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:

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:


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,


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:

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:

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:

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:

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:

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.


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:

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:

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:

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.

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.


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

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.

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:


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.


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.


Legal Proceedings

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.

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.