124 |
|
Material Handling |
|
|
|
7,389 |
|
|
|
164 |
|
|
|
7,553 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,340 |
|
|
|
912 |
|
|
|
2,252 |
|
Corporate |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
35 |
|
|
|
35 |
|
Total |
|
|
$ |
7,389 |
|
|
$ |
164 |
|
|
$ |
7,553 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1,340 |
|
|
$ |
1,071 |
|
|
$ |
2,411 |
|
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 $7.6 million, which includes employee severance and other employee-related costs of approximately $3.1 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 $2.0 million. All actions under the Plan were substantially completed by the end of the year as further described below.
During 2017, the Company incurred restructuring charges of $5.5 million related to closing a manufacturing plant in Bluffton, Indiana. In the third quarter of 2017, the Bluffton facility and certain related equipment were sold for approximately $6.0 million, which resulted in a gain of $2.6 million. Additional gains of $1.5 million for the year ended December 31, 2017 were recognized on other asset dispositions in connection with closing this plant.
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 $1.6 million of severance and related costs for the year ended December 31, 2017.
During 2017, the Company recognized $0.5 million of restructuring charges related to the planned closure of a manufacturing plant in Sandusky, Ohio, which is expected to take place in the first quarter of 2018.
The table below summarizes restructuring activity for the year ended December 31, 2017:
|
|
Employee Reduction |
|
|
Accelerated Depreciation |
|
|
Other Exit Costs |
|
|
Total |
|
||||
Balance at January 1, 2017 |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Charges to expense |
|
|
3,022 |
|
|
|
1,993 |
|
|
|
2,538 |
|
|
|
7,553 |
|
Cash payments |
|
|
(1,924 |
) |
|
|
— |
|
|
|
(2,448 |
) |
|
|
(4,372 |
) |
Non-cash utilization |
|
|
— |
|
|
|
(1,993 |
) |
|
|
— |
|
|
|
(1,993 |
) |
Balance at December 31, 2017 |
|
$ |
1,098 |
|
|
$ |
— |
|
|
$ |
90 |
|
|
$ |
1,188 |
|
In addition to the restructuring costs noted above, the Company has also incurred other associated costs of the Plan of $1.1 million for the year ended December 31, 2017, of which $0.1 million is included in cost of sales and $1.0 is included in general and administrative expenses in the accompanying Consolidated Statements of Operations, and are primarily related to third party consulting costs.
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.
|
7. Other Current Liabilities
As of December 31, 2017 and 2016, the balance in other current liabilities is comprised of the following:
|
|
December 31, |
|
|
December 31, |
|
||
|
|
2017 |
|
|
2016 |
|
||
Deposits and amounts due to customers |
|
$ |
3,102 |
|
|
$ |
2,562 |
|
Dividends payable |
|
|
4,478 |
|
|
|
4,260 |
|
Accrued litigation and professional fees |
|
|
417 |
|
|
|
452 |
|
Current portion of environmental reserves |
|
|
1,322 |
|
|
|
605 |
|
Other accrued expenses |
|
|
6,153 |
|
|
|
5,032 |
|
|
|
$ |
15,472 |
|
|
$ |
12,911 |
|
|
8. 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.
The following tables summarize stock option activity in the past three years:
Options granted in 2017, 2016 and 2015 were as follows:
Year |
|
Options |
|
|
Exercise Price |
|
||
2017 |
|
|
397,759 |
|
|
$ |
14.30 |
|
2016 |
|
|
271,350 |
|
|
$ |
11.62 |
|
2015 |
|
|
208,200 |
|
|
$ |
18.67 |
|
Options exercised in 2017, 2016 and 2015 were as follows:
Year |
|
Options |
|
|
Exercise Price |
|
2017 |
|
|
375,292 |
|
|
$9.97 to $20.93 |
2016 |
|
|
334,836 |
|
|
$9.00 to $14.77 |
2015 |
|
|
239,508 |
|
|
$9.97 to $17.02 |
In addition, options totaling 218,130, 162,565 and 71,567 expired or were forfeited during the years ended December 31, 2017, 2016 and 2015, respectively.
Options outstanding and exercisable at December 31, 2017, 2016 and 2015 were as follows:
Year |
|
Outstanding |
|
|
Range of Exercise Prices |
|
Exercisable |
|
|
Weighted Average Exercise Price |
|
|||
2017 |
|
|
988,167 |
|
|
$9.97 to $20.93 |
|
|
539,993 |
|
|
$ |
16.23 |
|
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 |
|
The fair value of options granted is estimated using an option pricing model based on the 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 2017, 2016 and 2015, the Company used the binomial lattice option pricing model based on the assumptions set forth in the following table.
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
Risk free interest rate |
|
|
2.50 |
% |
|
|
1.80 |
% |
|
|
2.10 |
% |
Expected dividend yield |
|
|
3.80 |
% |
|
|
4.60 |
% |
|
|
2.90 |
% |
Expected life of award (years) |
|
|
4.10 |
|
|
8.00 |
|
|
|
8.00 |
|
|
Expected volatility |
|
|
50.00 |
% |
|
|
50.00 |
% |
|
|
50.00 |
% |
Fair value per option |
|
$ |
4.47 |
|
|
$ |
3.45 |
|
|
$ |
6.03 |
|
The following table provides a summary of stock option activity for the period ended December 31, 2017:
|
|
Shares |
|
|
Average Exercise Price |
|
|
Weighted Average Life (in Years) |
|
|||
Outstanding at December 31, 2016 |
|
|
1,183,830 |
|
|
$ |
14.50 |
|
|
|
|
|
Options granted |
|
|
397,759 |
|
|
|
14.30 |
|
|
|
|
|
Options exercised |
|
|
(375,292 |
) |
|
|
11.71 |
|
|
|
|
|
Canceled or forfeited |
|
|
(218,130 |
) |
|
|
16.08 |
|
|
|
|
|
Expired |
|
|
— |
|
|
|
— |
|
|
|
|
|
Outstanding at December 31, 2017 |
|
|
988,167 |
|
|
|
15.13 |
|
|
|
7.24 |
|
Exercisable at December 31, 2017 |
|
|
539,993 |
|
|
$ |
16.23 |
|
|
|
5.85 |
|
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 2017, 2016 and 2015 was $2,813, $1,809 and $1,151, respectively.
The following table provides a summary of restricted stock units and restricted stock activity for the year ended December 31, 2017:
|
|
Shares |
|
|
Average Grant-Date Fair Value |
|
||
Unvested shares at December 31, 2016 |
|
|
331,410 |
|
|
|
|
|
Granted |
|
|
238,111 |
|
|
$ |
14.57 |
|
Vested |
|
|
(100,006 |
) |
|
|
14.89 |
|
Forfeited |
|
|
(56,865 |
) |
|
|
13.91 |
|
Unvested shares at December 31, 2017 |
|
|
412,650 |
|
|
|
|
|
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, 2017, restricted stock awards had vesting periods up through December 2020.
Included in the December 31, 2017 unvested shares are 211,769 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.
Stock compensation expense was approximately $3,626, $3,357 and $4,934 for the years ended December 31, 2017, 2016 and 2015, respectively. These expenses are included in 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, 2017 was approximately $5,317 which will be recognized over the next three years, as such compensation is earned.
|
9. 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 Superfund site (“New Idria Mine”). New Idria Mining & Chemical Company (“NIMCC”), which owned and/or operated the New Idria Mine from 1936 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 have been engaged in negotiations with the EPA with respect to a draft Settlement Agreement and Administrative Order on Consent (“AOC”) 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 Company and the EPA are in the final stages of negotiation on the AOC and related Statement of Work (“SOW”) with regards to the New Idria Mine, and the Company expects to execute the AOC in March 2018. The key terms of the AOC and SOW include, but are not limited to, scope of the site, categories of and schedules for completion of required tasks, administration of future oversight costs, stipulated penalties, and resolution of any disputed items between the parties. As a result of recent negotiations, the Company recognized expected future EPA oversight costs for the RI/FS of $1 million in 2017. In addition, the AOC will require the Company to provide $2 million of financial assurance to the EPA during the estimated three year life of the RI/FS. Per federal statutes, this financial assurance can take several forms, including a financial guarantee by the Company, a letter of credit, or a surety bond. The Company expects to provide this assurance within 30 days following the execution of the AOC, and is currently evaluating the options available under the statute.
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 would likely begin in 2018 with no changes to the cost estimates to perform the RI/FS. In the third quarter of 2017, the Company recorded an additional reserve of $0.3 million for this project, as a result of additional professional fees and other project costs expected to be incurred as part of the implementation of the AOC and site preparation and stabilization, in advance of starting the RI/FS field work in 2018.
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 evaluating this past cost claim and may challenge portions of it, in 2015 the Company recognized an expense of $1.3 million related to the claim. These past costs will not be addressed or settled upon execution of the AOC discussed above.
As of December 31, 2017 and 2016, the Company had a total reserve of $3.6 million and $2.5 million, respectively, related to the New Idria Mine. As of December 31, 2017, $1.0 million is classified in Other Current Liabilities and $2.6 million is classified in Other Liabilities on the Consolidated Statements of Financial Position. All charges related to this claim have been recorded with general and administrative expenses in the Consolidated Statement of Operations.
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 the specific tasks required in the RI/FS, 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 (formerly referred to as Guadalupe 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 costs of implementing the project, originally estimated to be approximately $1.6 million. 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 December 31, 2017 and 2016, the Company has a total reserve of $1.5 million related to the New Almaden Mine. As of December 31, 2017, $0.3 million is classified in Other Current Liabilities and $1.2 million is classified in Other Liabilities on the Consolidated Statements of Financial Position. All charges related to this claim have been recorded with general and administrative expenses in the Consolidated Statement of Operations.
