MYERS INDUSTRIES INC - Quarter Report: 2019 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q




☑	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2019




☐	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File Number 1-8524

Myers Industries, Inc.

(Exact name of registrant as specified in its charter)

Ohio	34-0778636
(State or other jurisdiction of	(IRS Employer Identification
incorporation or organization)	Number)

1293 South Main Street
Akron, Ohio	44301
(Address of principal executive offices)	(Zip code)

(330) 253-5592

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class		Trading Symbol		Name of Exchange on Which Registered
Common Stock, without par value		MYE		New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☑
Non-Accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑ .

The number of shares outstanding of the issuer’s common stock, without par value, as of July 31, 2019 was 35,493,582 shares.

TABLE OF CONTENTS

Part I — Financial Information

Item 1. Financial Statements

Condensed Consolidated Statements of Operations (Unaudited)	1

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)	2

Condensed Consolidated Statements of Financial Position (Unaudited)	3

Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)	4

Condensed Consolidated Statements of Cash Flows (Unaudited)	6

Notes to Unaudited Condensed Consolidated Financial Statements	7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

Item 3. Quantitative and Qualitative Disclosures About Market Risk	29

Item 4. Controls and Procedures	30

Part II — Other Information	31

Item 1. Legal Proceedings	31

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	31

Item 6. Exhibits	31

Signatures	32

Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 101

Part I — Financial Information

Item 1. Financial Statements

MYERS INDUSTRIES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations (Unaudited)

(Dollars in thousands, except per share data)

	For the Quarter Ended June 30,					For the Six Months Ended June 30,
	2019			2018		2019			2018
Net sales	$	134,285		$	140,560	$	273,400		$	293,128
Cost of sales		87,349			92,569		180,905			198,022
Gross profit		46,936			47,991		92,495			95,106
Selling, general and administrative expenses		36,809			34,506		71,277			69,979
(Gain) loss on disposal of fixed assets		(55	)		66		(98	)		(314	)
Impairment charges		—			308		916			308
Operating income		10,182			13,111		20,400			25,133
Interest expense, net		1,017			1,313		2,066			2,952
Income from continuing operations before income taxes		9,165			11,798		18,334			22,181
Income tax expense		2,559			3,190		5,085			5,818
Income from continuing operations		6,606			8,608		13,249			16,363
Income (loss) from discontinued operations, net of income tax		—			—		127			(911	)
Net income	$	6,606		$	8,608	$	13,376		$	15,452
Income per common share from continuing operations:
Basic	$	0.19		$	0.26	$	0.37		$	0.52
Diluted	$	0.18		$	0.26	$	0.37		$	0.51
Income (loss) per common share from discontinued operations:
Basic	$	—		$	—	$	—		$	(0.03	)
Diluted	$	—		$	—	$	—		$	(0.03	)
Net income per common share:
Basic	$	0.19		$	0.26	$	0.37		$	0.49
Diluted	$	0.18		$	0.26	$	0.37		$	0.48

See notes to unaudited condensed consolidated financial statements.

MYERS INDUSTRIES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

(Dollars in thousands)

	For the Quarter Ended June 30,					For the Six Months Ended June 30,
	2019		2018			2019		2018
Net income	$	6,606	$	8,608		$	13,376	$	15,452
Other comprehensive income (loss)
Adoption of ASU 2018-02		—		—			—		(315	)
Foreign currency translation adjustment		758		(123	)		1,535		(1,843	)
Pension liability, net of tax expense of $67 in 2018		—		—			—		201
Total other comprehensive income (loss)		758		(123	)		1,535		(1,957	)
Comprehensive income	$	7,364	$	8,485		$	14,911	$	13,495

See notes to unaudited condensed consolidated financial statements.

MYERS INDUSTRIES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Financial Position (Unaudited)

(Dollars in thousands)

	June 30,			December 31,
	2019			2018
Assets
Current Assets
Cash	$	75,205		$	58,894
Accounts receivable, less allowances of $1,947 and $2,259, respectively		73,120			72,939
Income tax receivable		—			4,892
Inventories, net		42,341			43,596
Prepaid expenses and other current assets		4,600			2,534
Total Current Assets		195,266			182,855
Other Assets
Property, plant, and equipment, net		57,216			65,460
Right of use asset - operating leases		5,983			—
Goodwill		59,505			59,068
Intangible assets, net		26,583			30,280
Deferred income taxes		6,490			5,270
Other		1,953			5,712
Total Assets	$	352,996		$	348,645

Liabilities and Shareholders’ Equity
Current Liabilities
Accounts payable	$	52,827		$	60,849
Accrued expenses
Employee compensation		12,859			16,531
Income taxes		1,182			—
Taxes, other than income taxes		1,273			1,403
Accrued interest		1,785			1,939
Other current liabilities		14,639			16,701
Operating lease liability - short-term		2,000			—
Total Current Liabilities		86,565			97,423
Long-term debt		76,983			76,790
Operating lease liability - long-term		4,225			—
Other liabilities		22,813			19,794
Shareholders’ Equity
Serial Preferred Shares (authorized 1,000,000 shares; none issued and outstanding)		—			—
Common Shares, without par value (authorized 60,000,000 shares; outstanding 35,484,312 and 35,374,121; net of treasury shares of 7,068,145 and 7,178,336, respectively)		21,646			21,547
Additional paid-in capital		294,066			292,558
Accumulated other comprehensive loss		(16,745	)		(18,280	)
Retained deficit		(136,557	)		(141,187	)
Total Shareholders’ Equity		162,410			154,638
Total Liabilities and Shareholders’ Equity	$	352,996		$	348,645

See notes to unaudited condensed consolidated financial statements.

MYERS INDUSTRIES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)

(Dollars in thousands, except per share data)

	Quarter Ended June 30, 2019
	Common Shares		Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)			Retained Deficit			Total Shareholders' Equity
Balance at April 1, 2019	$	21,627	$	292,608	$	(17,503	)	$	(138,306	)	$	158,426
Net income		—		—		—			6,606			6,606
Foreign currency translation adjustment		—		—		758			—			758
Shares issued under incentive plans, net of shares withheld for tax		19		196		—			—			215
Stock compensation expense		—		1,262		—			—			1,262
Declared dividends - $0.14 per share		—		—		—			(4,857	)		(4,857	)
Balance at June 30, 2019	$	21,646	$	294,066	$	(16,745	)	$	(136,557	)	$	162,410

	Quarter Ended June 30, 2018
	Common Shares		Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)			Retained Deficit			Total Shareholders' Equity
Balance at April 1, 2018	$	18,598	$	210,248	$	(16,375	)	$	(116,545	)	$	95,926
Net income		—		—		—			8,608			8,608
Foreign currency translation adjustment		—		—		(123	)		—			(123	)
Shares issued under incentive plans, net of shares withheld for tax		26		385		—			—			411
Stock compensation expense		—		1,739		—			—			1,739
Shares issued in public offering, net of equity issuance costs		2,806		76,716		—			—			79,522
Declared dividends - $0.14 per share		—		—		—			(4,822	)		(4,822	)
Balance at June 30, 2018	$	21,430	$	289,088	$	(16,498	)	$	(112,759	)	$	181,261

See notes to unaudited condensed consolidated financial statements.

MYERS INDUSTRIES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)

(Dollars in thousands, except per share data)

	Six Months Ended June 30, 2019
	Common Shares		Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)			Retained Deficit			Total Shareholders' Equity
Balance at January 1, 2019	$	21,547	$	292,558		$	(18,280	)	$	(141,187	)	$	154,638
Net income		—		—			—			13,376			13,376
Adoption of ASU 2016-02, net of tax of $332		—		—			—			905			905
Foreign currency translation adjustment		—		—			1,535			—			1,535
Shares issued under incentive plans, net of shares withheld for tax		99		(712	)		—			—			(613	)
Stock compensation expense		—		2,220			—			—			2,220
Declared dividends - $0.27 per share		—		—			—			(9,651	)		(9,651	)
Balance at June 30, 2019	$	21,646	$	294,066		$	(16,745	)	$	(136,557	)	$	162,410

	Six Months Ended June 30, 2018
	Common Shares		Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)			Retained Deficit			Total Shareholders' Equity
Balance at January 1, 2018	$	18,547	$	209,253		$	(14,541	)	$	(119,507	)	$	93,752
Net income		—		—			—			15,452			15,452
Adoption of ASU 2018-02		—		—			(315	)		315			—
Foreign currency translation adjustment		—		—			(1,843	)		—			(1,843	)
Shares issued under incentive plans, net of shares withheld for tax		77		427			—			—			504
Stock compensation expense		—		2,692			—			—			2,692
Pension liability, net of tax of $67		—		—			201			—			201
Shares issued in public offering, net of equity issuance costs		2,806		76,716			—			—			79,522
Declared dividends - $0.27 per share		—		—			—			(9,019	)		(9,019	)
Balance at June 30, 2018	$	21,430	$	289,088		$	(16,498	)	$	(112,759	)	$	181,261

See notes to unaudited condensed consolidated financial statements.

