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8-K/A - FORM 8-K/A - MYERS INDUSTRIES INCd790161d8ka.htm
EX-99.3 - EX-99.3 - MYERS INDUSTRIES INCd790161dex993.htm
EX-23.1 - EX-23.1 - MYERS INDUSTRIES INCd790161dex231.htm
EX-99.2 - EX-99.2 - MYERS INDUSTRIES INCd790161dex992.htm

Exhibit 99.4

Myers Industries, Inc.

Unaudited Pro Forma Condensed Combined Financial Statements

On July 2, 2014, CA Acquisition Inc., now known as Scepter Canada Inc. and a wholly-owned subsidiary of Myers Industries, Inc. (“Myers” or the “Company”), completed the purchase of substantially all of the assets and assumption of certain liabilities of Scepter Corporation and certain real property of SHI Properties Inc., both located in Scarborough, Ontario, Canada. Contemporaneously with the asset acquisition, Crown US Acquisition Company, now known as Scepter US Holding Company and another wholly-owned subsidiary of Myers Industries, Inc., completed the purchase of all of the issued and outstanding membership interests of Eco One Leasing, LLC and Scepter Manufacturing, LLC, both located in Miami, Oklahoma. Eco One Leasing, LLC was subsequently merged into Scepter Manufacturing, LLC. The total purchase price for these acquisitions (collectively, “Scepter” or “Scepter Corporation Group”) was approximately $157.8 million in cash, which includes an estimated working capital adjustment of $0.8 million subject to further adjustment based on the final working capital and other specified items.

The unaudited pro forma condensed combined statements of income are presented using Myers’ and Scepter’s results for the year ended December 31, 2013 and the six months ended June 30, 2014. The unaudited pro forma condensed combined statements of income present the pro forma adjustments as if the acquisition had occurred on January 1, 2013 and the unaudited pro forma condensed combined balance sheet is presented on a pro forma basis as to give effect to the completed acquisition as if it had occurred on June 30, 2014.

The pro forma financial statements have been prepared using the acquisition method of accounting under Generally Accepted Accounting Principles, which are subject to change and interpretation. Assumptions and estimates underlying the pro forma adjustments are described in the accompanying notes, which should be read in conjunction with the pro forma condensed combined financial statements.

Acquisition accounting is dependent upon certain valuations and other studies that have not yet been completed. Accordingly, the pro forma adjustments are preliminary and have been made solely for the purpose of preparing the pro forma financial statements and are based on preliminary information available at the time of the preparation of this Form 8-K/A. Differences between these preliminary estimates and the final acquisition accounting could occur and these differences could have a material impact on the pro forma financial statements and the combined company’s future results of operations and financial position.

The pro forma financial statements do not reflect any cost savings or other synergies that the combined company may achieve as a result of the completed acquisition or the costs to integrate the operations of Scepter or the cost necessary to achieve these cost savings and other synergies. The effects of the foregoing items could, individually or in the aggregate, materially impact the pro forma financial statements.

The following unaudited pro forma condensed combined financial statements were derived from and should be read in conjunction with:

 

  (i) the annual report on Form 10-K of Myers Industries, Inc. for the year ended December 31, 2013;

 

  (ii) the quarterly report on Form 10-Q of Myers Industries, Inc. for the quarter and six months ended June 30, 2014;

 

  (iii) the Scepter Corporation Group audited combined financial statements for the years ended December 31, 2013, and 2012 including the notes therein, which are included in this Form 8-K/A;

 

  (iv) the Scepter Corporation Group unaudited combined balance sheet as of June 30, 2014, the combined statements of income, comprehensive income and cash flows for the six months ended June 30, 2014 and 2013 and changes in group equity for the six months ended June 30, 2014, including the notes therein, which are included in this Form 8-K/A.

The historical consolidated financial information of Myers and the historical combined financial information of Scepter has been adjusted in the pro forma condensed combined financial statements to give effect to pro forma events and adjustments that are (1) directly attributable to the acquisition of Scepter, (2) are factually supportable, and (3) with respect to the condensed combined statements of income, are expected to have a continuing impact on the combined results. The pro forma statements should be read in conjunction with the accompanying notes.