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 4, the Company received a Notices of Indemnification Claims in April 2015 and July 2016 (collectively, the “Claims”), alleging breaches of certain representations and warranties under the agreement resulting in alleged losses in the amount of approximately $10 million. As described in Note 4, approximately $8.6 million of the sale proceeds that were placed in escrow were due to be settled in August 2016, but continue in escrow until the Claims are resolved, which are the subject of a lawsuit in the Delaware Chancery Court.
In December 2017, the Delaware Chancery Court issued a non-final opinion in favor of the L&G Buyer that it is entitled to a distribution of the escrow property on technical grounds, without resolving the merits of the alleged breaches that are the subject of the Claims. The Company intends to appeal this decision, and has the right to a de novo review and believes it has meritorious grounds to reverse the decision. The Company also believes that it has meritorious defenses to the L&G Buyer’s Claims and will vigorously defend its position that it is entitled to the escrow property.
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 or other legal 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.
|
10. Long-Term Debt and Loan Agreements
Long-term debt at December 31, 2017 and 2016 consisted of the following:
|
|
December 31, |
|
|
December 31, |
|
||
|
|
2017 |
|
|
2016 |
|
||
Loan Agreement |
|
$ |
74,632 |
|
|
$ |
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 |
|
|
15,000 |
|
|
|
29,000 |
|
5.45% Senior Unsecured Notes due 2026 |
|
|
12,000 |
|
|
|
20,000 |
|
|
|
|
152,632 |
|
|
|
190,686 |
|
Less unamortized deferred financing costs |
|
|
1,596 |
|
|
|
1,164 |
|
|
|
$ |
151,036 |
|
|
$ |
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 million, reduced for letters of credit issued. As of December 31, 2017, the Company had $121.0 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 December 31, 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 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 Agreement.
The Company’s Senior Unsecured Notes (“Notes”) 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. In September 2017, the Company made an offer to all holders of the $100 million Notes to purchase all or a portion of the Notes prior to their maturity dates. In October 2017, one note holder accepted the offer and elected to tender $22 million in Notes. The Company purchased the Notes from the holder on October 31, 2017 for approximately $23.8 million, which includes the outstanding principal balance of $22.0 million and a make-whole premium of $1.8 million. A loss on extinguishment of debt of approximately $1.9 million was recorded during the fourth quarter of 2017, which consisted of the make-whole premium plus unamortized deferred financing costs of $0.1 million. At December 31, 2017, $78 million of the Notes were outstanding.
Amortization expense of the deferred financing costs was $508, $466, and $465 for the years ended December 31, 2017, 2016 and 2015, respectively, and is included in interest expense in the Consolidated Statement of Operations.
The average interest rate on borrowings under our loan agreements were 4.94% for 2017, 4.69% for 2016, and 4.59% for 2015, which includes a quarterly facility fee on the used and unused portion.
As of December 31, 2017, the Company was in compliance with all of its debt covenants associated with its Loan Agreement and 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, 2017 are shown in the following table:
|
|
Required Level |
|
Actual Level |
|
|
Interest Coverage Ratio |
|
3.00 to 1 (minimum) |
|
|
7.58 |
|
Leverage Ratio |
|
3.25 to 1 (maximum) |
|
|
2.40 |
|
|
11. Income Taxes
The effective tax rate from continuing operations was 31.0% in 2017, 39.5% in 2016 and 31.5% in 2015. 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 |
|
|||||||||
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
Statutory Federal income tax rate |
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
State income taxes - net of Federal tax benefit |
|
|
8.3 |
|
|
|
3.0 |
|
|
|
0.2 |
|
Foreign tax rate differential |
|
|
(1.6 |
) |
|
|
(0.9 |
) |
|
|
(2.2 |
) |
Domestic production deduction |
|
|
(5.2 |
) |
|
|
(3.2 |
) |
|
|
(3.4 |
) |
Non-deductible expenses |
|
|
0.4 |
|
|
|
2.9 |
|
|
|
1.5 |
|
Impact of tax law changes |
|
|
(7.4 |
) |
|
|
— |
|
|
|
— |
|
Changes in unrecognized tax benefits |
|
|
0.9 |
|
|
|
(0.8 |
) |
|
|
(1.6 |
) |
Foreign tax incentives |
|
|
— |
|
|
|
(0.4 |
) |
|
|
— |
|
Valuation allowances |
|
|
— |
|
|
|
3.2 |
|
|
|
— |
|
Other |
|
|
0.6 |
|
|
|
0.7 |
|
|
|
2.0 |
|
Effective tax rate for the year |
|
|
31.0 |
% |
|
|
39.5 |
% |
|
|
31.5 |
% |
Income from continuing operations before income taxes was attributable to the following sources:
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
United States |
|
$ |
12,979 |
|
|
$ |
17,010 |
|
|
$ |
19,546 |
|
Foreign |
|
|
2,729 |
|
|
|
1,709 |
|
|
|
5,962 |
|
Totals |
|
$ |
15,708 |
|
|
$ |
18,719 |
|
|
$ |
25,508 |
|
Income tax expense (benefit) from continuing operations consisted of the following:
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||||||||||||||
|
|
Current |
|
|
Deferred |
|
|
Current |
|
|
Deferred |
|
|
Current |
|
|
Deferred |
|
||||||
Federal |
|
$ |
6,304 |
|
|
$ |
(4,394 |
) |
|
$ |
5,684 |
|
|
$ |
(413 |
) |
|
$ |
6,677 |
|
|
$ |
(368 |
) |
Foreign |
|
|
1,821 |
|
|
|
(883 |
) |
|
|
515 |
|
|
|
741 |
|
|
|
337 |
|
|
|
1,308 |
|
State and local |
|
|
2,402 |
|
|
|
(386 |
) |
|
|
641 |
|
|
|
227 |
|
|
|
812 |
|
|
|
(729 |
) |
|
|
$ |
10,527 |
|
|
$ |
(5,663 |
) |
|
$ |
6,840 |
|
|
$ |
555 |
|
|
$ |
7,826 |
|
|
$ |
211 |
|
On December 22, 2017, the United States enacted the Tax Cuts and Jobs Act (the “Tax Act”). Effective January 1, 2018, the Tax Act establishes a corporate income tax rate of 21%, replacing the current 35% rate, and creates a territorial tax system rather than a worldwide system, which generally eliminates the U.S. federal income tax on dividends from foreign subsidiaries. The transition to the territorial system includes a one-time deemed repatriation transition tax (“Transition Tax”) on certain foreign earnings previously untaxed in the United States. The Company has made reasonable estimates for certain provisions under the Tax Act and has recorded a provisional net benefit to income tax expense of $1.2 million related to its enactment. This net benefit includes a provisional deferred tax benefit of $3.0 million related to revaluing the net U.S. deferred tax liabilities to reflect the lower U.S. corporate tax rate. The deferred tax benefit is offset by a provision of $1.8 million related to the Transition Tax. In general, the Transition Tax imposed by the Tax Act results in the taxation of foreign earnings and profits (“E&P”) at a 15.5% rate on liquid assets and 8% on the remaining unremitted foreign E&P, both net of foreign tax credits. The provisional amounts for the Transition Tax recorded by the Company in 2017 included the undistributed E&P for all the Company’s foreign subsidiaries.
Additional provisions of the Tax Act which may have an impact to the Company in future periods include, but are not limited to, the repeal of the domestic production deduction, limitations on interest expense deductions, accelerated depreciation that will allow for full expensing of qualified property, provisions related to performance-based executive compensation and other international provisions resulting from the territorial tax system established, as noted above.
In response to the complexities and timing of issuance of the Tax Act, the SEC issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”). Management believes that it has made reasonable estimates of the impacts of the Tax Act in its 2017 consolidated financial statements. However, as the Company completes its analysis of the Tax Act, collects further data and reviews additional information and guidance issued by the U.S. Treasury Department, the IRS, and other standard-setting bodies, the provisional amounts included in the 2017 financial statements may be subject to adjustment. Per the guidance in SAB 118, adjustments to the provisional amounts recorded by the Company in 2017 that are identified within a subsequent period of up to one year from the enactment date will be included as an adjustment in the period the amounts are determined.
Except as provided for under the Transition Tax, no additional provision has been recorded as of December 31, 2017, related to the unremitted earnings of foreign subsidiaries. In accordance with SAB 118, the Company will continue to evaluate the impact of the Tax Act on its assertion that these earnings will be indefinitely reinvested. As noted above, the E&P for all foreign subsidiaries has been included in the calculation of the provisional Transition Tax, and thus, should there be a repatriation of earnings from any foreign subsidiaries in future periods, the Company would be subject to only foreign withholding tax.
