SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended August 29, 1997 Commission File Number 1-5197
Plymouth Rubber Company, Inc.
(Exact name of registrant as specified in its charter)
Massachusetts 04-1733970
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
104 Revere Street, Canton, Massachusetts 02021
(Address of principal executive offices) (Zip Code)
(781) 828-0220
Registrant's telephone number, including area code
Not Applicable
(Former name, former address, and former fiscal year, if changed since last
report).
Indicate by checkmark 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 X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the period covered by this report.
Class A common stock, par value $1 - 810,586
Class B common stock, par value $1 - 1,219,927
PLYMOUTH RUBBER COMPANY, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Statement of Operations and
Retained Earnings (Deficit)
Condensed Consolidated Balance Sheet
Condensed Consolidated Statement of Cash Flows
Notes To Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
[CAPTION]
PLYMOUTH RUBBER COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND
RETAINED EARNINGS (DEFICIT)
(In Thousands Except Share and Per Share Amounts)
(Unaudited)
<TABLE>
Third Quarter Ended Nine Months Ended
Aug. 29, Aug. 30, Aug. 29, Aug. 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net sales $ 16,396 $ 14,003 $ 49,386 $ 41,881
Cost and expenses:
Cost of products sold 12,477 10,404 37,767 31,643
Selling, general and
administrative 3,162 2,791 9,616 7,520
Pension curtailment loss -- 1,571 -- 1,571
15,639 14,766 47,383 40,734
Operating income 757 (763) 2,003 1,147
Interest expense (430) (333) (1,111) (962)
Other income (expense), net 442 52 391 19
Income before taxes 769 (1,044) 1,283 204
Provision for income taxes (332) 1,948 (535) 1,624
Net income 437 904 748 1,828
Retained earnings (deficit)
at beginning of period (3,237) (4,496) (3,548) (4,577)
Less stock dividend -- -- -- (843)
Retained earnings (deficit)
at end of period $ (2,800) $ (3,592) $ (2,800) $ (3,592)
Per Share Data:
Net income .20 .41 .34 .82
Weighted average number of
shares outstanding 2,160,486 2,221,652 2,179,654 2,231,414
</TABLE>
See Accompanying Notes To Consolidated Financial Statements
[CAPTION]
PLYMOUTH RUBBER COMPANY, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In Thousands)
<TABLE>
Aug 29, Nov. 29,
1997 1996
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 46 $ --
Accounts receivable 10,717 7,758
Allowance for doubtful accounts (330) (195)
Inventories:
Raw materials 3,945 3,730
Work in process 1,256 1,962
Finished goods 6,247 5,633
11,448 11,325
Deferred tax assets, net 1,972 1,972
Prepaid expenses and other current assets 816 744
Total current assets 24,669 21,604
PLANT ASSETS:
Plant assets 33,879 27,753
Less: Accumulated depreciation (20,472) (17,937)
Total plant assets, net 13,407 9,816
OTHER ASSETS:
Deferred tax assets, net 2,308 2,802
Other long-term assets 1,256 528
3,564 3,330
Total Assets $ 41,640 $ 34,750
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Revolving line of credit $ 7,106 $ 5,189
Trade accounts payable 6,110 5,626
Accrued expenses 3,752 3,664
Current portion of long-term obligations 1,650 1,538
Current portion of product warranties 100 106
Total current liabilities 18,718 16,123
LONG-TERM LIABILITIES
Borrowings 9,867 5,430
Pension obligation 2,959 3,647
Product warranties 603 678
Other 1,612 1,684
Total long-term liabilities 15,041 11,439
STOCKHOLDERS' EQUITY
Preferred stock $10 par value, authorized
500,000 shares; no shares issued and
outstanding -- --
Class A voting common stock 810 810
Class B non-voting common stock 1,220 1,192
Paid in capital 9,081 9,086
Retained earnings (deficit) (2,800) (3,548)
Cumulative translation adjustment (106) --
Pension liability adjustment, net of tax (162) (162)
Deferred compensation (162) (190)
Total stockholders' equity 7,881 7,188
Total Liabilities & Stockholders' Equity $ 41,640 $ 34,750
</TABLE>
See Accompanying Notes To Consolidated Financial Statements
[CAPTION]
PLYMOUTH RUBBER COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands) (Unaudited)
<TABLE>
Nine Months Ended
Aug 29, Aug 30,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 748 $ 1,828
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,124 838
Deferred income tax (benefit) provision -- (2,334)
Amortization of deferred compensation 28 28
Amortization of unrecognized
obligation at transition -- 1,571
Foreign currency exchange loss 79 --
Changes in assets and liabilities:
Accounts receivable (1,845) (677)
Inventory 111 (734)
Prepaid expenses (68) 689
Other assets (14) (104)
Accounts payable 690 (1,394)
Accrued expenses (75) 574
Pension obligation (688) (322)
Product warranties (80) (68)