MYERS INDUSTRIES, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME

For the Six Months Ended June 30, 2014

(Dollars in thousands, except per share data)

 

     (A)
Myers Industries, Inc.
As Reported
     (B)
Scepter Corporation
Group
As Reported
     (C)
Pro Forma
Adjustments
Note 3
    (A)+(B)+(C)
Pro Forma
Combined
(D)
 

Net sales

   $ 303,269       $ 51,396       $ —        $ 354,665   

Cost of sales

     218,666         32,839         (245 )(a)      251,260   
  

 

 

    

 

 

    

 

 

   

 

 

 

Gross profit

     84,603         18,557         245        103,405   

Selling, general and administrative expenses

     64,434         7,745         2,920 (b)      75,099   
  

 

 

    

 

 

    

 

 

   

 

 

 

Operating income

     20,169         10,812         (2,675     28,306   

Interest expense, net

     3,251         344         1,855 (c)      5,450   
  

 

 

    

 

 

    

 

 

   

 

 

 

Income from continuing operations before income taxes

     16,918         10,468         (4,529     22,857   

Income tax expense

     5,828         3,373         (1,247 )(d)      7,954   
  

 

 

    

 

 

    

 

 

   

 

 

 

Income from continuing operations

   $ 11,090       $ 7,095       $ (3,282   $ 14,903   
  

 

 

    

 

 

    

 

 

   

 

 

 

Income per common share from continuing operations:

          

Basic

   $ 0.34       $ 0.22       $ (0.10   $ 0.45   

Diluted

   $ 0.33       $ 0.21       $ (0.10   $ 0.45   

Weighted average common shares outstanding

          

Basic

     32,892,864         32,892,864         32,892,864        32,892,864   

Diluted

     33,387,109         33,387,109         33,387,109        33,387,109   

See accompanying notes to the unaudited pro form condensed combined financial statements.


MYERS INDUSTRIES, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME

For the Year Ended December 31, 2013

(Dollars in thousands, except per share data)

 

    (A)
Myers Industries, Inc.
As Reported
    (B)
Adjustments for
Discontinued
Operations
    (A)+(B)
Myers Industries, Inc.
As Adjusted
(C)
    (D)
Scepter Corporation
Group
As Reported
    (E)
Pro Forma
Adjustments
Note 3
    (C)+(D)+(E)
Pro Forma
Combined
(F)
 

Net sales

  $ 825,210      $ (240,477   $ 584,733      $ 94,834      $ —        $ 679,567   

Cost of sales

    607,582        (192,402     415,180        64,892        (464 )(a)      479,608   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    217,628        (48,075     169,553        29,942        464        199,959   

Selling, general and administrative expenses

    173,695        (48,458     125,237        13,208        7,893 (b)      146,338   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

    43,933        383        44,316        16,734        (7,429     53,621   

Interest expense, net

    4,542        (11     4,531        671        3,726 (c)      8,928   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations before income taxes

    39,391        394        39,785        16,063        (11,155     44,693   

Income tax expense

    13,389        (47     13,342        4,309        (3,229 )(d)      14,422   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

  $ 26,002      $ 441      $ 26,443      $ 11,754      $ (7,926   $ 30,271   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income per common share from continuing operations:

           

Basic

  $ 0.77      $ 0.01      $ 0.78      $ 0.35      $ (0.24   $ 0.89   

Diluted

  $ 0.76      $ 0.01      $ 0.77      $ 0.35      $ (0.23   $ 0.89   

Weighted average common shares outstanding

           

Basic

    33,588,720        33,588,720        33,588,720        33,588,720        33,588,720        33,588,720   

Diluted

    34,043,425        34,043,425        34,043,425        34,043,425        34,043,425        34,043,425   

See accompanying notes to the unaudited pro form condensed combined financial statements.


MYERS INDUSTRIES, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

As of June 30, 2014

(Dollars in thousands)

 

     (A)
Myers Industries, Inc.
As Reported
    (B)
Scepter Corporation
Group
As Reported
    (C)
Pro Forma
Adjustments
Note 3
    (A)+(B)+(C)
Pro Forma
Combined
(D)
 

Assets

        

Current Assets

        

Cash

   $ 35,792      $ 14,656      $ (37,168 )(a)    $ 13,280   

Accounts receivable - less allowance

     86,324        20,566        —          106,890   

Inventories

     64,734        11,535        2,315 (b)      78,584   

Prepaid expenses

     9,037        1,043        (739 )(c)      9,341   

Deferred income taxes

     2,007        62        (62 )(d)      2,007   

Assets held for sale

     136,698        —          —          136,698   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Current Assets

     334,592        47,862        (35,653     346,801   

Other Assets

        

Goodwill

     51,737        —          19,535 (e)      71,272   

Patents and other intangible assets, net

     13,309        229        68,071 (f)      81,609   

Other

     3,348        4,353        (4,353 )(g)      3,348   
  

 

 

   

 

 