Significant components of the Company’s deferred taxes as of December 31, 2017 and 2016 are as follows:
|
|
2017 |
|
|
2016 |
|
||
Deferred income tax liabilities |
|
|
|
|
|
|
|
|
Property, plant and equipment |
|
$ |
6,255 |
|
|
$ |
11,529 |
|
Tax-deductible goodwill |
|
|
5,202 |
|
|
|
9,136 |
|
State deferred taxes |
|
|
132 |
|
|
|
360 |
|
Other |
|
|
149 |
|
|
|
889 |
|
|
|
|
11,738 |
|
|
|
21,914 |
|
Deferred income tax assets |
|
|
|
|
|
|
|
|
Compensation |
|
|
3,030 |
|
|
|
5,686 |
|
Inventory valuation |
|
|
502 |
|
|
|
769 |
|
Allowance for uncollectible accounts |
|
|
268 |
|
|
|
487 |
|
Non-deductible accruals |
|
|
2,195 |
|
|
|
3,525 |
|
Non-deductible intangibles |
|
|
1,193 |
|
|
|
1,165 |
|
Capital loss carryforwards |
|
|
1,982 |
|
|
|
— |
|
Net operating loss carryforwards |
|
|
405 |
|
|
|
— |
|
|
|
|
9,575 |
|
|
|
11,632 |
|
Valuation Allowance |
|
|
(1,982 |
) |
|
|
— |
|
|
|
|
7,593 |
|
|
|
11,632 |
|
Net deferred income tax liability |
|
$ |
4,145 |
|
|
$ |
10,282 |
|
ASC 740, Income Taxes, requires that deferred tax assets be reduced by a valuation allowance, if based on all available evidence, it is more likely than not that the deferred tax asset will not be realized. Available evidence includes the reversal of existing taxable temporary differences, future taxable income exclusive of temporary differences, taxable income in carryback years and tax planning strategies.
As further discussed in Note 4, the Company sold its investments in certain Brazilian subsidiaries on December 18, 2017. In connection with this divestiture, the Company incurred a capital loss of $9.5 million on its investment in the Myers do Brazil business and recorded a deferred tax asset of $2.0 million as the result of this capital loss carryforward. A valuation allowance of $2.0 million has been recorded against this deferred tax asset as the recovery of the asset is not more likely than not as of December 31, 2017. In addition, in accordance with ASC 740, for the year ended December 31, 2016 the Company allocated $0.6 million of a valuation allowance related to the Brazil Business to income from continuing operations in the Consolidated Statement of Operations, as this valuation allowance related to the change in estimated realizability of the beginning of the year net deferred tax asset in the Brazil Business.
The Company recorded a tax benefit of approximately $15 million generated as a result of a worthless stock deduction for the Novel do Nordeste business included in the divestiture. Although management believes that the worthless stock deduction is valid, there can be no assurance that the IRS will not challenge it and, if challenged, that the Company will prevail. This tax benefit is included in the net loss from discontinued operations in the Consolidated Statements of Operations for the year ended December 31, 2017.
The following table summarizes the activity related to the Company’s unrecognized tax benefits:
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
Balance at January 1 |
|
$ |
478 |
|
|
$ |
151 |
|
|
$ |
483 |
|
Increases related to previous year tax positions |
|
|
359 |
|
|
|
478 |
|
|
|
151 |
|
Reductions due to lapse of applicable statute of limitations |
|
|
(478 |
) |
|
|
(151 |
) |
|
|
(483 |
) |
Reduction due to settlements |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Balance at December 31 |
|
$ |
359 |
|
|
$ |
478 |
|
|
$ |
151 |
|
The total amount of gross unrecognized tax benefits that would reduce the Company’s effective tax rate was $0.4 million, $0.5 million and $0.2 million at December 31, 2017, 2016 and 2015.
The Company and its subsidiaries file U.S. Federal, state and local, and non-U.S. income tax returns. As of December 31, 2017, the Company is no longer subject to U.S. Federal examinations by tax authorities for tax years before 2014. 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 2012 through 2016.
|
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 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. The plan was frozen in 2007, and thus benefits for service were no longer accumulated after this date.
Net periodic pension cost for the years ended December 31, 2017, 2016 and 2015 was as follows:
|
|
For the Year Ended December 31, |
|
|||||||||
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
Interest cost |
|
$ |
253 |
|
|
$ |
270 |
|
|
$ |
272 |
|
Expected return on assets |
|
|
(295 |
) |
|
|
(319 |
) |
|
|
(332 |
) |
Amortization of net loss |
|
|
96 |
|
|
|
82 |
|
|
|
88 |
|
Net periodic pension cost |
|
$ |
54 |
|
|
$ |
33 |
|
|
$ |
28 |
|
The reconciliation of changes in projected benefit obligations are as follows:
|
|
December 31, |
|
|||||
|
|
2017 |
|
|
2016 |
|
||
Projected benefit obligation at beginning of year |
|
$ |
6,503 |
|
|
$ |
6,465 |
|
Interest cost |
|
|
253 |
|
|
|
270 |
|
Actuarial loss |
|
|
276 |
|
|
|
238 |
|
Expenses paid |
|
|
(84 |
) |
|
|
(92 |
) |
Benefits paid |
|
|
(369 |
) |
|
|
(378 |
) |
Projected benefit obligation at end of year |
|
$ |
6,579 |
|
|
$ |
6,503 |
|
Accumulated benefit obligation at end of year |
|
$ |
6,579 |
|
|
$ |
6,503 |
|
The assumptions used to determine the net periodic benefit cost and benefit obligations are as follows:
|
|
December 31, |
|
|||||||||
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
Discount rate for net periodic pension cost |
|
|
4.00 |
% |
|
|
4.30 |
% |
|
|
3.90 |
% |
Discount rate for benefit obligations |
|
|
3.50 |
% |
|
|
4.00 |
% |
|
|
4.30 |
% |
Expected long-term return of plan assets |
|
|
7.75 |
% |
|
|
7.75 |
% |
|
|
7.50 |
% |
The expected long-term rate of return assumption is based on the actual historical rate of return on assets adjusted to reflect recent market conditions and future expectations consistent with the Company’s current asset allocation and investment policy. This policy provides for aggressive capital growth balanced with moderate income production. Though inherent risks of equity exposure exist, returns generally are less volatile than maximum growth programs. The assumed discount rates represent long-term high quality corporate bond rates commensurate with the liability duration of the plan.
The following table reflects the change in the fair value of the plan’s assets:
|
|
December 31, |
|
|||||
|
|
2017 |
|
|
2016 |
|
||
Fair value of plan assets at beginning of year |
|
$ |
5,183 |
|
|
$ |
5,443 |
|
Actual return on plan assets |
|
|
531 |
|
|
|
210 |
|
Company contributions |
|
|
— |
|
|
|
— |
|
Expenses paid |
|
|
(84 |
) |
|
|
(92 |
) |
Benefits paid |
|
|
(369 |
) |
|
|
(378 |
) |
Fair value of plan assets at end of year |
|
$ |
5,261 |
|
|
$ |
5,183 |
|
The fair value of plan assets are all categorized as level 1 and were determined based on period end closing, quoted prices in active markets.
The weighted average asset allocations at December 31, 2017 and 2016 are as follows:
|
|
December 31, |
|
|||||
|
|
2017 |
|
|
2016 |
|
||
U.S. Equities securities |
|
|
72 |
% |
|
|
72 |
% |
U.S. Debt securities |
|
|
24 |
% |
|
|
24 |
% |
Cash |
|
|
4 |
% |
|
|
4 |
% |
Total |
|
|
100 |
% |
|
|
100 |
% |
The following table provides a reconciliation of the funded status of the plan at December 31, 2017 and 2016:
|
|
December 31, |
|
|||||
|
|
2017 |
|
|
2016 |
|
||
Projected benefit obligation |
|
$ |
6,579 |
|
|
$ |
6,503 |
|
Plan assets at fair value |
|
|
5,261 |
|
|
|
5,183 |
|
Funded status |
|
$ |
(1,318 |
) |
|
$ |
(1,320 |
) |
The funded status shown above is included in Other Liabilities in the Company’s Consolidated Statements of Financial Position at December 31, 2017 and 2016. The Company does not expect to make a contribution to the plan in 2018.
Benefit payments projected for the plan are as follows:
2018 |
|
$ |
360 |
|
2019 |
|
|
366 |
|
2020 |
|
|
371 |
|
2021 |
|
|
372 |
|
2022 |
|
|
370 |
|
2023-2027 |
|
|
1,874 |
|
The Myers Industries Profit Sharing and 401(k) Plan is maintained for the Company’s U.S. based employees, not covered under defined benefit plans, who have met eligibility service requirements. The Company recognized expense related to the 401(k) employer matching contribution in the amount of $2,302, $2,324 and $2,363 in 2017, 2016 and 2015, respectively.
In addition, the Company has a Supplemental Executive Retirement Plan (“SERP”) to provide certain participating senior executives with retirement benefits in addition to amounts payable under the 401(k) plan. Expense related to the SERP was approximately $128, $192 and $188 for the years ended December 2017, 2016 and 2015, respectively. The SERP liability was based on the discounted present value of expected future benefit payments using a discount rate of 3.5% at December 31, 2017 and 4.0% at December 31, 2016. The SERP liability was approximately $2,923 and $3,319 at December 31, 2017 and 2016, respectively, and is included in Accrued Employee Compensation and Other Liabilities on the accompanying Consolidated Statements of Financial Position. The SERP is unfunded.
|
13. Leases
The Company and certain of its subsidiaries are committed under non-cancelable operating leases involving certain facilities and equipment. Aggregate rental expense for all leased assets was $3,198, $3,625 and $3,647 for the years ended December 31, 2017, 2016 and 2015, respectively.
Future minimum rental commitments are as follows:
Year Ended December 31, |
|
|
|
|
2018 |
|
$ |
2,486 |
|
2019 |
|
|
942 |
|
2020 |
|
|
663 |
|
2021 |
|
|
590 |
|
2022 |
|
|
564 |
|
Thereafter |
|
|
390 |
|
Total |
|
$ |
5,635 |
|
|
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 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 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 its sales offices and four regional distribution centers in the United States, and in certain 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.