MYERS INDUSTRIES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)

(Dollars in thousands)

	For the Six Months Ended June 30,
	2019			2018
Cash Flows From Operating Activities
Net income	$	13,376		$	15,452
Income (loss) from discontinued operations, net of income taxes		127			(911	)
Income from continuing operations		13,249			16,363
Adjustments to reconcile income (loss) from continuing operations to net cash provided by (used for) operating activities
Depreciation		8,051			9,042
Amortization		4,046			4,315
Accelerated depreciation associated with restructuring activities		—			16
Non-cash stock-based compensation expense		2,220			2,305
(Gain) loss on disposal of fixed assets		(98	)		(314	)
Impairment charges		916			308
Other		340			(215	)
Payments on performance based compensation		(413	)		(1,249	)
Other long-term liabilities		3,514			(63	)
Cash flows provided by (used for) working capital
Accounts receivable		(56	)		9,106
Inventories		1,450			(2,454	)
Prepaid expenses and other current assets		(2,041	)		(1,807	)
Accounts payable and accrued expenses		(15,005	)		(8,130	)
Net cash provided by (used for) operating activities - continuing operations		16,173			27,223
Net cash provided by (used for) operating activities - discontinued operations		7,297			981
Net cash provided by (used for) operating activities		23,470			28,204
Cash Flows From Investing Activities
Capital expenditures		(4,406	)		(2,318	)
Proceeds from sale of property, plant and equipment		7,514			2,633
Net cash provided by (used for) investing activities - continuing operations		3,108			315
Net cash provided by (used for) investing activities - discontinued operations		—			—
Net cash provided by (used for) investing activities		3,108			315
Cash Flows From Financing Activities
Net borrowings (repayments) on credit facility		—			(72,491	)
Cash dividends paid		(9,733	)		(8,287	)
Proceeds from issuance of common stock		365			875
Proceeds from public offering of common stock, net of equity issuance costs		—			79,522
Shares withheld for employee taxes on equity awards		(978	)		(371	)
Net cash provided by (used for) financing activities - continuing operations		(10,346	)		(752	)
Net cash provided by (used for) financing activities - discontinued operations		—			—
Net cash provided by (used for) financing activities		(10,346	)		(752	)
Foreign exchange rate effect on cash		79			(6	)
Net increase in cash and restricted cash		16,311			27,761
Cash and restricted cash at January 1		58,894			11,179
Cash and restricted cash at June 30	$	75,205		$	38,940

See notes to unaudited condensed consolidated financial statements.

MYERS INDUSTRIES, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

(Dollars in thousands, except where otherwise indicated)

1. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of Myers Industries, Inc. and all wholly owned subsidiaries (collectively, the “Company”), and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures are adequate to make the information not misleading. These interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2018.

In the opinion of the Company, the accompanying condensed consolidated financial statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly the financial position as of June 30, 2019, and the results of operations and cash flows for the periods presented. The results of operations for the quarter and six months ended June 30, 2019 are not necessarily indicative of the results of operations that will occur for the year ending December 31, 2019.

Accounting Standards Adopted

In February 2016, the FASB issued ASU 2016-02, Leases, which created Accounting Standards Codification (“ASC”) Topic 842. Under ASU 2016-02, an entity recognizes right-of-use assets and lease liabilities on its balance sheet, and discloses key information about the amount, timing and uncertainty of cash flows arising from leasing arrangements. The Company adopted the new guidance effective January 1, 2019, using the optional transition method, which required application of the new guidance to only those leases that existed at the date of adoption. The Company elected the “package of practical expedients,” which permitted the Company to not reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs. The Company also elected to apply the guidance at a portfolio level and use the discount rate corresponding to the remaining lease term at transition. Adoption of the new standard resulted in the recognition of right-of-use assets and lease liabilities of $5.9 million and $6.2 million, respectively, on January 1, 2019. The difference between the right-of-use assets and lease liabilities related primarily to the removal of previously recorded accrued rent balances as a result of recording straight-line rent expense for certain leases. In addition, the adoption resulted in an adjustment to opening retained earnings (deficit) of approximately $0.9 million, net of tax, on January 1, 2019. This cumulative-effect transition adjustment to opening retained earnings (deficit) related to the recognition of the remaining deferred gain on the sale-leaseback transaction that occurred in 2018. The standard did not have a material impact on the Company’s condensed consolidated results of operations or cash flows.

The following tables summarize the impacts of ASC 842 on the Company’s condensed consolidated financial statements:

	For the Quarter Ended June 30, 2019
	As Reported			Adjustments			Balances Without Adoption of ASC 842
Net sales	$	134,285		$	—		$	134,285
Cost of sales		87,349			—			87,349
Gross profit		46,936			—			46,936
Selling, general and administrative expenses		36,809			(34	)		36,775
(Gain) loss on disposal of fixed assets		(55	)		—			(55	)
Operating income		10,182			34			10,216
Interest expense, net		1,017			—			1,017
Income from continuing operations before income taxes		9,165			34			9,199
Income tax expense		2,559			9			2,568
Income from continuing operations	$	6,606		$	25		$	6,631

MYERS INDUSTRIES, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

(Dollars in thousands, except where otherwise indicated)

	For the Six Months Ended June 30, 2019
	As Reported			Adjustments			Balances Without Adoption of ASC 842
Net sales	$	273,400		$	—		$	273,400
Cost of sales		180,905			—			180,905
Gross profit		92,495			—			92,495
Selling, general and administrative expenses		71,277			(67	)		71,210
(Gain) loss on disposal of fixed assets		(98	)		—			(98	)
Impairment charges		916			—			916
Operating income		20,400			67			20,467
Interest expense, net		2,066			—			2,066
Income from continuing operations before income taxes		18,334			67			18,401
Income tax expense		5,085			18			5,103
Income from continuing operations	$	13,249		$	49		$	13,298

	As of June 30, 2019
	As Reported			Adjustments			Balances Without Adoption of ASC 842
Assets
Right of use asset - operating leases	$	5,983		$	(5,983	)	$	—
Deferred tax asset		6,490			316			6,806

Liabilities
Other current liabilities	$	14,639		$	242		$	14,881
Operating lease liability - short-term		2,000			(2,000	)		—
Operating lease liability - long-term		4,225			(4,225	)		—
Other liabilities		22,813			1,169			23,982

Shareholders’ Equity
Retained deficit	$	(136,557	)	$	(853	)	$	(137,410	)

Accounting Standards Not Yet Adopted

In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40). This ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The ASU is effective for annual periods beginning after December 15, 2019, and interim periods within those annual periods. Early adoption is permitted and this ASU should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company is currently evaluating the impact the adoption of this standard will have on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-14, Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20). This ASU modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The ASU is effective for annual periods ending after December 15, 2020, with early adoption permitted and should be applied on a retrospective basis to all periods presented. The Company is currently evaluating the impact the adoption of this standard will have on its consolidated financial statements.

MYERS INDUSTRIES, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

(Dollars in thousands, except where otherwise indicated)

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. This ASU modifies the disclosure requirements on fair value measurements by removing, modifying, or adding certain disclosures. This guidance is effective for annual periods beginning after December 15, 2019, and interim periods within those annual periods. Early adoption is permitted. Certain disclosures in this ASU are required to be applied on a retrospective basis and others on a prospective basis. The Company is currently evaluating the impact the adoption of this standard will have on its consolidated financial statements.

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. The Company does not believe that the adoption of this guidance will have a material impact on its consolidated financial statements unless a goodwill impairment were to occur.

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.

Fair Value Measurement

The Company follows guidance included in ASC 820, Fair Value Measurements and Disclosures, for its financial assets and liabilities, as required. Under ASC 820, the hierarchy that prioritizes the inputs to valuation techniques used to measure fair value is divided into three levels:

Level 1:

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

Level 2:

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

Level 3:

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

Financial assets that are measured at net asset value, which is a practical expedient to estimating fair value, are not classified in the fair value hierarchy.

The Company has financial instruments, including cash, accounts receivable, accounts payable and accrued expenses. The fair value of these financial instruments approximates 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 13, approximates carrying value due to the floating rates and relative short maturity (less than 90 days) of the revolving borrowings under this agreement. The fair value of the Company’s fixed rate senior unsecured notes was estimated using market observable inputs for the Company’s comparable peers with public debt, including quoted prices in active markets and interest rate measurements which are considered Level 2 inputs. At June 30, 2019 and December 31, 2018, the aggregate fair value of the Company's outstanding fixed rate senior unsecured notes was estimated at $78.9 million and $76.8 million, respectively.