Other liabilities (25) (133)
Net cash used in operating activities (15) (238)
Cash flows from investing activities:
Capital expenditures (3,399) (1,491)
Sale/leaseback of plant assets -- 258
Cash paid in connection with the purchase
of Cintas Adhesivas Nunez, S.A., net of
cash acquired of $90 (2,234) --
Purchase price adjustment -
Brite-Line Technologies, Inc. (502) --
Net cash used in investing activities (6,135) (1,233)
Cash flows from financing activities:
Net increase (decrease) in revolving
line of credit 1,708 (1,047)
Proceeds from term debt 5,771 6,657
Payments of term debt (1,192) (4,098)
Payments on capital leases (164) (117)
Proceeds from insurance financing 157 126
Payments on insurance financing (96) (129)
Proceeds from issuance of common stock 23 79
Net cash provided by financing activities 6,207 1,471
Effect of exchange rates on cash (11) --
Net change in cash 46 --
Cash at the beginning of the period -- --
Cash at the end of the period $ 46 $ --
Supplemental Disclosure of Cash Flow Information
Cash paid for interest $ 1,194 $ 947
Cash paid for income taxes $ 106 $ 147
Supplemental Disclosure of Non-Cash Activities:
Assets acquired under capital lease obligations $ -- $ 433
Charge to retained earnings for stock dividend $ -- $ 843
</TABLE>
See Accompanying Notes To Consolidated Financial Statements
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(1) The Company, in its opinion, has included all adjustments (consisting
of normal recurring accruals) necessary for a fair presentation of the
results for the interim periods. The interim financial information is
not necessarily indicative of the results that will occur for the full
year. The financial statements and notes thereto should be read in
conjunction with the financial statements and notes for the years ended
November 29, 1996, December 1, 1995, and December 2, 1994, included in
the Company's 1996 Annual Report to the Securities and Exchange
Commission on Form 10-K/A.
(2) In connection with its former roofing materials business, the Company
issued extended warranties as to the workmanship and performance of its
products. Over 99% of these warranties had expired prior to the end
of 1995, and the last of the ten year warranties expired in 1996. (A
small number of certain other, more restrictive, and limited warranties
continue thereafter). The estimated costs of these warranties were
accrued at the time of sale, subject to subsequent adjustment to
reflect actual experience. Some warranty holders have filed claims or
brought suits currently aggregating approximately $721,000 against the
Company and others relating to alleged roof failures. The Company
believes, upon advice of counsel, that its warranty obligation under
such warranties is limited to the cost of the roofing materials and
that the amounts of the claims are significantly in excess of its
ultimate liability. The Company is vigorously defending against these
claims and believes that some are without merit and that the damages
claimed in others may not bear any reasonable relationship to the
merits of the claims or the real amount of damage, if any, sustained
by the various claimants. Management believes that the $703,000
reserve included in liabilities recorded at August 29, 1997 is adequate
provision for the Company's remaining warranty obligations.
In December 1996, the Company entered into a purchase commitment for
a significant piece of equipment to be financed with a new term loan.
In October 1996, LB Acquisition, Inc., which was renamed Brite-Line
Technologies, Inc., a new, wholly-owned subsidiary of the Company,
acquired certain assets of Brite-Line Industries, Inc. from senior
secured creditors. In connection with this transaction, the Company
guaranteed the collection of accounts receivable in the amount of
$2,100,000. On or about February 4, 1997, the Company paid
approximately $586,000 as the full and final balance due under this
guarantee.
The United States Environmental Protection Agency (EPA) has asserted
three (3) outstanding claims against the Company under the
Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), pursuant to which EPA is seeking to recover from the
Company and other "generators" the costs associated with the clean up
of certain sites used by licensed disposal companies hired by the
Company as independent contractors for the disposal and/or reclamation
of hazardous waste materials. In one case, in respect to the Superfund
site known as Re-Solve, Inc., of Dartmouth, Massachusetts, the Company
entered into a Consent Decree, which required payment by the Company
of $100,000 plus interest over a period of five years in full
settlement of the EPA claim. The Company has paid $84,000 and owes one
payment of $16,000 in 1997.