Total sales from foreign business units were approximately $53.9 million, $64.2 million, and $75.1 million for the years ended December 31, 2017, 2016 and 2015, respectively. Total export sales to countries outside the U.S. were approximately $17.2 million, $18.6 million, and $25.6 million for the years ended December 31, 2017, 2016 and 2015, respectively. Sales made to customers in Canada accounted for approximately 2.4% of total net sales in 2017, 4.6% in 2016 and 5.5% in 2015. There are no other individual foreign countries for which sales are material. Long-lived assets in foreign countries, primarily in Canada, consisted of property, plant and equipment, and were approximately $17.6 million at December 31, 2017 and $22.4 million at December 31, 2016.
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
Net Sales |
|
|
|
|
|
|
|
|
|
|
|
|
Material Handling |
|
$ |
391,313 |
|
|
$ |
363,956 |
|
|
$ |
384,351 |
|
Distribution |
|
|
156,428 |
|
|
|
170,660 |
|
|
|
187,637 |
|
Inter-company sales |
|
|
(698 |
) |
|
|
(237 |
) |
|
|
(968 |
) |
Total net sales |
|
$ |
547,043 |
|
|
$ |
534,379 |
|
|
$ |
571,020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
Material Handling |
|
$ |
38,874 |
|
|
$ |
40,776 |
|
|
$ |
53,418 |
|
Distribution |
|
|
9,073 |
|
|
|
12,834 |
|
|
|
16,114 |
|
Corporate |
|
|
(23,059 |
) |
|
|
(26,248 |
) |
|
|
(35,015 |
) |
Total operating income |
|
|
24,888 |
|
|
|
27,362 |
|
|
|
34,517 |
|
Interest expense, net |
|
|
(7,292 |
) |
|
|
(8,643 |
) |
|
|
(9,009 |
) |
Loss on extinguishment of debt |
|
|
(1,888 |
) |
|
|
— |
|
|
|
— |
|
Income from continuing operations before income taxes |
|
$ |
15,708 |
|
|
$ |
18,719 |
|
|
$ |
25,508 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable Assets |
|
|
|
|
|
|
|
|
|
|
|
|
Material Handling |
|
$ |
257,863 |
|
|
$ |
268,634 |
|
|
$ |
307,799 |
|
Distribution |
|
|
49,822 |
|
|
|
56,072 |
|
|
|
58,772 |
|
Corporate |
|
|
48,257 |
|
|
|
36,271 |
|
|
|
34,746 |
|
Discontinued operations |
|
|
— |
|
|
|
20,707 |
|
|
|
27,707 |
|
Total identifiable assets |
|
$ |
355,942 |
|
|
$ |
381,684 |
|
|
$ |
429,024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Additions, Net |
|
|
|
|
|
|
|
|
|
|
|
|
Material Handling |
|
$ |
5,165 |
|
|
$ |
10,933 |
|
|
$ |
19,482 |
|
Distribution |
|
|
622 |
|
|
|
1,424 |
|
|
|
1,795 |
|
Corporate |
|
|
27 |
|
|
|
132 |
|
|
|
510 |
|
Total capital additions, net |
|
$ |
5,814 |
|
|
$ |
12,489 |
|
|
$ |
21,787 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization |
|
|
|
|
|
|
|
|
|
|
|
|
Material Handling |
|
$ |
28,506 |
|
|
$ |
29,270 |
|
|
$ |
30,018 |
|
Distribution |
|
|
1,174 |
|
|
|
1,221 |
|
|
|
998 |
|
Corporate |
|
|
1,151 |
|
|
|
1,301 |
|
|
|
1,314 |
|
Total depreciation and amortization |
|
$ |
30,831 |
|
|
$ |
31,792 |
|
|
$ |
32,330 |
|
|
15. Subsequent Events (Unaudited)
On February 27, 2018, the Company sold a distribution center in Pomona, California for approximately $2.3 million, net of approximately $0.1 million in closing costs. The Company concurrently entered into an agreement to lease the facility back from the buyer for a period of 10 years. This facility is included in our Distribution Segment.
|
16. Summarized Quarterly Results of Operations (Unaudited)
Quarter Ended 2017 |
|
March 31 |
|
|
June 30 |
|
|
September 30 |
|
|
December 31 |
|
|
Total |
|
|||||
Net Sales |
|
$ |
136,572 |
|
|
$ |
135,252 |
|
|
$ |
135,113 |
|
|
$ |
140,106 |
|
|
$ |
547,043 |
|
Gross Profit |
|
|
41,761 |
|
|
|
38,292 |
|
|
|
39,143 |
|
|
|
38,257 |
|
|
|
157,453 |
|
Income (loss) from continuing operations (3) (4) |
|
|
3,458 |
|
|
|
2,482 |
|
|
|
3,083 |
|
|
|
1,821 |
|
|
|
10,844 |
|
Income (loss) from discontinued operations, net (1) (2) |
|
|
(344 |
) |
|
|
(489 |
) |
|
|
174 |
|
|
|
(20,074 |
) |
|
|
(20,733 |
) |
Net income (loss)(1) (2) (3) (4) |
|
|
3,114 |
|
|
|
1,993 |
|
|
|
3,257 |
|
|
|
(18,253 |
) |
|
|
(9,889 |
) |
Income (loss) per common share from continuing operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic* |
|
$ |
0.12 |
|
|
$ |
0.08 |
|
|
$ |
0.10 |
|
|
$ |
0.06 |
|
|
$ |
0.36 |
|
Diluted* |
|
$ |
0.11 |
|
|
$ |
0.08 |
|
|
$ |
0.10 |
|
|
$ |
0.06 |
|
|
$ |
0.35 |
|
Income (loss) per common share from discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic* |
|
$ |
(0.02 |
) |
|
$ |
(0.01 |
) |
|
$ |
0.01 |
|
|
$ |
(0.66 |
) |
|
$ |
(0.69 |
) |
Diluted* |
|
$ |
(0.01 |
) |
|
$ |
(0.01 |
) |
|
$ |
0.01 |
|
|
$ |
(0.65 |
) |
|
$ |
(0.68 |
) |
Net income (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic* |
|
$ |
0.10 |
|
|
$ |
0.07 |
|
|
$ |
0.11 |
|
|
$ |
(0.60 |
) |
|
$ |
(0.33 |
) |
Diluted* |
|
$ |
0.10 |
|
|
$ |
0.07 |
|
|
$ |
0.11 |
|
|
$ |
(0.59 |
) |
|
$ |
(0.33 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended 2016 |
|
March 31 |
|
|
June 30 |
|
|
September 30 |
|
|
December 31 |
|
|
Total |
|
|||||
Net Sales |
|
$ |
147,177 |
|
|
$ |
138,244 |
|
|
$ |
125,669 |
|
|
$ |
123,289 |
|
|
$ |
534,379 |
|
Gross Profit |
|
|
48,440 |
|
|
|
43,482 |
|
|
|
34,676 |
|
|
|
35,300 |
|
|
|
161,898 |
|
Income (loss) from continuing operations |
|
|
5,722 |
|
|
|
5,921 |
|
|
|
580 |
|
|
|
(899 |
) |
|
|
11,324 |
|
Income (loss) from discontinued operations, net (5) |
|
|
(9,115 |
) |
|
|
(427 |
) |
|
|
(166 |
) |
|
|
(559 |
) |
|
|
(10,267 |
) |
Net income (loss)(5) |
|
|
(3,393 |
) |
|
|
5,494 |
|
|
|
414 |
|
|
|
(1,458 |
) |
|
|
1,057 |
|
Income (loss) per common share from continuing operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic* |
|
$ |
0.19 |
|
|
$ |
0.20 |
|
|
$ |
0.02 |
|
|
$ |
(0.03 |
) |
|
$ |
0.38 |
|
Diluted* |
|
$ |
0.19 |
|
|
$ |
0.20 |
|
|
$ |
0.02 |
|
|
$ |
(0.03 |
) |
|
$ |
0.38 |
|
Income (loss) per common share from discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic* |
|
$ |
(0.30 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.02 |
) |
|
$ |
(0.35 |
) |
Diluted* |
|
$ |
(0.30 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.02 |
) |
|
$ |
(0.35 |
) |
Net income (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic* |
|
$ |
(0.11 |
) |
|
$ |
0.19 |
|
|
$ |
0.01 |
|
|
$ |
(0.05 |
) |
|
$ |
0.03 |
|
Diluted* |
|
$ |
(0.11 |
) |
|
$ |
0.19 |
|
|
$ |
0.01 |
|
|
$ |
(0.05 |
) |
|
$ |
0.03 |
|
(1) |
A loss on the sale of the Brazil Business of $35 million was recognized during the fourth quarter of 2017. This loss is included in loss from discontinued operations in the accompanying Consolidated Statements of Operations. |
(2) |
During the quarter ended December 31, 2017, the Company recorded a U.S. tax benefit of approximately $15 million as a result of a worthless stock deduction related to the Company’s investment in the Brazil Business. This benefit is included in loss from discontinued operations in the accompanying Consolidated Statements of Operations. |
(3) |
During the quarter ended December 31, 2017, the Company recorded a loss on extinguishment of debt of approximately $1.9 million. |
(4) |
During the quarter ended December 31, 2017, the Company recorded a net tax benefit of approximately $1.2 million related to the Tax Act. |
(5) |
During the quarter ended March 31, 2016, the Company concluded that the goodwill, intangibles and other long-lived assets related to Novel were impaired and recorded an impairment charge of $8.5 million. |
* |
The sum of the earnings per share for the four quarters in a year does not necessarily equal the total year earnings per share due to the computation of weighted shares outstanding during each respective period. |
1
|
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.