MYERS INDUSTRIES, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

(Dollars in thousands, except where otherwise indicated)

Accumulated Other Comprehensive Income (Loss)

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

	Foreign Currency			Defined Benefit Pension Plans			Total
Balance at January 1, 2019	$	(16,251	)	$	(2,029	)	$	(18,280	)
Other comprehensive income (loss) before reclassifications		1,535			—			1,535
Net current-period other comprehensive income (loss)		1,535			—			1,535
Balance at June 30, 2019	$	(14,716	)	$	(2,029	)	$	(16,745	)

2. Revenue Recognition

The following tables disaggregate the Company’s revenue by major market:


	For the Quarter Ended June 30, 2019
	Material Handling		Distribution		Inter-company			Consolidated
Consumer	$	22,515	$	—	$	—		$	22,515
Vehicle		21,962		—		—			21,962
Food and beverage		16,818		—		—			16,818
Industrial		34,607		—		(12	)		34,595
Auto aftermarket		—		38,395		—			38,395
Total net sales	$	95,902	$	38,395	$	(12	)	$	134,285

	For the Quarter Ended June 30, 2018
	Material Handling		Distribution		Inter-company			Consolidated
Consumer	$	27,046	$	—	$	—		$	27,046
Vehicle		26,758		—		—			26,758
Food and beverage		15,308		—		—			15,308
Industrial		34,018		—		(47	)		33,971
Auto aftermarket		—		37,477		—			37,477
Total net sales	$	103,130	$	37,477	$	(47	)	$	140,560

	For the Six Months Ended June 30, 2019
	Material Handling		Distribution		Inter-company			Consolidated
Consumer	$	40,300	$	—	$	—		$	40,300
Vehicle		44,482		—		—			44,482
Food and beverage		41,967		—		—			41,967
Industrial		72,104		—		(22	)		72,082
Auto aftermarket		—		74,569		—			74,569
Total net sales	$	198,853	$	74,569	$	(22	)	$	273,400

MYERS INDUSTRIES, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

(Dollars in thousands, except where otherwise indicated)

	For the Six Months Ended June 30, 2018
	Material Handling		Distribution		Inter-company			Consolidated
Consumer	$	44,277	$	—	$	—		$	44,277
Vehicle		52,301		—		—			52,301
Food and beverage		52,965		—		—			52,965
Industrial		70,396		—		(69	)		70,327
Auto aftermarket		—		73,258		—			73,258
Total net sales	$	219,939	$	73,258	$	(69	)	$	293,128

Revenue is recognized when obligations under the terms of a contract with customers are satisfied. In both the Distribution and Material Handling segments, this generally occurs with the transfer of control of the Company’s products. This transfer of control may occur at either the time of shipment from a Company facility, or at the time of delivery to a designated customer location. Obligations under contracts with customers are typically fulfilled within 90 days of receiving a purchase order from a customer, and generally no other future obligations are required to be performed. The Company does not enter into any long-term contracts with customers greater than one year. Based on the nature of the Company’s products and customer contracts, the Company has not recorded any deferred revenue, with the exception of cash advances or deposits received from customers prior to transfer of control of the product. These advances are typically fulfilled within the 90 day time frame mentioned above.

Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring the products. Certain contracts with customers include variable consideration, such as rebates or discounts. The Company recognizes estimates of this variable consideration each period, primarily based on the most likely level of consideration to be paid to the customer under the specific terms of the underlying programs. While the Company’s contracts with customers do not generally include explicit rights to return product, the Company will in practice allow returns in the normal course of business and as part of the customer relationship. Thus, the Company estimates the expected returns each period based on an analysis of historical experience. For certain businesses where physical recovery of the product from returns occurs, the Company records an estimated right to return asset from such recovery, based on the approximate cost of the product.

Amounts included in the Condensed Consolidated Statement of Financial Position (Unaudited) related to revenue recognition include:

	June 30,			December 31,			Statement of Financial Position
	2019			2018			Classification
Returns, discounts and other allowances	$	(606	)	$	(1,169	)	Accounts receivable
Right of return asset		322			535		Inventories, net
Customer deposits		(115	)		(806	)	Other current liabilities
Accrued rebates		(2,023	)		(2,559	)	Other current liabilities

Sales, value added, and other taxes the Company collects concurrent with revenue from customers are excluded from net sales. The Company has elected to recognize the cost for shipments to customers when control over products has transferred to the customer. Costs for shipments to customers are classified as Selling, General and Administrative Expenses for the Company’s manufacturing business and as Cost of Sales for the Company’s distribution business in the accompanying Condensed Consolidated Statements of Operations (Unaudited). The Company incurred costs for shipments to customers in Selling, General and Administrative Expenses of approximately $2.0 million and $2.6 million for the quarters ended June 30, 2019 and 2018, respectively, and $4.1 million and $5.3 million for the six months ended June 30, 2019 and 2018, respectively, and in Cost of Sales of approximately $1.5 million and $1.4 million for the quarters ended June 30, 2019 and 2018, respectively, and $2.9 million and $2.8 million for the six months ended June 30, 2019 and 2018, respectively. All other internal distribution costs are recorded in Selling, General and Administrative Expenses.

Based on the short term nature of contracts described above, the Company does not incur significant contract acquisition costs. These costs, as well as other incidental items that are immaterial in the context of the contract, are recognized as expense as incurred.

MYERS INDUSTRIES, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

(Dollars in thousands, except where otherwise indicated)

3. Assets Held for Sale

As part of its ongoing strategy, the Company continues to evaluate its various real estate holdings. As a result of these initiatives, certain buildings were reclassified as held for sale in 2018 and 2019. Based on the estimated fair value of these buildings (using primarily third party offers considered to be Level 2 inputs), less estimated costs to sell, the Company recorded impairment charges of $0.3 million during the quarter ended June 30, 2018. No impairment charges were recorded during the quarter ended June 30, 2019. Impairment charges of $0.9 million and $0.3 million were recorded during the six months ended June 30, 2019 and 2018, respectively. As of December 31, 2018, the Company had classified $4.4 million of buildings as held for sale, in Other Assets in the Condensed Consolidated Statements of Financial Position (Unaudited). No assets were classified as held for sale as of June 30, 2019. During the first half of 2019, the Company sold two buildings previously held for sale for total net proceeds of $7.4 million. These buildings were included in the Company’s Material Handling Segment.

4. Disposal of Businesses

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 Brazil Business was part of the Material Handling Segment.

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 Condensed Consolidated Statements of Financial Position (Unaudited). 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.

On February 17, 2015, the Company sold its Lawn and Garden business to an entity controlled by Wingate Partners V, L.P. (“L&G Buyer”). The terms of the sale included promissory notes totaling $20 million that were originally set to mature in August 2020 with a 6% interest rate. During the third quarter of 2018, management of the Lawn and Garden business, now named HC Companies, Inc. (“HC”), requested an extension to the maturity of the notes as part of an effort to restructure their debt. The Company believes there is uncertainty about the ability to collect on the notes and corresponding accrued interest, and as a result, the Company recorded a provision for expected loss of $23.0 million within continuing operations during the third quarter of 2018. The Company ceased recognizing interest income as of September 30, 2018 following the recognition of the provision. In April 2019, the Company entered into an agreement with HC to amend and restate the notes (“Amended and Restated Notes”). The Amended and Restated Notes maintain the amounts due under the original terms of the notes, including interest, and extend the maturity to August 2022. The agreement to amend and restate the notes did not change management’s assessment of the uncertainty to collect on the notes.

In addition, approximately $8.6 million of the purchase price related to the Lawn and Garden sale was placed in escrow that was due to be settled by August 2016. The release of these funds had been extended pending the resolution of indemnification claims, as further described in Note 12. In April 2018, the Company reached agreement on the material terms of a settlement, and, as a result, recorded a pre-tax charge of $1.225 million to discontinued operations for the quarter ended March 31, 2018. The settlement was finalized and paid in May 2018, and upon settlement and release of any further obligation on behalf of the Company, the remaining $7.4 million was released from escrow to the Company.

In connection with the financial risk described above with HC, the Company further assessed its potential obligations under a lease guarantee granted as part of the sale of the Lawn and Garden business. Refer to Note 12 for further information with regards to this guarantee.

MYERS INDUSTRIES, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

(Dollars in thousands, except where otherwise indicated)

Summarized selected financial information for discontinued operations for the quarters and six months ended June 30, 2019 and 2018 are presented in the following table:

	For the Quarter Ended June 30,				For the Six Months Ended June 30,
	2019		2018		2019			2018
Net sales	$	—	$	—	$	—		$	—
Cost of sales		—		—		—			—
Selling, general, and administrative		—		—		—			1,225
(Gain) loss on disposal of assets		—		—		—			—
Interest income, net		—		—		(174	)		—
Income (loss) from discontinued operations before income tax		—		—		174			(1,225	)
Income tax expense (benefit)		—		—		47			(314	)
Income (loss) from discontinued operations, net of income tax	$	—	$	—	$	127		$	(911	)

Net cash flows provided by discontinued operations in 2019 resulted from the remaining receipt of the tax benefit from a worthless stock deduction, which was recognized as part of the sale of the Brazil Business. Net cash flows provided by discontinued operations in 2018 resulted from the partial receipt of the tax benefit from the worthless stock deduction related to the Brazil Business. The worthless stock deduction allowed the Company to reduced its estimated U.S. federal tax payments in 2018 by $4.3 million. This was partially offset by the payment of expenses related to the sale of the Brazil Business and the payment of the settlement with the L&G Buyer noted above.