With respect to the second assertion against the Company under CERCLA,
a General Notice of Potential Liability was sent to 1,659 Potentially
Responsible Parties ("PRP") including the Company, in June, 1992,
relative to a Superfund Site known as Solvent Recovery System of New
England ("SRS") at a location in Southington, Connecticut, concerning
shipments to the site which occurred between June 1, 1956, and January
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited) Continued
25, 1974. The EPA has attributed a 1.74% share of the aggregate waste
volume to the Company. The Company believes that this attribution may
be overstated by failing to account for the portion of the gross waste
volume actually returned to the Company. The first phase of a
remediation program is estimated to cost $3.6 million. The Non-Time
Critical Removal Action I ("NTCRA") was signed on February 28, 1996,
and the Administrative Order on Consent for Removal Action and Remedial
Investigation/Feasibility ("RI/FS") study was entered on or about
February 6, 1997. Phase II of the clean-up and the RI/FS, is projected
to cost $2.1 million. The most currently available estimate is that
the cost of the clean up for the PRP's will range from approximately
$38 million to $48 million. Based on all available information as well
as its prior experience, management believes the amount accrued of
approximately $426,000, which is net of approximately $200,000 in
payments made by the Company, in the accompanying consolidated
financial statements as of August 29, 1997 is reasonable in relation
to the Company's attributed share of total estimated aggregate cost.
This amount is subject to adjustment for future developments that may
arise from the long-range nature of this EPA case, legislative changes,
insurance coverage, the uncertainties associated with the ultimate
outcome of the Record of Decision ("ROD"), the joint and several
liability provisions of CERCLA, and the Company's ability to
successfully negotiate an outcome similar to its previous experience
in these matters. No actions have been filed by the EPA against the
Company. Therefore, although the Company is participating in the PRP
Group, it is impossible to determine the Company's total ultimate
liability and/or responsibility at this time.
On January 25, 1994, the Company received a notification of an
additional Superfund Site, Old Southington Landfill, (the "OSL Site")
regarding which the EPA asserts that the Company is a PRP. The OSL
Site is related to the SRS Site in that, the EPA alleges, after receipt
and processing of various hazardous substances from PRP's, the owners
and/or operators of the SRS Site shipped the resultant contaminated
soil from the SRS Site to the OSL Site. Since the Company is alleged
to have shipped materials to the SRS Site, the EPA alleges that the
Company is also a PRP of the OSL Site. In addition, there were three
(3) direct shippers to the site, the Town of Southington, General
Electric, and Pratt & Whitney, as well as other transporters and/or
users. Based on EPA's asserted volume of shipments to SRS during
that time period, the EPA has attributed 4.89% of waste volume of all
SRS customers, to the Company; no attempt has been made by EPA to
adjust the waste volume for the distillation done by SRS prior
to shipment to OSL, or to allocate a percentage to the Company in
relation to direct users of the OSL Site, or in relation to a
combination of direct and indirect users of the site. An ROD was
issued in September, 1994 for the first Phase of the clean-up,
estimated to cost approximately $16 million. A PRP Group was formed
and the Company became a participant in the Joint Defense Group of
OSL/SRS "transshipper" PRP's and in the Alternative Dispute Resolution
process. This process resulted in a mediated settlement for the first
phase of the clean up, as well as settlement of past costs and orphan
shares. The Company will pay approximately $139,000 in settlement of
the first phase. The settlement of the second phase is currently being
mediated; total costs to the SRS "transshipper" group are not expected
to exceed approximately $15 million. The Company has been notified
that certain members of the "transshipper" PRP's, including the
Company, will likely be precluded from participating in a mediated
settlement on a "de minimus" basis at this time, pending a final
allocation. Based on all available information, as well as its prior
experience, management believes a reasonable estimate of its ultimate
liability for both phases is $365,000 and has accrued this amount in
the accompanying consolidated financial statements as of August 29,
1997. This amount is subject to future developments that may arise
from the long range nature of this EPA case, legislative changes,
insurance coverage, the uncertainties associated with the ultimate
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited) Continued
outcome of the ROD and the joint and several liability provisions of
CERCLA, and the Company's ability to successfully negotiate an outcome
similar to its previous experience in these matters. No actions have
been currently filed by the EPA against the Company. Therefore,
although the Company intends to vigorously defend this matter, it is
impossible to determine the Company's total liability and/or
responsibility at this time.
In addition, in the process of preparing to eliminate the use of
certain underground storage tanks located at the Company's
manufacturing facility, the Company determined that some soil
contamination had occurred in a small localized area near the tanks in
question. According to the preliminary information obtained by an
independent Licensed Site Professional, the contamination of the soil
appears to be confined to a small area and does not pose an
environmental risk to the surrounding property or community. In accord
with Massachusetts requirements, the Company notified the Massachusetts
Department of Environmental Protection ("DEP") of the foregoing on or
about August 24, 1994 (RTN3-11520). The Company has employed a
Licensed Site Professional as required by statute to investigate the
site. The assessment has been completed, and the remediation procedure
has been recommended. It is expected that the remaining costs for same
will not exceed the additional sum of approximately $276,000, which has
been provided for in the accompanying financial statements.