   

 

 

   

 

 

 
     68,394        4,582        83,253        156,229   

Property, plant and equipment, net

     95,657        26,203        18,254 (h)      140,114   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Assets

   $ 498,643      $ 78,647      $ 65,854      $ 643,144   
  

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities and Shareholders’ Equity

        

Accounts payable

   $ 64,566      $ 4,989      $ —        $ 69,555   

Accrued expenses

        

Employee compensation

     13,699        1,210        —          14,909   

Income taxes

     3,455        2,968        (3,871 )(i)      2,552   

Taxes, other than income taxes

     2,753        —          —          2,753   

Accrued interest

     2,491        —          —          2,491   

Liabilities held for sale

     31,674        —          —          31,674   

Other

     15,353        2,904        2,549 (j)      20,806   

Current portion of long-term debt

     —          9,900        (9,900 )(k)      —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Current Liabilities

     133,991        21,971        (11,222     144,740   
  

 

 

   

 

 

   

 

 

   

 

 

 

Long-term debt, net

     137,734        —          135,299 (l)      273,033   

Other liabilities

     14,982        33,459        (33,329 )(g)      15,112   

Deferred income taxes

     16,617        2,622        (2,622 )(d)      16,617   

Shareholders’ Equity

        

Serial Preferred Shares

     —          —          —          —     

Common Shares

     19,190        1,879        (1,879 )(m)      19,190   

Member’s Contributions

     —          1,100        (1,100 )(m)      —     

Additional paid-in capital

     226,484        —          —          226,484   

Accumulated other comprehensive income (loss)

     5,285        (937     937 (m)      5,285   

Retained (deficit) earnings

     (55,640     18,553        (20,230 )(n)      (57,317
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Shareholders Equity

     195,319        20,595        (22,272     193,642   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Liabilities and Shareholders’ Equity

   $ 498,643      $ 78,647      $ 65,854      $ 643,144   
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to the unaudited pro form condensed combined financial statements.


MYERS INDUSTRIES, INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, unless indicated otherwise)

1. BASIS OF PRESENTATION

The pro forma statements have been compiled from historical consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), and should be read in conjunction with the Form 10-K for the year ended December 31, 2013 and Form 10-Q for the quarterly period ended June 30, 2014 for Myers Industries, Inc. (“Myers” or the “Company”) and the combined financial statements of Scepter Corporation Group, which are included in this Form 8-K/A. Myers’ historical condensed consolidated statement of income for the year ended December 31, 2013 has been adjusted in conformity with GAAP to reflect discontinued operations presentation for businesses disposed of or meeting the held for sale criteria as previously disclosed in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2014. Accordingly, the unaudited pro forma condensed combined statements of income exclude certain data related to discontinued operations. These pro forma statements are presented for informational purposes only and are not necessarily indicative of what the combined company’s financial position or results of operations actually would have been had the transaction been completed as of the dates indicated. In addition, the pro forma statements do not purport to project the future financial position or operating results of the combined company.

The pro forma statements have been prepared using the acquisition method of accounting. For accounting purposes, Myers has been treated as the acquirer in the transaction. Acquisition accounting is dependent upon certain valuations and other studies that have yet to progress to a stage where there is sufficient information for a definitive measurement. Accordingly, the pro forma adjustments included herein are preliminary and have been presented solely for the purpose of providing pro forma statements and will be revised as additional information becomes available and as additional analyses are performed. The process for estimating the fair values of identifiable intangible assets and certain tangible assets requires the use of judgment in determining the appropriate assumptions and estimates. Differences between preliminary estimates in the pro forma statements and the final acquisition accounting will occur and could have a material impact on the accompanying pro forma statements and the combined company’s future results of operations and financial position.

The acquisition has been accounted for using the historical information and accounting policies of Myers and combining the assets and liabilities of Myers with Scepter Corporation Group (“Scepter” or “Scepter Corporation Group”) at their respective estimated fair values. The assets and liabilities of Scepter Corporation Group have been measured based on various preliminary estimates using assumptions that management believes are reasonable utilizing information currently available. Use of different estimates and judgments could yield materially different results. The purchase price allocation is subject to finalization of the fair value of the assets and liabilities of Scepter Corporation Group as of the closing of the transaction. Differences from these preliminary estimates could be material.