5. Restructuring

On March 20, 2019, the Company committed to implementing a restructuring plan involving its Ameri-Kart Corp. subsidiary (“Ameri-Kart”) that operates within the Company’s Material Handling Segment. The Company plans to consolidate manufacturing operations currently conducted at Ameri-Kart’s Cassopolis, Michigan facility with expanded operations in Indiana, and eliminate up to 30 positions in connection with the consolidation (the “Ameri-Kart Plan”). Total restructuring costs expected to be incurred are approximately $0.9 million, which include employee severance and other employee-related costs of approximately $0.2 million, equipment relocation and facility shut down costs of approximately $0.6 million and non-cash charges, primarily accelerated depreciation charges on property, plant and equipment, of approximately $0.1 million. No costs were incurred during the quarter and six months ended June 30, 2019 related to the Ameri-Kart Plan. The Ameri-Kart Plan is expected to be substantially completed in the first half of 2020.

On March 18, 2019, the Company committed to implementing a restructuring plan relating to transformation initiatives within the Company’s Distribution Segment (the “Distribution Transformation Plan”) that are intended to increase sales force effectiveness, reduce costs and improve contribution margins. The Company plans to realign its Distribution Segment’s commercial sales structure, which includes the elimination of certain sales and administrative positions, as well as expand its e-commerce platform. Total restructuring costs expected to be incurred are approximately $0.9 million, primarily related to employee severance and other employee-related costs. No restructuring charges were incurred during the quarter ended June 30, 2019. During the six months ended June 30, 2019, the Company incurred restructuring charges of $0.9 million and does not expect to incur any additional restructuring charges in connection with the Distribution Transformation Plan. The Distribution Transformation Plan is expected to be substantially completed by the end of 2019.

On March 9, 2017, the Company announced a restructuring plan to improve the Company’s organizational structure and operational efficiency within the Material Handling Segment (the “Material Handling Plan”), which related primarily to anticipated facility shutdowns and associated activities. Total restructuring costs incurred related to the Material Handling Plan were approximately $7.7 million, which includes employee severance and other employee-related costs of approximately $3.1 million, $2.6 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 Material Handling Plan are completed. The Company incurred $0.1 million of restructuring charges associated with the Material Handling Plan during the six months ended June 30, 2018. No costs were incurred during 2019.

MYERS INDUSTRIES, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

(Dollars in thousands, except where otherwise indicated)

As noted above, there were no restructuring charges incurred during the quarters ended June 30, 2019 and 2018. The restructuring charges noted above for the six months ended June 30, 2019 and 2018 are presented in the Condensed Consolidated Statements of Operations (Unaudited) as follows:

	For the Six Months Ended June 30,
	2019						2018
Segment	Cost of Sales		SG&A		Total		Cost of Sales		SG&A		Total
Distribution	$	—	$	901	$	901	$	—	$	—	$	—
Material Handling		—		—		—		119		—		119
Total	$	—	$	901	$	901	$	119	$	—	$	119

The table below summarizes restructuring activity for the six months ended June 30, 2019:

	Employee Reduction			Accelerated Depreciation		Other Exit Costs		Total
Balance at January 1, 2019	$	30		$	—	$	—	$	30
Charges to expense		901			—		—		901
Cash payments		(582	)		—		—		(582	)
Non-cash utilization		—			—		—		—
Balance at June 30, 2019	$	349		$	—	$	—	$	349

During the quarter ended March 31, 2019, the Company reclassified a facility that was closed in connection with the Material Handling Plan as held for sale. Based on the estimated fair value of this facility (using primarily a third party offer considered to be a Level 2 input), less estimated costs to sell, the Company recognized an impairment charge of $0.9 million during the quarter ended March 31, 2019. The facility was sold in May 2019 for net proceeds of $2.9 million, which are included in the net proceeds discussed in Note 3.

In addition to the restructuring charges noted above, the Company has also incurred $0.1 million and $0.2 million of other associated costs of the Distribution Transformation Plan during the quarter and six months ended June 30, 2019, respectively, which are included in Selling, General, and Administrative expenses in the accompanying Condensed Consolidated Statements of Operations (Unaudited), and are primarily related to third party consulting costs. Additional estimated costs of $0.2 million and $0.6 million are expected to be incurred throughout the remainder of 2019 related to the Ameri-Kart Plan and the Distribution Transformation Plan, respectively.

6. 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 inventories are valued using the LIFO method of determining cost. All other inventories are valued at the FIFO method of determining cost. An actual valuation of inventory under the LIFO method can be made only at the end of each year based on inventory levels and costs at that time. Accordingly, interim LIFO calculations must be based on management’s estimates of expected year-end inventory levels and costs. Because these calculations are subject to many factors beyond management’s control, annual results may differ from interim results as they are subject to the final year-end LIFO inventory valuation. During 2019 and 2018, one inventory pool had a reduction in inventory quantities that was expected to hold through year-end, and therefore an adjustment was recorded for the quarters and six months ended June 30, 2019 and 2018 to decrease cost of sales by $0.3 million and $0.5 million, respectively, as a result of the liquidation of LIFO inventories.

Inventories consisted of the following:

	June 30,		December 31,
	2019		2018
Finished and in-process products	$	27,034	$	27,960
Raw materials and supplies		15,307		15,636
	$	42,341	$	43,596

MYERS INDUSTRIES, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

(Dollars in thousands, except where otherwise indicated)

7. Other Liabilities

The balance in other current liabilities is comprised of the following:

	June 30,		December 31,
	2019		2018
Customer deposits and accrued rebates	$	2,138	$	3,365
Dividends payable		5,179		5,260
Accrued litigation, claims and professional fees		768		460
Current portion of environmental reserves		1,435		1,229
Other accrued expenses		5,119		6,387
	$	14,639	$	16,701

The balance in other liabilities (long-term) is comprised of the following:

	June 30,		December 31,
	2019		2018
Lease guarantee contingency	$	10,562	$	10,402
Environmental reserves		6,815		3,702
Supplemental executive retirement plan liability		1,871		2,026
Pension liability		1,285		1,207
Deferred gain on sale of assets		—		1,237
Other long-term liabilities		2,280		1,220
	$	22,813	$	19,794

8. Goodwill and Intangible Assets

The change in goodwill for the six months ended June 30, 2019 was as follows:

	Distribution		Material Handling		Total
January 1, 2019	$	505	$	58,563	$	59,068
Foreign currency translation		—		437		437
June 30, 2019	$	505	$	59,000	$	59,505

Intangible assets other than goodwill primarily consist of trade names, customer relationships, patents and technology assets established in connection with acquisitions. These intangible assets, other than certain trade names, are amortized over their estimated useful lives. The Company has indefinite-lived trade names which had a carrying value of $9.8 million at both June 30, 2019 and December 31, 2018.

9. Net Income per Common Share

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

	For the Quarter Ended June 30,				For the Six Months Ended June 30,
	2019		2018		2019		2018
Weighted average common shares outstanding basic		35,471,795		32,606,838		35,430,392		31,561,194
Dilutive effect of stock options and restricted stock		271,768		477,702		322,662		520,156
Weighted average common shares outstanding diluted		35,743,563		33,084,540		35,753,054		32,081,350

MYERS INDUSTRIES, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

(Dollars in thousands, except where otherwise indicated)

Options to purchase 643,813 and 648,313 shares of common stock that were outstanding for the quarter and six months ended June 30, 2019, respectively, and 252,132 for the six months ended June 30, 2018, were not included in the computation of diluted earnings per share as the exercise prices of these options were greater than the average market price of common shares, and were therefore anti-dilutive. There were no options to purchase shares of common stock excluded from the computation of diluted earnings per share for the quarter ended June 30, 2018.

10. Stock Compensation

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

In March 2019, the Company granted 235,474 stock options with a weighted average exercise price of $18.54 per share and a weighted average fair value of $5.78 per share. The fair value of options granted is estimated using a binomial lattice option pricing model. Also in March 2019, the Company granted 77,810 and 101,500 time-based and performance-based restricted stock units, respectively, with a weighted average fair value of $18.54 per share. In April 2019, the Company granted 33,152 time-based restricted stock units with a weighted average fair value of $18.10 per share.

Stock compensation expense was approximately $1.3 million and $1.2 million for the quarters ended June 30, 2019 and 2018, respectively, and $2.2 million and $2.3 million for the six months ended June 30, 2019 and 2018, respectively. These expenses are included in Selling, General and Administrative expenses in the accompanying Condensed Consolidated Statements of Operations (Unaudited). Total unrecognized compensation cost related to non-vested stock-based compensation arrangements at June 30, 2019 was approximately $7.6 million, which will be recognized over the next three years, as such compensation is earned.