During the fourth quarter of 2017, the Company completed the sale of certain subsidiaries in Brazil. As further discussed in Note 4, the results of operations and cash flows of these subsidiaries have been classified as discontinued operations in the consolidated financial statements for all periods presented.
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.
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 early adopted this standard in the fourth quarter of 2017. The adoption of this standard did not have a significant impact on the Company’s consolidated financial statements.
Accounting Standards Not Yet Adopted
In February 2018, the FASB issued ASU 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220). This ASU allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. The new standard also requires certain disclosures about stranded tax effects. This ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted. The ASU should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act of 2017 (as further discussed in Note 11) is recognized. The Company is currently evaluating the impact the adoption of this standard will have on its consolidated financial statements.
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 a material 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 has elected not to early adopt this guidance for fiscal year 2017 and will continue to evaluate 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 should be applied using a retrospective transition method to each period presented and 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 presentation within 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 does not anticipate that adoption of this standard will have a material 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 a 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 will adopt the new guidance effective January 1, 2018 under the modified retrospective approach. As part of the implementation plan developed, the Company identified its revenue streams and completed its contract review for each of these revenue streams to assess the impact of the new guidance on its consolidated financial statements. 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. Based on the results of these reviews, the adoption of this standard will not have a material impact on the timing or measurement of revenue recognition in the Company’s consolidated financial statements. Additionally, the standard requires new disclosures related to revenue, which the Company is in the process of finalizing.
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 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 10, 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, 2017 and 2016, the aggregate fair value of the Company's outstanding fixed rate senior unsecured notes was estimated at $78.0 million and $98.0 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 2017 accounts for approximately 5% of net sales with no other customer greater than 4%. Outside of the United States, only customers located in Canada, which account for approximately 2.4% of net sales, 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 $0.7 million, $0.8 million and $0.3 million for 2017, 2016 and 2015, respectively, and is recorded within selling expenses in the Consolidated Statement of Operations. Deductions from the allowance for doubtful accounts, net of recoveries, were approximately $0.7 million, $0.4 million and $0.5 million for 2017, 2016 and 2015, respectively.
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 30 percent of our inventories are valued using the LIFO method of determining cost. Cost of other inventories is determined using methods that approximate the FIFO method.
Inventories at December 31 consist of the following:
|
|
December 31, |
|
|
December 31, |
|
||
|
|
2017 |
|
|
2016 |
|
||
Finished and in-process products |
|
$ |
30,874 |
|
|
$ |
31,081 |
|
Raw materials and supplies |
|
|
16,151 |
|
|
|
13,704 |
|
|
|
$ |
47,025 |
|
|
$ |
44,785 |
|
If the FIFO method of inventory cost valuation had been used exclusively by the Company, inventories would have been $5.6 million and $4.7 million higher than reported at December 31, 2017 and 2016, respectively. Cost of sales decreased by $0.1 million and less than $0.1 million in 2017 and 2015, respectively, as a result of the liquidation of LIFO inventories. Cost of sales increased by $0.1 million in 2016 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 |
The Company’s property, plant and equipment by major asset class at December 31 consists of:
|
|
December 31, |
|
|
December 31, |
|
||
|
|
2017 |
|
|
2016 |
|
||
Land |
|
$ |
7,815 |
|
|
$ |
8,916 |
|
Buildings and leasehold improvements |
|
|
59,730 |
|
|
|
65,425 |
|
Machinery and equipment |
|
|
260,880 |
|
|
|
299,065 |
|
|
|
|
328,425 |
|
|
|
373,406 |
|
Less allowances for depreciation and amortization |
|
|
(244,521 |
) |
|
|
(267,140 |
) |
|
|
$ |
83,904 |
|
|
$ |
106,266 |
|
At December 31, 2017 and 2016, the Company had approximately $6.9 million and $6.2 million, respectively, of capitalized software costs included in machinery and equipment. Amortization expense related to capitalized software costs was approximately $1.0 million, $0.6 million and $0.5 million in 2017, 2016 and 2015, 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 sale, 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 2 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, 2015 |
|
$ |
(9,825 |
) |
|
$ |
(1,863 |
) |
|
$ |
(11,688 |
) |
Other comprehensive income 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 |
) |
Other comprehensive income before reclassifications |
|
|
2,391 |
|
|
|
(31 |
) |
|
|
2,360 |
|
Amounts reclassified from accumulated other comprehensive income, net of tax of ($24) (1) (2) |
|
|
17,201 |
|
|
|
72 |
|
|
|
17,273 |
|
Net current-period other comprehensive income (loss) |
|
|
19,592 |
|
|
|
41 |
|
|
|
19,633 |
|
Balance at December 31, 2017 |
|
$ |
(12,750 |
) |
|
$ |
(1,791 |
) |
|
$ |
(14,541 |
) |
|
(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 12, Retirement Plans for additional details. |
|
(2) |
Cumulative translation adjustment associated with the sale of the Brazil Business, as further discussed in Note 4, was included in the carrying value of assets disposed of. |
Shipping and Handling
Costs for shipments to customers are classified as selling expenses for the Company’s manufacturing business and as cost of sales for the Company’s distribution business in the accompanying Consolidated Statements of Operations. The Company incurred costs for shipments to customers of approximately $8.2 million, $8.9 million and $8.5 million in selling expenses for the years ended December 31, 2017, 2016 and 2015, respectively and $6.0 million, $6.1 million, and $6.2 million in cost of sales for the years ended December 31, 2017, 2016 and 2015. All other internal distribution costs are recorded in selling expenses.
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 the change is enacted.
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 $0.6 million, $0.1 million and $6.6 million of accrued capital expenditures in 2017, 2016 and 2015, respectively.
|
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 30 percent of our inventories are valued using the LIFO method of determining cost. Cost of other inventories is determined using methods that approximate the FIFO method.
Inventories at December 31 consist of the following:
|
|
December 31, |
|
|
December 31, |
|
||
|
|
2017 |
|
|
2016 |
|
||
Finished and in-process products |
|
$ |
30,874 |
|
|
$ |
31,081 |
|
Raw materials and supplies |
|
|
16,151 |
|
|
|
13,704 |
|
|
|
$ |
47,025 |
|
|
$ |
44,785 |
|
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 |
The Company’s property, plant and equipment by major asset class at December 31 consists of:
|
|
December 31, |
|
|
December 31, |
|
||
|
|
2017 |
|
|
2016 |
|
||
Land |
|
$ |
7,815 |
|
|
$ |
8,916 |
|
Buildings and leasehold improvements |
|
|
59,730 |
|
|
|
65,425 |
|
Machinery and equipment |
|
|
260,880 |
|
|
|
299,065 |
|
|
|
|
328,425 |
|
|
|
373,406 |
|
Less allowances for depreciation and amortization |
|
|
(244,521 |
) |
|
|
(267,140 |
) |
|
|
$ |
83,904 |
|
|
$ |
106,266 |
|