Acquisition-related transaction costs, such as investment banker, advisory, legal, valuation, and other professional fees are not included as a component of consideration transferred but are expensed as incurred. Pre-tax transaction costs associated with the acquisition totaled approximately $3.6 million, of which $0.6 million and $0.4 million have been expensed in Myers’ and Scepter’s historical financial statements, respectively. The remaining $2.6 million of transaction costs, $1.7 million net of tax, has been reflected as a reduction to retained earnings. These costs are not presented in the unaudited pro forma condensed combined statements of income because they will not have a continuing impact on the consolidated results of Myers.

The pro forma statements do not reflect any cost savings, operating synergies or revenue enhancements that the combined company may achieve as a result of the transaction or the costs to combine the operations of Myers and Scepter or the costs necessary to achieve these cost savings, operating synergies and revenue enhancements.

2. PURCHASE CONSIDERATION AND ESTIMATED ALLOCATION

On July 2, 2014, CA Acquisition Inc., now known as Scepter Canada Inc. and a wholly-owned subsidiary of Myers, completed the purchase of substantially all of the assets and assumption of certain liabilities of Scepter Corporation and certain real property of SHI Properties Inc., both located in Scarborough, Ontario, Canada. Contemporaneously with the asset acquisition, Crown US Acquisition Company, now known as Scepter US Holding Company and another wholly-owned subsidiary of Myers, completed the purchase of all of the issued and outstanding membership interests of Eco One Leasing, LLC and Scepter Manufacturing, LLC, both located in


Miami, Oklahoma. Eco One Leasing, LLC was subsequently merged into Scepter Manufacturing, LLC. The total purchase price for these acquisitions (collectively, “Scepter Corporation Group”) was approximately $157.8 million in cash, which includes an estimated working capital adjustment of $0.8 million subject to further adjustment based on the final working capital and other specified items. The acquisition of Scepter was funded from net proceeds from additional borrowings of approximately $135.3 million under the Fourth Amended and Restated Loan Agreement and cash on hand of $22.5 million.

Scepters assets and liabilities are recorded at fair value as of the date of acquisition. The purchase consideration, related preliminary estimated allocations, and resulting excess over fair value of net assets acquired are as follows:

 

Assets acquired:

  

Current assets

   $ 34,721   

Property, plant and equipment

     44,457   

Intangible assets

     68,300   
  

 

 

 

Assets acquired

   $ 147,478   

Liabilities assumed:

  

Current liabilities

   $ 9,072   

Long-term liabilities

     130   
  

 

 

 

Total liabilities assumed

     9,202   

Goodwill

     19,535   
  

 

 

 

Total consideration

   $ 157,811   
  

 

 

 

Identifiable intangible assets acquired in connection with the acquisition of Scepter are as follows:

 

     Fair Value      Estimated
Useful Life
    

Valuation Method

Intangible assets not subject to amortization:

        

Trademarks and trade names

   $ 8,900          Relief from royalty

Intangible assets subject to amortization:

        

Technology

     22,300         10 years       Relief from royalty

Customer relationships

     37,100         6 years       Multi-period excess earnings
  

 

 

       
     59,400         
  

 

 

       

Total

   $ 68,300         
  

 

 

       

Property, plant and equipment acquired in connection with the acquisition of Scepter are as follows:

 

     Fair Value      Estimated
Useful Life
 

Land

   $ 5,613      

Buildings and leasehold improvements

     13,235         25 years   

Machinery & equipment

     25,609         7 years   
  

 

 

    

Total

   $ 44,457      
  

 

 

    

The entire purchase price allocation shown above is based on Myers’ preliminary estimates of fair value of Scepter’s assets and liabilities. Once sufficient information is available and final valuations are performed, the purchase price allocation may differ materially from the estimates noted above.


3. DESCRIPTION OF PRO FORMA ADJUSTMENTS

The unaudited pro forma condensed combined financial statements include the following pro forma adjustments:

Adjustments to the unaudited pro forma condensed combined statement of income for the six months ended June 30, 2014

 

 

  (a) Primarily reflects the elimination of Scepter’s historical intangible amortization expense of approximately $0.2 million.

 

  (b) Primarily reflects amortization expense of approximately $4.2 million related to finite life, identifiable intangible assets that were established as a direct result of the acquisition of Scepter based on the straight-line amortization method offset by the elimination of nonrecurring transaction related expenses recognized in Myers’ and Scepter’s historical financial statements of approximately $1.0 million and an adjustment to depreciation expense for Scepter’s capital assets of approximately $0.3 million based on the fair value of those acquired assets.