11. Equity

In May 2018, the Company completed a public offering of 4,600,000 shares of its common stock at a price to the public of $18.50 per share. The net proceeds from the offering were approximately $79.5 million, after deducting underwriting discounts and commissions and $0.5 million of offering expenses paid by the Company. The Company used a portion of the net proceeds received from the offering to repay a portion of its outstanding indebtedness during the second quarter of 2018.

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

Based on current available information, management believes that the ultimate outcome of these matters, including those described below, 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. If new information becomes available or 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.

New Idria Mercury Mine

In September 2015, the U.S. Environmental Protection Agency (“EPA”) informed a subsidiary of the Company, Buckhorn, Inc. (“Buckhorn”) via a notice letter and related documents (the “Notice Letter”) that it considers Buckhorn to be a potentially responsible party (“PRP”) in connection with the New Idria Mercury Mine site (“New Idria Mine”). New Idria Mining & Chemical Company (“NIMCC”), which owned and/or operated the New Idria Mine through 1976, was merged into Buckhorn Metal Products Inc. in 1981, which was subsequently acquired by Myers Industries in 1987. As a result of the EPA Notice Letter, Buckhorn and the Company engaged in negotiations with the EPA with respect to a draft Administrative Order of 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.

MYERS INDUSTRIES, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

(Dollars in thousands, except where otherwise indicated)

During the fourth quarter of 2018, the Company and the EPA finalized the AOC and related Statement of Work (“SOW”) with regards to the New Idria Mine. The AOC is effective as of November 27, 2018, the date that it was executed by the EPA. The AOC and accompanying SOW document the terms, conditions and procedures for the Company’s performance of the RI/FS. In addition, the AOC requires the Company to provide $2 million of financial assurance to the EPA to secure its performance during the estimated life of the RI/FS. In January 2019, the Company provided this assurance as a letter of credit. The AOC also includes provisions for payment by the Company of the EPA’s costs of oversight of the RI/FS, including a prepayment in the amount of $0.2 million, which was paid in January 2019.

A draft work plan for the RI/FS, in accordance with the AOC and related SOW, was submitted to the EPA for review and approval in July 2019. Upon preparation of the draft work plan for the RI/FS, the Company received preliminary estimates from its consultants for the cost of the execution of the work plan. Based on these preliminary estimates, the Company recognized additional expense of $4.0 million during the quarter and six months ended June 30, 2019. These preliminary estimates will continue to be refined through the finalization and approval of the draft work plan, which is anticipated to occur by the end of 2019. The Company believes it has insurance coverage that applies to the New Idria Mine and thus may be able to recover a portion of the estimated costs; however, to date, the Company has not recognized any potential recovery in its consolidated financial statements. No expenses were recorded related to the New Idria Mine in the quarter or six months ended June 30, 2018.

Since October 2011, when New Idria was added to the Superfund National Priorities List by the EPA, the Company has recognized $9.9 million of costs, of which approximately $3.2 million has been paid to date. These costs are comprised primarily of estimates to perform the RI/FS, negotiation of the AOC, identification of possible insurance resources and other PRPs, EPA oversight fees, past cost claims made by the EPA, periodic monitoring, and responses to unilateral administrative orders issued by the EPA. As of June 30, 2019, the Company has a total reserve of $6.7 million related to the New Idria Mine, of which $1.1 million is classified in Other Current Liabilities and $5.6 million in Other Liabilities on the Condensed Consolidated Statements of Financial Position (Unaudited).

It is possible that adjustments to the aforementioned reserves will be necessary as new information is obtained, including after finalization and EPA approval of the work plan for the RI/FS. 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 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 extent of oversight by the EPA and the number and financial condition of other PRPs that may be named, as well as the extent of their responsibility for the remediation.

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

New Almaden Mine

A number of parties, including the Company and its subsidiary, Buckhorn (as successor to NIMCC), were alleged by trustee agencies of the United States and the State of California to be responsible for natural resource damages due to environmental contamination of areas comprising the historical New Almaden mercury mines located in the Guadalupe River Watershed region in Santa Clara County, California (“County”). In 2005, Buckhorn and the Company, without admitting liability or chain of ownership of NIMCC, resolved the trustees’ claim against them through a consent decree that required them to contribute financially to the implementation by the County of an environmentally beneficial project within the impacted area. Buckhorn and the Company negotiated an agreement with the County, whereby Buckhorn and the Company agreed to reimburse one-half of the County’s 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 2016. No costs were incurred related to New Almaden in the quarters or six months ended June 30, 2019 or 2018. As of June 30, 2019, the Company has a total reserve of $1.5 million related to the New Almaden Mine, of which $0.3 million is classified in Other Current Liabilities and $1.2 million in Other Liabilities on the Condensed Consolidated Statements of Financial Position (Unaudited).

MYERS INDUSTRIES, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

(Dollars in thousands, except where otherwise indicated)

The project has not yet been implemented though significant work on design and planning has been performed. The Company is currently awaiting notice from Santa Clara County on the expected timing of fieldwork to commence. 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 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; however, the release of these funds had been extended pending the resolution of the Claims, which were the subject of a lawsuit in the Delaware Chancery Court.

In April 2018, the Company reached agreement on the material terms of a settlement, and as a result, recorded a pre-tax charge of $1.225 million to discontinued operations for the quarter ended March 31, 2018. The settlement agreement was finalized in May 2018, and the settlement amount was funded from the escrow account. In addition, upon settlement and release of any further obligation on behalf of the Company, the remaining $7.4 million was released from escrow to the Company in the second quarter of 2018.

Lawn and Garden Lease Guarantee

In connection with the sale of the Lawn and Garden business, as described in Note 4, the Company is a guarantor for one of HC’s facility leases expiring in September 2025 for any remaining rent payments under the lease for which HC is unable to meet its obligations. Current annual rent for the facility is approximately $2 million, and is subject to annual CPI increases throughout the lease term. In connection with the financial risk associated with HC, as described in Note 4, the Company assessed its range of potential obligations under the lease guarantee, and as a result of this analysis, recorded a liability and related pre-tax charge of $10.3 million during the third quarter of 2018. The carrying value of the lease contingency as of June 30, 2019 and December 31, 2018 was $10.6 million and $10.4 million, respectively, which represents the initial liability recorded plus accretion and is included in Other Liabilities on the Condensed Consolidated Statements of Financial Position (Unaudited).

Patent Infringement

On December 11, 2018, No Spill Inc. filed suit against Scepter Manufacturing LLC and Scepter Corporation (“Scepter”) in the United States District Court for the District of Kansas asserting infringement of two patents, breach of contract, and trade dress claims in relation to plastic gasoline containers Scepter manufactures and sells in the United States. A schedule in the case has not yet issued. Scepter intends to defend itself vigorously in this matter. Due to the inherent uncertainties of litigation, the Company cannot accurately predict the ultimate outcome of this matter, and is unable at this time to determine whether the outcome of the litigation will have a material impact on its results of operations, financial condition, or cash flows. Accordingly, the Company has not recorded any reserves for this matter.

MYERS INDUSTRIES, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

(Dollars in thousands, except where otherwise indicated)

13. Long-Term Debt and Loan Agreements

Long-term debt consisted of the following:

	June 30,		December 31,
	2019		2018
Loan Agreement	$	—	$	—
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		15,000
5.45% Senior Unsecured Notes due 2026		12,000		12,000
		78,000		78,000
Less unamortized deferred financing costs		1,017		1,210
	$	76,983	$	76,790

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. The Company also holds Senior Unsecured Notes (“Notes”), which range in face value from $11 million to $40 million, with interest rates ranging from 4.67% to 5.45%, payable semiannually, and maturing between 2021 and 2026. At June 30, 2019, $78 million of the Notes were outstanding.

Under the terms of the Loan Agreement, the Company may borrow up to $200 million, reduced for letters of credit issued. As of June 30, 2019, the Company had $194.2 million available under the Loan Agreement. The Company had $5.8 million of letters of credit issued related to insurance and other contracts requiring financial assurance in the ordinary course of business at June 30, 2019. Borrowings under the Loan Agreement bear interest at the LIBOR rate, prime rate, federal funds effective rate, the Canadian deposit offered rate, or the euro currency reference rate depending on the type of loan requested by the Company, plus the applicable margin as set forth in the Loan Agreement.

The weighted average interest rate on borrowings under the Company’s long-term debt was 6.27% and 5.82% for the quarters ended June 30, 2019 and 2018, respectively, and 6.25% and 5.55% for the six months ended June 30, 2019 and 2018, respectively, which includes a quarterly facility fee on the used and unused portion, as well as amortization of deferred financing costs.

As of June 30, 2019, 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).

14. 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 is as follows:

	For the Quarter Ended June 30,						For the Six Months Ended June 30,
	2019			2018			2019			2018
Interest cost	$	60		$	56		$	120		$	112
Expected return on assets		(46	)		(79	)		(92	)		(158	)
Amortization of net loss		24			21			48			42
Net periodic pension cost	$	38		$	(2	)	$	76		$	(4	)

The Company expects to make a contribution to the plan of $30 in 2019.