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, 2015 |
|
$ |
(9,825 |
) |
|
$ |
(1,863 |
) |
|
$ |
(11,688 |
) |
Other comprehensive income 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 |
) |
Other comprehensive income before reclassifications |
|
|
2,391 |
|
|
|
(31 |
) |
|
|
2,360 |
|
Amounts reclassified from accumulated other comprehensive income, net of tax of ($24) (1) (2) |
|
|
17,201 |
|
|
|
72 |
|
|
|
17,273 |
|
Net current-period other comprehensive income (loss) |
|
|
19,592 |
|
|
|
41 |
|
|
|
19,633 |
|
Balance at December 31, 2017 |
|
$ |
(12,750 |
) |
|
$ |
(1,791 |
) |
|
$ |
(14,541 |
) |
|
(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 12, Retirement Plans for additional details. |
|
(2) |
Cumulative translation adjustment associated with the sale of the Brazil Business, as further discussed in Note 4, was included in the carrying value of assets disposed of. |
|
The change in the carrying amount of goodwill for the years ended December 31, 2017 and 2016 is as follows:
|
|
Distribution |
|
|
Material Handling |
|
|
Total |
|
|||
January 1, 2016 |
|
$ |
505 |
|
|
$ |
58,382 |
|
|
$ |
58,887 |
|
Foreign currency translation |
|
|
— |
|
|
|
332 |
|
|
|
332 |
|
December 31, 2016 |
|
$ |
505 |
|
|
$ |
58,714 |
|
|
$ |
59,219 |
|
Foreign currency translation |
|
|
— |
|
|
|
752 |
|
|
|
752 |
|
December 31, 2017 |
|
$ |
505 |
|
|
$ |
59,466 |
|
|
$ |
59,971 |
|
Intangible assets at December 31, 2017 and 2016 consisted of the following:
|
|
|
|
|
|
2017 |
|
|
2016 |
|
||||||||||||||||||
|
|
Weighted Average Remaining Useful Life (years) |
|
|
Gross |
|
|
Accumulated Amortization |
|
|
Net |
|
|
Gross |
|
|
Accumulated Amortization |
|
|
Net |
|
|||||||
Trade Names – Indefinite Lived |
|
|
|
|
|
$ |
9,972 |
|
|
$ |
— |
|
|
$ |
9,972 |
|
|
$ |
10,050 |
|
|
$ |
— |
|
|
$ |
10,050 |
|
Trade Names |
|
|
7.5 |
|
|
|
80 |
|
|
|
(40 |
) |
|
|
40 |
|
|
|
80 |
|
|
|
(34 |
) |
|
|
46 |
|
Customer Relationships |
|
|
2.0 |
|
|
|
41,043 |
|
|
|
(27,396 |
) |
|
|
13,647 |
|
|
|
39,774 |
|
|
|
(21,127 |
) |
|
|
18,647 |
|
Technology |
|
|
6.2 |
|
|
|
24,980 |
|
|
|
(9,590 |
) |
|
|
15,390 |
|
|
|
24,980 |
|
|
|
(7,037 |
) |
|
|
17,943 |
|
Patents |
|
|
0.0 |
|
|
|
11,730 |
|
|
|
(11,730 |
) |
|
|
— |
|
|
|
11,730 |
|
|
|
(11,548 |
) |
|
|
182 |
|
|
|
|
|
|
|
$ |
87,805 |
|
|
$ |
(48,756 |
) |
|
$ |
39,049 |
|
|
$ |
86,614 |
|
|
$ |
(39,746 |
) |
|
$ |
46,868 |
|
|
The assets and liabilities of discontinued operations are stated separately as of December 31, 2016 in the Consolidated Statement of Financial Position and are comprised of the following items:
|
|
December 31, 2016 |
|
|
Cash and cash equivalents |
|
$ |
5,484 |
|
Accounts receivable, net |
|
|
7,328 |
|
Inventories |
|
|
1,238 |
|
Prepaid expenses and other current assets |
|
|
148 |
|
Total current assets |
|
|
14,198 |
|
|
|
|
|
|
Intangible assets, net |
|
|
1,126 |
|
Deferred income taxes |
|
|
134 |
|
Property, plant and equipment, net |
|
|
5,215 |
|
Other |
|
|
34 |
|
Total noncurrent assets |
|
|
6,509 |
|
Total assets of the disposal group classified as discontinued operations |
|
$ |
20,707 |
|
|
|
|
|
|
Accounts payable |
|
$ |
1,415 |
|
Accrued expenses |
|
|
1,335 |
|
Total current liabilities |
|
|
2,750 |
|
|
|
|
|
|
Deferred income taxes |
|
|
249 |
|
Total noncurrent liabilities |
|
|
249 |
|
Total liabilities of the disposal group classified as discontinued operations |
|
$ |
2,999 |
|
Summarized selected financial information for Brazil Business, Lawn and Garden business and WEK for the years ended December 31, 2017, 2016 and 2015 are presented in the following table:
|
|
|
For the Year Ended December 31, |
|
|||||||||
|
|
|
2017* |
|
|
2016 |
|
|
2015** |
|
|||
Net sales |
|
|
$ |
29,976 |
|
|
$ |
23,683 |
|
|
$ |
59,853 |
|
Cost of sales |
|
|
|
25,359 |
|
|
|
20,941 |
|
|
|
50,772 |
|
Selling, general, and administrative |
|
|
|
6,748 |
|
|
|
5,438 |
|
|
|
13,898 |
|
(Gain) loss on disposal of assets |
|
|
|
(32 |
) |
|
|
226 |
|
|
|
62 |
|
Impairment charges |
|
|
|
— |
|
|
|
8,545 |
|
|
|
— |
|
Interest income, net |
|
|
|
(286 |
) |
|
|
(469 |
) |
|
|
(10 |
) |
Gain (loss) on the disposal of the discontinued operations |
|
|
|
(34,956 |
) |
|
|
— |
|
|
|
1,873 |
|
Loss from discontinued operations before income tax |
|
|
|
(36,769 |
) |
|
|
(10,998 |
) |
|
|
(2,996 |
) |
Income tax benefit |
|
|
|
(16,036 |
) |
|
|
(731 |
) |
|
|
(3,287 |
) |
Income (loss) from discontinued operations, net of income tax |
|
|
$ |
(20,733 |
) |
|
$ |
(10,267 |
) |
|
$ |
291 |
|
* |
Includes Brazil Business operating results through December 18, 2017. |
** |
Includes Lawn and Garden operating results through February 17, 2015. |
|
The restructuring charges recognized in the years ended 2017, 2016 and 2015 are presented in the following table.
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||||||||||||||||||||||||||
Segment |
|
|
Cost of sales |
|
|
SG&A |
|
|
Total |
|
|
Cost of sales |
|
|
SG&A |
|
|
Total |
|
|
Cost of sales |
|
|
SG&A |
|
|
Total |
|
|||||||||
Distribution |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
124 |
|
|
$ |
124 |
|
Material Handling |
|
|
|
7,389 |
|
|
|
164 |
|
|
|
7,553 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,340 |
|
|
|
912 |
|
|
|
2,252 |
|
Corporate |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
35 |
|
|
|
35 |
|
Total |
|
|
$ |
7,389 |
|
|
$ |
164 |
|
|
$ |
7,553 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1,340 |
|
|
$ |
1,071 |
|
|
$ |
2,411 |
|
The table below summarizes restructuring activity for the year ended December 31, 2017:
|
|
Employee Reduction |
|
|
Accelerated Depreciation |
|
|
Other Exit Costs |
|
|
Total |
|
||||
Balance at January 1, 2017 |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Charges to expense |
|
|
3,022 |
|
|
|
1,993 |
|
|
|
2,538 |
|
|
|
7,553 |
|
Cash payments |
|
|
(1,924 |
) |
|
|
— |
|
|
|
(2,448 |
) |
|
|
(4,372 |
) |
Non-cash utilization |
|
|
— |
|
|
|
(1,993 |
) |
|
|
— |
|
|
|
(1,993 |
) |
Balance at December 31, 2017 |
|
$ |
1,098 |
|
|
$ |
— |
|
|
$ |
90 |
|
|
$ |
1,188 |
|
|
As of December 31, 2017 and 2016, the balance in other current liabilities is comprised of the following:
|
|
December 31, |
|
|
December 31, |
|
||
|
|
2017 |
|
|
2016 |
|
||
Deposits and amounts due to customers |
|
$ |
3,102 |
|
|
$ |
2,562 |
|
Dividends payable |
|
|
4,478 |
|
|
|
4,260 |
|
Accrued litigation and professional fees |
|
|
417 |
|
|
|
452 |
|
Current portion of environmental reserves |
|
|
1,322 |
|
|
|
605 |
|
Other accrued expenses |
|
|
6,153 |
|
|
|
5,032 |
|
|
|
$ |
15,472 |
|
|
$ |
12,911 |
|
|
The following tables summarize stock option activity in the past three years:
Options granted in 2017, 2016 and 2015 were as follows:
Year |
|
Options |
|
|
Exercise Price |
|
||
2017 |
|
|
397,759 |
|
|
$ |
14.30 |
|
2016 |
|
|
271,350 |
|
|
$ |
11.62 |
|
2015 |
|
|
208,200 |
|
|
$ |
18.67 |
|
Options exercised in 2017, 2016 and 2015 were as follows:
Year |
|
Options |
|
|
Exercise Price |
|
2017 |
|
|
375,292 |
|
|
$9.97 to $20.93 |
2016 |
|
|
334,836 |
|
|
$9.00 to $14.77 |
2015 |
|
|
239,508 |
|
|
$9.97 to $17.02 |
Options outstanding and exercisable at December 31, 2017, 2016 and 2015 were as follows:
Year |
|
Outstanding |
|
|
Range of Exercise Prices |
|
Exercisable |
|
|
Weighted Average Exercise Price |
|
|||
2017 |
|
|
988,167 |
|
|
$9.97 to $20.93 |
|
|
539,993 |
|
|
$ |
16.23 |
|
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 |
|
The following table provides a summary of stock option activity for the period ended December 31, 2017:
|
|
Shares |
|
|
Average Exercise Price |
|
|
Weighted Average Life (in Years) |
|
|||
Outstanding at December 31, 2016 |
|
|
1,183,830 |
|
|
$ |
14.50 |
|
|
|
|
|
Options granted |
|
|
397,759 |
|
|
|
14.30 |
|
|
|
|
|
Options exercised |
|
|
(375,292 |
) |
|
|
11.71 |
|
|
|
|
|
Canceled or forfeited |
|
|
(218,130 |
) |
|
|
16.08 |
|
|
|
|
|
Expired |
|
|
— |
|
|
|
— |
|
|
|
|
|
Outstanding at December 31, 2017 |
|
|
988,167 |
|
|
|
15.13 |
|
|
|
7.24 |
|
Exercisable at December 31, 2017 |
|
|
539,993 |
|
|
$ |
16.23 |
|
|
|
5.85 |
|
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 2017, 2016 and 2015, the Company used the binomial lattice option pricing model based on the assumptions set forth in the following table.