 

  (c) Reflects interest expense of approximately $2.2 million on the additional debt incurred of $135.3 million to finance the acquisition offset by the elimination of historical Scepter interest expense of approximately $0.3 million. The annual interest rate on the additional borrowings under Myers’ revolving credit facility was assumed to be 3.25%. The Company’s financial results are subject to changes in the market rate of interest. Accordingly, if market interest rates increased 0.125%, the interest expense would have increased approximately $0.1 million on the additional debt incurred to finance the acquisition for the six months ended June 30, 2014.

 

  (d) Reflects income tax benefit for the effect of pro forma adjustments using a blended statutory rate of 27.5%.

Adjustments to the unaudited pro forma condensed combined statement of income for the year ended December 31, 2013

 

  (a) Primarily reflects the elimination of Scepter’s historical intangible amortization expense of approximately $0.5 million.

 

  (b) Reflects amortization expense of approximately $8.4 million related to finite life, identifiable intangible assets that were established as a direct result of the acquisition of Scepter based on the straight-line amortization method offset by an adjustment to depreciation expense for Scepter’s capital assets of approximately $0.5 million based on the fair value of those acquired assets.

 

  (c) Reflects interest expense of approximately $4.4 million on the additional debt incurred of $135.3 million to finance the acquisition offset by the elimination of historical Scepter interest expense of approximately $0.7 million. The annual interest rate on the additional borrowings under Myers’ revolving credit facility was assumed to be 3.25%. The Company’s financial results are subject to changes in the market rate of interest. Accordingly, if market interest rates increased 0.125%, the interest expense would have increased approximately $0.2 million annually on the additional debt incurred to finance the acquisition.

 

  (d) Reflects income tax benefit for the effect of pro forma adjustments using a blended statutory rate of 28.9%.

Adjustments to the unaudited pro forma condensed combined balance sheet

 

  (a) Reflects the elimination of Scepter cash not acquired by Myers of $14.7 million and additional cash outlay incurred by Myers to acquire Scepter of $22.5 million.

 

  (b) Reflects the step-up in basis to fair value for inventory acquired.

 

  (c) Reflects the elimination of Scepter prepaid expenses not acquired by Myers in accordance with the purchase agreements.

 

  (d) Reflects the adjustment to eliminate deferred tax assets and liabilities not assumed by Myers in accordance with the purchase agreement.

 

  (e) Reflects the excess of the purchase price over the fair value of assets acquired and liabilities assumed. Calculated as the difference between the acquisition date fair value of the estimated consideration transferred and the values assigned to the assets and liabilities assumed.

 

  (f) Reflects the preliminary estimate of fair value of intangible assets acquired of approximately $68.3 million offset by the elimination of Scepter’s historical intangible assets of approximately $0.2 million.

 

  (g) Reflects the elimination of Scepter intercompany advances/notes payable not assumed in accordance with the purchase agreements.


  (h) Reflects the step-up of property to fair value.

 

  (i) Reflects the elimination of Scepter income tax liabilities of approximately $3.0 million not assumed by Myers in accordance with the purchase agreements coupled with the reduction in taxes payable related to certain non-recurring charges reflected in retained earnings of approximately $0.9 million.

 

  (j) Reflects the elimination of Scepter accrued liabilities of less than $0.1 million not assumed by Myers in accordance with the purchase agreements offset by accrued transaction costs of approximately $2.6 million.

 

  (k) Reflects the elimination of Scepter indebtedness not assumed by Myers in accordance with the purchase agreements.

 

  (l) Reflects additional indebtedness incurred by Myers to fund acquisition.

 

  (m) Reflects the elimination of historical Scepter common stock, member’s contributions and accumulated other comprehensive loss.

 

  (n) Reflects the elimination of historical Scepter retained earnings of $18.5 million coupled with the $1.7 million after tax impact of non-recurring transaction costs reflected in retained earnings.

4. ACCOUNTING POLICIES

Myers has begun performing a review between the accounting policies of the two companies. Upon completion of this review, Myers may identify differences between the accounting policies of the two companies that, when conformed, could have a material impact on the combined financial statements. At this time, Myers is not aware of any differences that would have a material impact on the unaudited pro forma condensed combined financial statements.

5. INVENTORY

The unaudited pro forma condensed combined statements of income do not include an adjustment to reflect an increase in cost of sales for the adjustment of inventory to its estimated fair value as of the acquisition date as this adjustment will not have a continuing impact on the consolidated results of the combined company.

6. DEFERRED TAXES

The unaudited pro forma condensed combined balance sheet does not include an adjustment to reflect the establishment of estimated deferred tax assets and liabilities for Scepter’s U.S. and Canadian operations as the acquisition was treated as an asset purchase and the fair market values of the assets purchased and liabilities assumed are the same for both book and tax purposes.