MYERS INDUSTRIES, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

(Dollars in thousands, except where otherwise indicated)

15. Income Taxes

The Company’s effective tax rate was 27.9% and 27.7% for the quarter and six months ended June 30, 2019, respectively, compared to 27.0% and 26.2% for the quarter and six months ended June 30, 2018, respectively. The effective income tax rate for both periods was different than the Company’s statutory rate, primarily due to state taxes and non-deductible expenses.

The total amount of gross unrecognized tax benefits that would reduce the Company’s effective tax rate was $1.0 million at June 30, 2019 and December 31, 2018.

The Company and its subsidiaries file U.S. Federal, state and local, and non-U.S. income tax returns. As of June 30, 2019, the Company is no longer subject to U.S. Federal examination by tax authorities for tax years before 2015. The Company’s 2017 U.S. Federal tax return is currently under audit by the Internal Revenue Service (“IRS”). The Company is subject to state and local examinations for tax years of 2013 through 2018. In addition, the Company is subject to non-U.S. income tax examinations for tax years of 2014 through 2018.

16. Leases

The Company determines if an arrangement is a lease at inception. The Company has leases for distribution centers, warehouses, office space and equipment, with remaining lease terms of one to nine years. Certain of these leases include options to extend the lease for up to five years, and some include options to terminate the lease early. Leases with an initial term of 12 months or less are not recorded on the statement of financial position; the Company recognizes lease expense for these leases on a straight-line basis over the lease term. Operating leases are included in right of use asset – operating leases (“ROU assets”), operating lease liability –short term, and operating lease liability – long term in the Condensed Consolidated Statement of Financial Position (Unaudited).

The ROU assets represent the right to use an underlying asset for the lease term and the lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at commencement date based on the present value of the lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate, which is then applied at the portfolio level, based on the information available at commencement date in determining the present value of lease payments. The Company uses the implicit rate when readily determinable. The Company has also elected not to separate lease and non-lease components. The lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense is recognized on a straight-line basis over the lease term.

Amounts included in the Condensed Consolidated Statement of Financial Position (Unaudited) related to leases include:

	June 30, 2019
Right of use asset - operating leases	$	5,983

Operating lease liability - short-term	$	2,000
Operating lease liability - long-term		4,225
Total operating lease liabilities	$	6,225

The components of lease expense include:

		Quarter Ended		Six Months Ended
Lease Cost	Classification	June 30, 2019		June 30, 2019
Operating lease cost ⁽¹⁾	Cost of sales	$	442	$	857
Operating lease cost ⁽¹⁾	Selling, general and administrative expenses		426		897
Total lease cost		$	868	$	1,754

(1)

Includes short-term leases and variable lease costs, which are immaterial

MYERS INDUSTRIES, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

(Dollars in thousands, except where otherwise indicated)

Supplemental cash flow information related to leases was as follows:

	Six Months Ended
Supplemental Cash Flow Information	June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	1,149
Right-of-use assets obtained in exchange for new lease liabilities:
Operating leases		1,037

Lease Term and Discount Rate	June 30, 2019
Weighted-average remaining lease term (years)
Operating leases		4.53
Weighted-average discount rate
Operating leases		5.0	%

Maturity of Lease Liabilities - As of June 30, 2019	Operating Leases
2019 ⁽¹⁾	$	1,203
2020		1,805
2021		1,107
2022		1,051
2023		906
After 2023		897
Total lease payments		6,969
Less: Interest		(744	)
Present value of lease liabilities	$	6,225

(1)

Represents amounts due in 2019 after June 30, 2019

Future minimum rental commitments (undiscounted) as of December 31, 2018 under ASC 840 were as follows:

Year Ended December 31,
2019	$	2,492
2020		1,739
2021		982
2022		966
2023		841
Thereafter		811
Total	$	7,831

On February 27, 2018, the Company completed a sale-leaseback transaction for its distribution center in Pomona, California for a net purchase price of $2.3 million. The Company realized a gain on the sale of $2.0 million, of which $0.7 million was recognized during the quarter ended March 31, 2018. The remaining $1.3 million was recognized ratably over the term of the ten-year lease at approximately $0.1 million per year, until January 1, 2019 upon the adoption of ASU 2016-02 as discussed in Note 1. Simultaneous with closing the sale, the Company entered into a ten-year operating lease arrangement with base annual rent of approximately $0.1 million during the first year, followed by annual increases of 3% through the remainder of the lease period. This facility is included in the Company’s Distribution Segment.

MYERS INDUSTRIES, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

(Dollars in thousands, except where otherwise indicated)

17. Industry Segments

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

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

The Distribution Segment is engaged in the distribution of equipment, tools, and supplies used for tire servicing and automotive undervehicle repair and the manufacture of tire repair and retreading products. The product line includes categories such as tire valves and accessories, tire changing and balancing equipment, lifts and alignment equipment, service equipment and tools, and tire repair/retread supplies. The Distribution Segment operates domestically through sales offices and four regional distribution centers in the United States, and in 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 $11.4 million and $13.1 million for the quarters ended June 30, 2019 and 2018, respectively, and $24.2 million and $24.6 million for the six months ended June 30, 2019 and 2018, respectively.

Summarized segment detail for the quarters and six months ended June 30, 2019 and 2018 are presented in the following table:

	For the Quarter Ended June 30,						For the Six Months Ended June 30,
	2019			2018			2019			2018
Net Sales
Material Handling	$	95,902		$	103,130		$	198,853		$	219,939
Distribution		38,395			37,477			74,569			73,258
Inter-company sales		(12	)		(47	)		(22	)		(69	)
Total net sales	$	134,285		$	140,560		$	273,400		$	293,128

Income (loss) from continuing operations before income taxes
Material Handling	$	17,589		$	17,323		$	33,796		$	34,053
Distribution		3,328			2,786			3,541			4,524
Corporate		(10,735	)		(6,998	)		(16,937	)		(13,444	)
Total operating income		10,182			13,111			20,400			25,133
Interest expense, net		(1,017	)		(1,313	)		(2,066	)		(2,952	)
Income from continuing operations before income taxes	$	9,165		$	11,798		$	18,334		$	22,181

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This Quarterly Report on Form 10-Q and the information incorporated by reference contains “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995, including information regarding the Company’s financial outlook, future plans, objectives, business prospects and anticipated financial performance. Forward-looking statements can be identified by words such as “will,” “believe,” “anticipate,” “expect,” “estimate,” “intend,” “plan,” or variations of these words, or similar expressions. These forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on the Company’s current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, these statements inherently involve a wide range of inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. The Company’s actual actions, results, and financial condition may differ materially from what is expressed or implied by the forward-looking statements.

Specific factors that could cause such a difference include, without limitation, risks and uncertainties detailed from time to time in the Company’s filings with the Securities and Exchange Commission, including without limitation, the risk factors disclosed in Item 1A, “Risk Factors,” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. Given these factors, as well as other variables that may affect our operating results, readers should not rely on forward-looking statements, assume that past financial performance will be a reliable indicator of future performance, nor use historical trends to anticipate results or trends in future periods. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date thereof. The Company expressly disclaims any obligation or intention to provide updates to the forward-looking statements and the estimates and assumptions associated with them.

Executive Overview

The Company conducts its business activities in two distinct segments: The Material Handling Segment and the Distribution Segment. The Brazil Business, which was sold in December 2017, and the Lawn and Garden business, which was sold in February 2015, are classified as discontinued operations in all periods presented.

The Company designs, manufactures, and markets a variety of plastic and rubber products. The Material Handling Segment manufactures products that range from plastic reusable material handling containers and small parts storage bins to plastic OEM parts, custom plastic products, consumer fuel containers, military water containers as well as ammunition packaging and shipping containers. The Distribution Segment is engaged in the distribution of tools, equipment and supplies used for tire, wheel and under vehicle service on passenger, heavy truck and off-road vehicles, as well as the manufacturing of tire repair and retreading products

Results of Operations:

Comparison of the Quarter Ended June 30, 2019 to the Quarter Ended June 30, 2018

Net Sales:

(dollars in millions)	Quarter Ended June 30,
Segment	2019		2018		Change			% Change
Material Handling	$	95.9	$	103.1	$	(7.2	)		(7	)%
Distribution		38.4		37.5		0.9			2	%
Inter-company sales		—		—		—
Total net sales	$	134.3	$	140.6	$	(6.3	)		(4	)%

Net sales for the quarter ended June 30, 2019 were $134.3 million, a decrease of $6.3 million or 4% compared to the quarter ended June 30, 2018. Net sales were negatively impacted by lower sales volume of $7.1 million and the effect of unfavorable currency translation of $0.3 million, and were partially offset by higher pricing of approximately $1.1 million.

Net sales in the Material Handling Segment decreased $7.2 million or 7% for the quarter ended June 30, 2019 compared to the quarter ended June 30, 2018. The decrease in net sales was due to lower sales volume of $7.9 million and the effect of unfavorable foreign currency translation of $0.3 million, partially offset by higher pricing of $1.0 million. The lower sales volume was primarily due to declines in the consumer market and the vehicle market (mainly in the recreational vehicle market).