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
Risk free interest rate |
|
|
2.50 |
% |
|
|
1.80 |
% |
|
|
2.10 |
% |
Expected dividend yield |
|
|
3.80 |
% |
|
|
4.60 |
% |
|
|
2.90 |
% |
Expected life of award (years) |
|
|
4.10 |
|
|
8.00 |
|
|
|
8.00 |
|
|
Expected volatility |
|
|
50.00 |
% |
|
|
50.00 |
% |
|
|
50.00 |
% |
Fair value per option |
|
$ |
4.47 |
|
|
$ |
3.45 |
|
|
$ |
6.03 |
|
The following table provides a summary of restricted stock units and restricted stock activity for the year ended December 31, 2017:
|
|
Shares |
|
|
Average Grant-Date Fair Value |
|
||
Unvested shares at December 31, 2016 |
|
|
331,410 |
|
|
|
|
|
Granted |
|
|
238,111 |
|
|
$ |
14.57 |
|
Vested |
|
|
(100,006 |
) |
|
|
14.89 |
|
Forfeited |
|
|
(56,865 |
) |
|
|
13.91 |
|
Unvested shares at December 31, 2017 |
|
|
412,650 |
|
|
|
|
|
|
Long-term debt at December 31, 2017 and 2016 consisted of the following:
|
|
December 31, |
|
|
December 31, |
|
||
|
|
2017 |
|
|
2016 |
|
||
Loan Agreement |
|
$ |
74,632 |
|
|
$ |
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 |
|
|
15,000 |
|
|
|
29,000 |
|
5.45% Senior Unsecured Notes due 2026 |
|
|
12,000 |
|
|
|
20,000 |
|
|
|
|
152,632 |
|
|
|
190,686 |
|
Less unamortized deferred financing costs |
|
|
1,596 |
|
|
|
1,164 |
|
|
|
$ |
151,036 |
|
|
$ |
189,522 |
|
The ratios as of December 31, 2017 are shown in the following table:
|
|
Required Level |
|
Actual Level |
|
|
Interest Coverage Ratio |
|
3.00 to 1 (minimum) |
|
|
7.58 |
|
Leverage Ratio |
|
3.25 to 1 (maximum) |
|
|
2.40 |
|
|
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 |
|
|||||||||
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
Statutory Federal income tax rate |
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
State income taxes - net of Federal tax benefit |
|
|
8.3 |
|
|
|
3.0 |
|
|
|
0.2 |
|
Foreign tax rate differential |
|
|
(1.6 |
) |
|
|
(0.9 |
) |
|
|
(2.2 |
) |
Domestic production deduction |
|
|
(5.2 |
) |
|
|
(3.2 |
) |
|
|
(3.4 |
) |
Non-deductible expenses |
|
|
0.4 |
|
|
|
2.9 |
|
|
|
1.5 |
|
Impact of tax law changes |
|
|
(7.4 |
) |
|
|
— |
|
|
|
— |
|
Changes in unrecognized tax benefits |
|
|
0.9 |
|
|
|
(0.8 |
) |
|
|
(1.6 |
) |
Foreign tax incentives |
|
|
— |
|
|
|
(0.4 |
) |
|
|
— |
|
Valuation allowances |
|
|
— |
|
|
|
3.2 |
|
|
|
— |
|
Other |
|
|
0.6 |
|
|
|
0.7 |
|
|
|
2.0 |
|
Effective tax rate for the year |
|
|
31.0 |
% |
|
|
39.5 |
% |
|
|
31.5 |
% |
Income from continuing operations before income taxes was attributable to the following sources:
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
United States |
|
$ |
12,979 |
|
|
$ |
17,010 |
|
|
$ |
19,546 |
|
Foreign |
|
|
2,729 |
|
|
|
1,709 |
|
|
|
5,962 |
|
Totals |
|
$ |
15,708 |
|
|
$ |
18,719 |
|
|
$ |
25,508 |
|
Income tax expense (benefit) from continuing operations consisted of the following:
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||||||||||||||
|
|
Current |
|
|
Deferred |
|
|
Current |
|
|
Deferred |
|
|
Current |
|
|
Deferred |
|
||||||
Federal |
|
$ |
6,304 |
|
|
$ |
(4,394 |
) |
|
$ |
5,684 |
|
|
$ |
(413 |
) |
|
$ |
6,677 |
|
|
$ |
(368 |
) |
Foreign |
|
|
1,821 |
|
|
|
(883 |
) |
|
|
515 |
|
|
|
741 |
|
|
|
337 |
|
|
|
1,308 |
|
State and local |
|
|
2,402 |
|
|
|
(386 |
) |
|
|
641 |
|
|
|
227 |
|
|
|
812 |
|
|
|
(729 |
) |
|
|
$ |
10,527 |
|
|
$ |
(5,663 |
) |
|
$ |
6,840 |
|
|
$ |
555 |
|
|
$ |
7,826 |
|
|
$ |
211 |
|
Significant components of the Company’s deferred taxes as of December 31, 2017 and 2016 are as follows:
|
|
2017 |
|
|
2016 |
|
||
Deferred income tax liabilities |
|
|
|
|
|
|
|
|
Property, plant and equipment |
|
$ |
6,255 |
|
|
$ |
11,529 |
|
Tax-deductible goodwill |
|
|
5,202 |
|
|
|
9,136 |
|
State deferred taxes |
|
|
132 |
|
|
|
360 |
|
Other |
|
|
149 |
|
|
|
889 |
|
|
|
|
11,738 |
|
|
|
21,914 |
|
Deferred income tax assets |
|
|
|
|
|
|
|
|
Compensation |
|
|
3,030 |
|
|
|
5,686 |
|
Inventory valuation |
|
|
502 |
|
|
|
769 |
|
Allowance for uncollectible accounts |
|
|
268 |
|
|
|
487 |
|
Non-deductible accruals |
|
|
2,195 |
|
|
|
3,525 |
|
Non-deductible intangibles |
|
|
1,193 |
|
|
|
1,165 |
|
Capital loss carryforwards |
|
|
1,982 |
|
|
|
— |
|
Net operating loss carryforwards |
|
|
405 |
|
|
|
— |
|
|
|
|
9,575 |
|
|
|
11,632 |
|
Valuation Allowance |
|
|
(1,982 |
) |
|
|
— |
|
|
|
|
7,593 |
|
|
|
11,632 |
|
Net deferred income tax liability |
|
$ |
4,145 |
|
|
$ |
10,282 |
|
The following table summarizes the activity related to the Company’s unrecognized tax benefits:
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
Balance at January 1 |
|
$ |
478 |
|
|
$ |
151 |
|
|
$ |
483 |
|
Increases related to previous year tax positions |
|
|
359 |
|
|
|
478 |
|
|
|
151 |
|
Reductions due to lapse of applicable statute of limitations |
|
|
(478 |
) |
|
|
(151 |
) |
|
|
(483 |
) |
Reduction due to settlements |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Balance at December 31 |
|
$ |
359 |
|
|
$ |
478 |
|
|
$ |
151 |
|
|
Net periodic pension cost for the years ended December 31, 2017, 2016 and 2015 was as follows:
|
|
For the Year Ended December 31, |
|
|||||||||
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
Interest cost |
|
$ |
253 |
|
|
$ |
270 |
|
|
$ |
272 |
|
Expected return on assets |
|
|
(295 |
) |
|
|
(319 |
) |
|
|
(332 |
) |
Amortization of net loss |
|
|
96 |
|
|
|
82 |
|
|
|
88 |
|
Net periodic pension cost |
|
$ |
54 |
|
|
$ |
33 |
|
|
$ |
28 |
|
The reconciliation of changes in projected benefit obligations are as follows:
|
|
December 31, |
|
|||||
|
|
2017 |
|
|
2016 |
|
||
Projected benefit obligation at beginning of year |
|
$ |
6,503 |
|
|
$ |
6,465 |
|
Interest cost |
|
|
253 |
|
|
|
270 |
|
Actuarial loss |
|
|
276 |
|
|
|
238 |
|
Expenses paid |
|
|
(84 |
) |
|
|
(92 |
) |
Benefits paid |
|
|
(369 |
) |
|
|
(378 |
) |
Projected benefit obligation at end of year |
|
$ |
6,579 |
|
|
$ |
6,503 |
|
Accumulated benefit obligation at end of year |
|
$ |
6,579 |
|
|
$ |
6,503 |
|
The assumptions used to determine the net periodic benefit cost and benefit obligations are as follows:
|
|
December 31, |
|
|||||||||
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
Discount rate for net periodic pension cost |
|
|
4.00 |
% |
|
|
4.30 |
% |
|
|
3.90 |
% |
Discount rate for benefit obligations |
|
|
3.50 |
% |
|
|
4.00 |
% |
|
|
4.30 |
% |
Expected long-term return of plan assets |
|
|
7.75 |
% |
|
|
7.75 |
% |
|
|
7.50 |
% |
The following table reflects the change in the fair value of the plan’s assets:
|
|
December 31, |
|
|||||
|
|
2017 |
|
|
2016 |
|
||
Fair value of plan assets at beginning of year |
|
$ |
5,183 |
|
|
$ |
5,443 |
|
Actual return on plan assets |
|
|
531 |
|
|
|
210 |
|
Company contributions |
|
|
— |
|
|
|
— |
|
Expenses paid |
|
|
(84 |
) |
|
|
(92 |
) |
Benefits paid |
|
|
(369 |
) |
|
|
(378 |
) |
Fair value of plan assets at end of year |
|
$ |
5,261 |
|
|
$ |
5,183 |
|
The weighted average asset allocations at December 31, 2017 and 2016 are as follows:
|
|
December 31, |
|
|||||
|
|
2017 |
|
|
2016 |
|
||
U.S. Equities securities |
|
|
72 |
% |
|
|
72 |
% |
U.S. Debt securities |
|
|
24 |
% |
|
|
24 |
% |
Cash |
|
|
4 |
% |
|
|
4 |
% |
Total |
|
|
100 |
% |
|
|
100 |
% |
The following table provides a reconciliation of the funded status of the plan at December 31, 2017 and 2016:
|
|
December 31, |
|
|||||
|
|
2017 |
|
|
2016 |
|
||
Projected benefit obligation |
|
$ |
6,579 |
|
|
$ |
6,503 |
|
Plan assets at fair value |
|
|
5,261 |
|
|
|
5,183 |
|
Funded status |
|
$ |
(1,318 |
) |
|
$ |
(1,320 |
) |
Benefit payments projected for the plan are as follows:
2018 |
|
$ |
360 |
|
2019 |
|
|
366 |
|
2020 |
|
|
371 |
|
2021 |
|
|
372 |
|
2022 |
|
|
370 |
|
2023-2027 |
|
|
1,874 |
|
|
Future minimum rental commitments are as follows:
Year Ended December 31, |
|
|
|
|
2018 |
|
$ |
2,486 |
|
2019 |
|
|
942 |
|
2020 |
|
|
663 |
|
2021 |
|
|
590 |
|
2022 |
|
|
564 |
|
Thereafter |
|
|
390 |
|
Total |
|
$ |
5,635 |
|
|
Total sales from foreign business units were approximately $53.9 million, $64.2 million, and $75.1 million for the years ended December 31, 2017, 2016 and 2015, respectively. Total export sales to countries outside the U.S. were approximately $17.2 million, $18.6 million, and $25.6 million for the years ended December 31, 2017, 2016 and 2015, respectively. Sales made to customers in Canada accounted for approximately 2.4% of total net sales in 2017, 4.6% in 2016 and 5.5% in 2015. There are no other individual foreign countries for which sales are material. Long-lived assets in foreign countries, primarily in Canada, consisted of property, plant and equipment, and were approximately $17.6 million at December 31, 2017 and $22.4 million at December 31, 2016.