Net sales in the Distribution Segment increased $0.9 million or 2% for the quarter ended June 30, 2019 compared to the quarter ended June 30, 2018, primarily the result of higher sales volume of $0.8 million and higher pricing of $0.1 million.

Cost of Sales & Gross Profit:

	Quarter Ended June 30,
(dollars in millions)	2019			2018			Change			% Change
Cost of sales	$	87.3		$	92.6		$	(5.3	)		(6	)%
Gross profit	$	46.9		$	48.0		$	(1.1	)		(2	)%
Gross profit as a percentage of sales		35.0	%		34.1	%

Gross profit margin increased to 35.0% in the quarter ended June 30, 2019 compared to 34.1% for the quarter ended June 30, 2018, primarily due to higher pricing of $1.1 million and lower raw material costs. This was partially offset by unfavorable mix within the lower sales volumes noted above.

Selling, General and Administrative Expenses:

	Quarter Ended June 30,
(dollars in millions)	2019			2018			Change		% Change
SG&A expenses	$	36.8		$	34.5		$	2.3		7	%
SG&A expenses as a percentage of sales		27.4	%		24.5	%

Selling, general and administrative (“SG&A”) expenses for the quarter ended June 30, 2019 were $36.8 million, an increase of $2.3 million or 7% compared to the same period in the prior year. SG&A expenses in the second quarter 2019 were impacted primarily by a $4.0 million charge related to the environmental contingencies discussed in Note 12. This was partially offset by lower compensation and benefit costs of $1.2 million, mainly due to actions taken under the Distribution Transformation Plan, and lower freight costs of $0.6 million.

Restructuring:

As discussed in Note 5, the Company has implemented various restructuring programs.

The Ameri-Kart Plan was announced during the first quarter of 2019 and is expected to be substantially completed in the first half of 2020. No costs were incurred during the quarter ended June 30, 2019 related to the Ameri-Kart Plan. As previously announced, the Company expects annualized benefits of approximately $1.5 million upon completion.

The Distribution Transformation Plan was announced during the first quarter of 2019 and is expected to be substantially completed by the end of 2019. No costs were incurred in connection with the Distribution Transformation Plan during the quarter ended June 30, 2019. As previously announced, the Company expects annualized benefits of $5 to $7 million after 2019.

The Material Handling Plan was initiated in the first quarter of 2017 and is completed.

Net Interest Expense:

	Quarter Ended June 30,
(dollars in millions)	2019			2018			Change			% Change
Net interest expense	$	1.0		$	1.3		$	(0.3	)		(23	)%
Average outstanding borrowings, net	$	78.0		$	114.5		$	(36.5	)		(32	)%
Weighted-average borrowing rate		6.27	%		5.82	%

Net interest expense for the quarter ended June 30, 2019 was $1.0 million, a decrease of $0.3 million, or 23%, compared with $1.3 million for the quarter ended June 30, 2018. The lower interest expense was due primarily to the lower average outstanding borrowings for the period. The lower borrowings were driven by cash flow from operations and the proceeds generated by the public equity offering completed in the second quarter of 2018.

Income Taxes:

	Quarter Ended June 30,
(dollars in millions)	2019			2018
Income from continuing operations before income taxes	$	9.2		$	11.8
Income tax expense	$	2.6		$	3.2
Effective tax rate		27.9	%		27.0	%

The Company’s effective tax rate was 27.9% for the quarter ended June 30, 2019, compared to 27.0% for the quarter ended June 30, 2018. The effective tax rate was slightly higher in 2019, primarily due to higher estimates of state taxes and non-deductible expenses.

Comparison of the Six Months Ended June 30, 2019 to the Six Months Ended June 30, 2018

Net Sales:

(dollars in millions)	Six Months Ended June 30,
Segment	2019		2018			Change			% Change
Material Handling	$	198.8	$	219.9		$	(21.1	)		(10	)%
Distribution		74.6		73.3			1.3			2	%
Inter-company elimination		—		(0.1	)		0.1
Total net sales	$	273.4	$	293.1		$	(19.7	)		(7	)%

Net sales for the six months ended June 30, 2019 were $273.4 million, a decrease of $19.7 million or 7% compared to the six months ended June 30, 2018. Net sales were negatively impacted by lower sales volume of $21.6 million and the effect of unfavorable currency translation of $1.0 million, and were partially offset by higher pricing of approximately $2.9 million.

Net sales in the Material Handling Segment decreased $21.1 million or 10% for the six months ended June 30, 2019 compared to the six months ended June 30, 2018. The decrease in net sales was due to lower sales volume of $22.7 million and the effect of unfavorable foreign currency translation of $1.0 million, partially offset by higher pricing of approximately $2.6 million. The lower sales volume was primarily due to declines in the food and beverage market and the vehicle market (mainly in the recreational vehicle market).

Net sales in the Distribution Segment increased $1.3 million or 2% for the six months ended June 30, 2019 compared to the six months ended June 30, 2018, primarily the result of higher sales volume of $1.0 million and higher pricing of $0.3 million.

Cost of Sales & Gross Profit:

	Six Months Ended June 30,
(dollars in millions)	2019			2018			Change			% Change
Cost of sales	$	180.9		$	198.0		$	(17.1	)		(9	)%
Gross profit	$	92.5		$	95.1		$	(2.6	)		(3	)%
Gross profit as a percentage of sales		33.8	%		32.4	%

Gross profit margin increased to 33.8% in the six months ended June 30, 2019 compared to 32.4% for the six months ended June 30, 2018, primarily due to higher pricing of $2.9 million and lower raw material costs. This was partially offset by unfavorable mix within the lower sales volumes noted above.

Selling, General and Administrative Expenses:

	Six Months Ended June 30,
(dollars in millions)	2019			2018			Change		% Change
SG&A expenses	$	71.3		$	70.0		$	1.3		2	%
SG&A expenses as a percentage of sales		26.1	%		23.9	%

SG&A expenses for the six months ended June 30, 2019 were $71.3 million, an increase of $1.3 million or 2% compared to the same period in the prior year. SG&A expenses in 2019 were primarily impacted by a $4.0 million charge related to the environmental contingencies discussed in Note 12 and by restructuring costs of $0.9 million incurred in the current year related to the Distribution Transformation Plan. This was partially offset by lower compensation and benefit costs of $1.9 million, mainly due to actions taken under the Distribution Transformation Plan, as well as lower freight costs of $1.1 million and lower legal and professional fees of $0.7 million.

Restructuring:

As discussed in Note 5, the Company has implemented various restructuring programs.

The Ameri-Kart Plan was announced during the first quarter of 2019 and is expected to be substantially completed in the first half of 2020. No costs were incurred during the six months ended June 30, 2019 related to the Ameri-Kart Plan. As previously announced, the Company expects annualized benefits of approximately $1.5 million upon completion.

The Distribution Transformation Plan was announced during the first quarter of 2019 and is expected to be substantially completed by the end of 2019. The Company incurred $0.9 million of restructuring costs in connection with the Distribution Transformation Plan during the six months ended June 30, 2019. As previously announced, the Company expects annualized benefits of $5 to $7 million after 2019.

The Material Handling Plan was initiated in the first quarter of 2017 and is completed. No costs were incurred during the six months ended June 30, 2019 compared to $0.1 million of restructuring costs incurred in connection with the Material Handling Plan during the six months ended June 30, 2018.

(Gain) Loss on Disposal of Fixed Assets:

The gain on disposal of fixed assets for the six months ended June 30, 2019 was $0.1 million compared to a gain of $0.3 million in the prior year. The gain in 2018 was primarily due to the sale and leaseback of the distribution center in Pomona, California, as discussed in Note 16.

Impairment Charges:

During the six months ended June 30, 2019, the Company recognized an impairment charge of $0.9 million compared to $0.3 million in the prior year. The impairment in 2019 primarily related to a facility that was previously closed in connection with the Material Handling Plan and reclassified as held for sale during the first quarter of 2019, as discussed in Note 5.

Net Interest Expense:

	Six Months Ended June 30,
(dollars in millions)	2019			2018			Change			% Change
Net interest expense	$	2.1		$	3.0		$	(0.9	)		(30	)%
Average outstanding borrowings, net	$	78.0		$	131.6		$	(53.6	)		(41	)%
Weighted-average borrowing rate		6.25	%		5.55	%

Net interest expense for the six months ended June 30, 2019 was $2.1 million, a decrease of $0.9 million, or 30%, compared with $3.0 million during the six months ended June 30, 2018. The lower interest expense was due primarily to the lower average outstanding borrowings during the six months ended June 30, 2019 as compared to the same period in 2018. The lower borrowings were driven by cash flow from operations and the proceeds generated by the public equity offering completed in the second quarter of 2018.

Income Taxes:

	Six Months Ended June 30,
(dollars in millions)	2019			2018
Income from continuing operations before income taxes	$	18.3		$	22.2
Income tax expense	$	5.1		$	5.8
Effective tax rate		27.7	%		26.2	%

The Company’s effective tax rate was 27.7% for the six months ended June 30, 2019, compared to 26.2% for the six months ended June 30, 2018. The effective tax rate was slightly higher in 2019, primarily due to higher estimates of state taxes and non-deductible expenses.

Discontinued Operations:

Income from discontinued operations, net of income taxes was $0.1 million for the six months ended June 30, 2019 compared to a loss of $0.9 million for the six months ended June 30, 2018. The loss in 2018 related to a charge of $0.9 million, net of tax of $0.3 million, as a result of agreement on the material terms of a settlement with the L&G Buyer related to the indemnification claims discussed in Note 12.

Liquidity and Capital Resources:

The Company’s primary sources of liquidity are cash generated from its operating and financing activities. The cash flows from operating activities are driven primarily by the Company’s operating results and changes in its working capital requirements which is supplemented by the Company’s utilization of its current credit facilities. In addition, the Company completed a public equity offering in the second quarter of 2018 that generated $79.5 million of net proceeds. The Company used a portion of the net proceeds received from the offering to repay a portion of its outstanding indebtedness during the second quarter of 2018 and intends to use the remaining proceeds to fund the growth of the business, including selective acquisitions, and for other general corporate purposes.

The Company believes that cash flows from operations and available borrowing under its Loan Agreement will be sufficient to meet expected business requirements including capital expenditures, dividends, working capital, debt service, and to fund future growth.

Operating Activities

Net cash provided by operating activities from continuing operations was $16.2 million for the six months ended June 30, 2019, compared to $27.2 million in the same period in 2018. The decrease was primarily due to changes in working capital of $12.4 million, which was primarily driven by a higher variable compensation payout, timing of collections from customers and lower volume with third party subcontractors in 2019.

Net cash provided by operating activities from discontinued operations was $7.3 million in 2019 and resulted from the remaining receipt of the tax benefit from the worthless stock deduction related to the Brazil Business (see Note 4). Net cash flows provided by discontinued operations in 2018 resulted from the the partial receipt of the tax benefit from the worthless stock deduction related to the Brazil Business. The worthless stock deduction allowed the Company to reduce its estimated federal tax payments in 2018 by $4.3 million. This was partially offset by the payment of expenses related to the sale of the Brazil Business and the payment of the settlement with the L&G Buyer.

Investing Activities

Net cash provided by investing activities from continuing operations was $3.1 million for the six months ended June 30, 2019 compared to cash provided of $0.3 million for the six months ended June 30, 2018. Capital expenditures were $4.4 million and $2.3 million for the six months ended June 30, 2019 and 2018, respectively. Full year capital expenditures in 2019 are expected to be approximately $10 million. The Company received proceeds of $7.5 million in the first half of 2019 from the sale of fixed assets, substantially all of which was derived from the sale of two buildings previously classified as held for sale, as discussed in Note 3 and Note 5. The Company received proceeds of $2.6 million in the first half of 2018 from the sale of fixed assets, which were primarily due to the sale and leaseback of the distribution center in Pomona, California, as discussed in Note 16.

Financing Activities

The Company received net proceeds of $79.5 million from the public offering of common stock in 2018. Net payments on the credit facility were $72.5 million for the six months ended June 30, 2018. There were no net payments on the credit facility for the six months ended June 30, 2019. The Company used cash to pay dividends of $9.7 million and $8.3 million for the six months ended June 30, 2019 and 2018, respectively.

Credit Sources

Total debt outstanding at June 30, 2019 was $77.0 million, net of $1.0 million of deferred financing costs, compared with $76.8 million at December 31, 2018. The Company’s Loan Agreement provides available borrowing up to $200 million, reduced for letters of credit issued. As of June 30, 2019, the Company had $5.8 million of letters of credit issued related to insurance and other contracts requiring financial assurance in the ordinary course of business and there was $194.2 million available under our Loan Agreement.

As of June 30, 2019, the Company was in compliance with all its debt covenants. 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 and for the period ended June 30, 2019 are shown in the following table:

	Required Level	Actual Level
Interest Coverage Ratio	3.00 to 1 (minimum)		14.42
Leverage Ratio	3.25 to 1 (maximum)		1.18

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements that have, or are reasonable to have, a current or future effect on financial condition, changes in financial condition, revenues of operations, liquidity, capital expenditures or capital resources that are material.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

The Company has certain financing arrangements that require interest payments based on floating interest rates. The Company’s financial results are subject to changes in the market rate of interest. At present, the Company has not entered into any interest rate swaps or other derivative instruments to fix the interest rate on any portion of its financing arrangements with floating rates. As of June 30, 2019, the Company has no borrowings outstanding under its floating rate debt.

Foreign Currency Exchange Risk

Some of the Company’s subsidiaries operate in foreign countries and their financial results are subject to exchange rate movements. The Company has operations in Canada with foreign currency exposure, primarily due to sales made from businesses in Canada to customers in the United States (“U.S.”). These sales are denominated in U.S. dollars. The Company has a systematic program to limit its exposure to fluctuations in exchange rates related to certain assets and liabilities of its operations in Canada that are denominated in U.S. dollars. The net exposure generally ranges from $1 million to $3 million. The foreign currency contracts and arrangements created under this program are not designated as hedged items under ASC 815, Derivatives and Hedging, and accordingly, the changes in the fair value of the foreign currency arrangements, which have been immaterial, are recorded in the Condensed Consolidated Statements of Operations (Unaudited). The Company’s foreign currency arrangements are typically three months or less and are settled before the end of a reporting period. At June 30, 2019, the Company had no foreign currency arrangements or contracts in place.

Commodity Price Risk

The Company uses certain commodities, primarily plastic resins, in its manufacturing processes. The cost of operations can be affected as the market for these commodities changes. The Company currently has no derivative contracts to hedge this risk; however, the Company also has no significant purchase obligations to purchase fixed quantities of such commodities in future periods. Significant future increases in the cost of plastic resin or other adverse changes in the general economic environment could have a material adverse impact on the Company’s financial position, results of operations or cash flows.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures, as defined under Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended, that are designed to ensure that information required to be disclosed in the Company’s reports under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.

The Company carries out a variety of on-going procedures, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, to evaluate the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2019.

Changes in Internal Control Over Financial Reporting

During the six months ended June 30, 2019, there have been no changes in our internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – Other Information

Item 1. Legal Proceedings

Certain legal proceedings in which the Company is involved are discussed in Note 12, Contingencies, in the Unaudited Condensed Consolidated Financial Statements in Part I of this report, and Part I, Item 3 of the Company's Annual Report on Form 10-K for the year ended December 31, 2018. The Company’s disclosures relating to legal proceedings in Note 12, Contingencies, in the Unaudited Condensed Consolidated Financial Statements in Part I of this report is incorporated into Part II of this report by reference. 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.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table presents information regarding the Company’s stock repurchase plan during the quarter ended June 30, 2019.

	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of the Publicly Announced Plans or Programs		Maximum number of Shares that may yet be Purchased Under the Plans or Programs (1)
4/1/2019 to 4/30/2019		—	$	—		5,547,665		2,452,335
5/1/2019 to 5/31/2019		—		—		5,547,665		2,452,335
6/1/2019 to 6/30/2019		—		—		5,547,665		2,452,335

(1)

On July 11, 2013, the Board authorized the repurchase of up to 5.0 million shares of the Company’s common stock. This authorization was in addition to the 2011 Board authorized repurchase of up to 5.0 million shares. The Company completed the repurchase of approximately 2.0 million shares in 2011 pursuant to Rule 10b5-1 plans, which were adopted pursuant to the 2011 authorized share repurchase.

Item 6. Exhibits

3(a)		Myers Industries, Inc. Amended and Restated Articles of Incorporation. Reference is made to Exhibit 3(a) to Form 10-K filed with the Commission on March 16, 2005.
3(b)		Myers Industries, Inc. Amended and Restated Code of Regulations. Reference is made to Exhibit 3.1 to Form 8-K filed with the Commission on April 12, 2013.
31.1		Certification of R. David Banyard, President and Chief Executive Officer of Myers Industries, Inc., pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Kevin L. Brackman, Executive Vice President and Chief Financial Officer of Myers Industries, Inc., pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certifications of R. David Banyard, President and Chief Executive Officer, and Kevin L. Brackman, Executive Vice President and Chief Financial Officer, of Myers Industries, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101		The following financial information from Myers Industries, Inc. Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2019, formatted in XBRL includes: (i) Condensed Consolidated Statements of Operations, (ii) Condensed Consolidated Statements of Comprehensive Income (Loss), (iii) Condensed Consolidated Statements of Financial Position, (iv) Condensed Consolidated Statements of Shareholders' Equity, (v) Condensed Consolidated Statements of Cash Flows and (vi) the Notes to Condensed Consolidated Financial Statements.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	MYERS INDUSTRIES, INC.

August 2, 2019	/s/ Kevin L. Brackman
	Kevin L. Brackman
	Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)