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
Net Sales |
|
|
|
|
|
|
|
|
|
|
|
|
Material Handling |
|
$ |
391,313 |
|
|
$ |
363,956 |
|
|
$ |
384,351 |
|
Distribution |
|
|
156,428 |
|
|
|
170,660 |
|
|
|
187,637 |
|
Inter-company sales |
|
|
(698 |
) |
|
|
(237 |
) |
|
|
(968 |
) |
Total net sales |
|
$ |
547,043 |
|
|
$ |
534,379 |
|
|
$ |
571,020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
Material Handling |
|
$ |
38,874 |
|
|
$ |
40,776 |
|
|
$ |
53,418 |
|
Distribution |
|
|
9,073 |
|
|
|
12,834 |
|
|
|
16,114 |
|
Corporate |
|
|
(23,059 |
) |
|
|
(26,248 |
) |
|
|
(35,015 |
) |
Total operating income |
|
|
24,888 |
|
|
|
27,362 |
|
|
|
34,517 |
|
Interest expense, net |
|
|
(7,292 |
) |
|
|
(8,643 |
) |
|
|
(9,009 |
) |
Loss on extinguishment of debt |
|
|
(1,888 |
) |
|
|
— |
|
|
|
— |
|
Income from continuing operations before income taxes |
|
$ |
15,708 |
|
|
$ |
18,719 |
|
|
$ |
25,508 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable Assets |
|
|
|
|
|
|
|
|
|
|
|
|
Material Handling |
|
$ |
257,863 |
|
|
$ |
268,634 |
|
|
$ |
307,799 |
|
Distribution |
|
|
49,822 |
|
|
|
56,072 |
|
|
|
58,772 |
|
Corporate |
|
|
48,257 |
|
|
|
36,271 |
|
|
|
34,746 |
|
Discontinued operations |
|
|
— |
|
|
|
20,707 |
|
|
|
27,707 |
|
Total identifiable assets |
|
$ |
355,942 |
|
|
$ |
381,684 |
|
|
$ |
429,024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Additions, Net |
|
|
|
|
|
|
|
|
|
|
|
|
Material Handling |
|
$ |
5,165 |
|
|
$ |
10,933 |
|
|
$ |
19,482 |
|
Distribution |
|
|
622 |
|
|
|
1,424 |
|
|
|
1,795 |
|
Corporate |
|
|
27 |
|
|
|
132 |
|
|
|
510 |
|
Total capital additions, net |
|
$ |
5,814 |
|
|
$ |
12,489 |
|
|
$ |
21,787 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization |
|
|
|
|
|
|
|
|
|
|
|
|
Material Handling |
|
$ |
28,506 |
|
|
$ |
29,270 |
|
|
$ |
30,018 |
|
Distribution |
|
|
1,174 |
|
|
|
1,221 |
|
|
|
998 |
|
Corporate |
|
|
1,151 |
|
|
|
1,301 |
|
|
|
1,314 |
|
Total depreciation and amortization |
|
$ |
30,831 |
|
|
$ |
31,792 |
|
|
$ |
32,330 |
|
|
Quarter Ended 2017 |
|
March 31 |
|
|
June 30 |
|
|
September 30 |
|
|
December 31 |
|
|
Total |
|
|||||
Net Sales |
|
$ |
136,572 |
|
|
$ |
135,252 |
|
|
$ |
135,113 |
|
|
$ |
140,106 |
|
|
$ |
547,043 |
|
Gross Profit |
|
|
41,761 |
|
|
|
38,292 |
|
|
|
39,143 |
|
|
|
38,257 |
|
|
|
157,453 |
|
Income (loss) from continuing operations (3) (4) |
|
|
3,458 |
|
|
|
2,482 |
|
|
|
3,083 |
|
|
|
1,821 |
|
|
|
10,844 |
|
Income (loss) from discontinued operations, net (1) (2) |
|
|
(344 |
) |
|
|
(489 |
) |
|
|
174 |
|
|
|
(20,074 |
) |
|
|
(20,733 |
) |
Net income (loss)(1) (2) (3) (4) |
|
|
3,114 |
|
|
|
1,993 |
|
|
|
3,257 |
|
|
|
(18,253 |
) |
|
|
(9,889 |
) |
Income (loss) per common share from continuing operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic* |
|
$ |
0.12 |
|
|
$ |
0.08 |
|
|
$ |
0.10 |
|
|
$ |
0.06 |
|
|
$ |
0.36 |
|
Diluted* |
|
$ |
0.11 |
|
|
$ |
0.08 |
|
|
$ |
0.10 |
|
|
$ |
0.06 |
|
|
$ |
0.35 |
|
Income (loss) per common share from discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic* |
|
$ |
(0.02 |
) |
|
$ |
(0.01 |
) |
|
$ |
0.01 |
|
|
$ |
(0.66 |
) |
|
$ |
(0.69 |
) |
Diluted* |
|
$ |
(0.01 |
) |
|
$ |
(0.01 |
) |
|
$ |
0.01 |
|
|
$ |
(0.65 |
) |
|
$ |
(0.68 |
) |
Net income (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic* |
|
$ |
0.10 |
|
|
$ |
0.07 |
|
|
$ |
0.11 |
|
|
$ |
(0.60 |
) |
|
$ |
(0.33 |
) |
Diluted* |
|
$ |
0.10 |
|
|
$ |
0.07 |
|
|
$ |
0.11 |
|
|
$ |
(0.59 |
) |
|
$ |
(0.33 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended 2016 |
|
March 31 |
|
|
June 30 |
|
|
September 30 |
|
|
December 31 |
|
|
Total |
|
|||||
Net Sales |
|
$ |
147,177 |
|
|
$ |
138,244 |
|
|
$ |
125,669 |
|
|
$ |
123,289 |
|
|
$ |
534,379 |
|
Gross Profit |
|
|
48,440 |
|
|
|
43,482 |
|
|
|
34,676 |
|
|
|
35,300 |
|
|
|
161,898 |
|
Income (loss) from continuing operations |
|
|
5,722 |
|
|
|
5,921 |
|
|
|
580 |
|
|
|
(899 |
) |
|
|
11,324 |
|
Income (loss) from discontinued operations, net (5) |
|
|
(9,115 |
) |
|
|
(427 |
) |
|
|
(166 |
) |
|
|
(559 |
) |
|
|
(10,267 |
) |
Net income (loss)(5) |
|
|
(3,393 |
) |
|
|
5,494 |
|
|
|
414 |
|
|
|
(1,458 |
) |
|
|
1,057 |
|
Income (loss) per common share from continuing operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic* |
|
$ |
0.19 |
|
|
$ |
0.20 |
|
|
$ |
0.02 |
|
|
$ |
(0.03 |
) |
|
$ |
0.38 |
|
Diluted* |
|
$ |
0.19 |
|
|
$ |
0.20 |
|
|
$ |
0.02 |
|
|
$ |
(0.03 |
) |
|
$ |
0.38 |
|
Income (loss) per common share from discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic* |
|
$ |
(0.30 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.02 |
) |
|
$ |
(0.35 |
) |
Diluted* |
|
$ |
(0.30 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.02 |
) |
|
$ |
(0.35 |
) |
Net income (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic* |
|
$ |
(0.11 |
) |
|
$ |
0.19 |
|
|
$ |
0.01 |
|
|
$ |
(0.05 |
) |
|
$ |
0.03 |
|
Diluted* |
|
$ |
(0.11 |
) |
|
$ |
0.19 |
|
|
$ |
0.01 |
|
|
$ |
(0.05 |
) |
|
$ |
0.03 |
|
(1) |
A loss on the sale of the Brazil Business of $35 million was recognized during the fourth quarter of 2017. This loss is included in loss from discontinued operations in the accompanying Consolidated Statements of Operations. |
(2) |
During the quarter ended December 31, 2017, the Company recorded a U.S. tax benefit of approximately $15 million as a result of a worthless stock deduction related to the Company’s investment in the Brazil Business. This benefit is included in loss from discontinued operations in the accompanying Consolidated Statements of Operations. |
(3) |
During the quarter ended December 31, 2017, the Company recorded a loss on extinguishment of debt of approximately $1.9 million. |
(4) |
During the quarter ended December 31, 2017, the Company recorded a net tax benefit of approximately $1.2 million related to the Tax Act. |
(5) |
During the quarter ended March 31, 2016, the Company concluded that the goodwill, intangibles and other long-lived assets related to Novel were impaired and recorded an impairment charge of $8.5 million. |
* |
The sum of the earnings per share for the four quarters in a year does not necessarily equal the total year earnings per share due to the computation of weighted shares outstanding during each respective period. |
1
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|