On or about January 21, 1997, the Company received a Notice of
Responsibility from the Massachusetts Department of Environmental
Protection, ("DEP") pursuant to M.G.L. ch. 21E concerning the certain
sites identified as The Ledge, 757-782 State Road, Dartmouth: RTN No.
4-0234; and Ridge Hill Road, Freetown: RTN No. 4-0086. The letter
indicates that drums containing hazardous materials, some of which may
have contained the Company's wastes, were discovered at both sites in
April, 1979, and that response actions were undertaken at both sites
conducted between 1979 and 1981 by DEP. On information and belief, the
company which disposed of these drums is H&M Drum to whom the Company
shipped wastes between 1977 to 1979. The Company has identified and
management believes it may obtain a cost sharing agreement with a group
of other potentially responsible parties, and is continuing to
investigate and seek DEP enforcement with respect to the site owners
and other potentially responsible parties. In compliance with DEP
requests and statutory requirements, the Company has hired a Licensed
Site Professional to perform certain technical service at the sites.
Recent sampling of existing wells at the Freetown site contained no
finding of any volatile organic chemicals ("VOC's"). However, the
Company has little information regarding the Dartmouth site and its
potential involvement, including the identity and contributions of
other PRP's and the scope of the clean-up necessary, and therefore has
not recorded any liability as of August 29, 1997. A response to the
Notice of Responsibility has been made and cooperative efforts,
including an investigation of additional PRP's and the status of the
site, will be made.
Pursuant to the Company's compliance with EPA and Massachusetts
regulations concerning the upgrade or replacement of underground
storage tanks by December 22, 1998, the Company arranged for the
testing of the area adjacent to three underground storage tanks and on
July 25, 1997, filed the results of such tests with the Massachusetts
Department of Environmental Protection, Release Notification Form.
According to the preliminary information obtained by an independent
Licensed Site Professional, a limited amount of solvent was found in
the soil in the vicinity of the tanks; however, additional sampling is
required. The Company has several options under the law to protect,
remove or replace the tanks and plans to take whatever remedial action
is deemed appropriate. Management is in the process of determining the
costs associated with each of these alternatives.
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited) Continued
(3) Checks outstanding in excess of certain cash balances totaling $732,000
and $623,000 at August 29, 1997, and November 29, 1996, respectively,
have been included in accounts payable.
(4) On June 11, 1996, the Company declared a 5% stock dividend on both
Class A (voting) and Class B (non-voting) common stock. The dividend
was paid in Class B shares on August 19, 1996 to shareholders of record
as of June 24, 1996. Retained earnings has been charged for $843,000
based on the dividend value of $8.875 per share. Cash was paid in lieu
of fractional shares using the closing price of Class B common stock
on June 10, 1996, and was less than $2,000. Earnings per share have
been adjusted to reflect the stock dividend declared. The common
shares outstanding, and the common stock equivalents, are shown below.
Common and Common Equivalent Shares (Primary and Fully Diluted Basis):
Third Quarter Ended Nine Months Ended
Aug 29, Aug. 30, Aug 29, Aug. 30,
1997 1996 1997 1996
Average shares outstanding 2,030,513 2,000,279 2,024,484 1,992,251
Adjustments thereto(1)(2) 129,973 221,373 155,170 239,163
Weighted average shares
outstanding 2,160,486 2,221,652 2,179,654 2,231,414
(1) Adjust for options and warrants under the treasury stock method
using average market value during the period.
(2) Same as (1) except using market value at the end of the period,
if greater than the average market value during the period.
(5) In February, 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 128 ("FAS 128"),
Earnings per Share. FAS 128, which is effective for both interim and
annual periods ending after December 15, 1997, requires the disclosure
of basic and diluted earnings per share as well as certain other
disclosures. Basic and diluted earnings per share, as computed under
the new standard, are not materially different from the Company's
current presentation of primary and fully diluted earnings per share,
respectively, and accordingly, proforma disclosure is not presented
herein.
(6) On January 3, 1997, Plymouth Rubber Europa, S.A., a newly formed,
wholly-owned subsidiary of the Company, acquired 100 percent of the
outstanding shares of Cintas Adhesivas Nu ez, S.A. ("CANSA"). The
aggregate purchase price of $3,100,000, which includes transaction
costs, was allocated as follows:
Working capital $ 320,000
Plant assets, net 1,660,000
Goodwill 1,020,000
Other 100,000
$ 3,100,000
The accompanying financial statements include the results of operations
and cash flows of CANSA for the eight months ended August 29, 1997.
The impact of this acquisition was not significant.
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited) Continued
(7) Financial instruments with off-balance sheet risks
During the current year, the Company began to selectively use foreign
currency forward contracts to offset the effects of exchange rate
changes on cash flow exposures denominated in foreign currencies. At
August 29, 1997, the foreign currency forward contracts primarily
comprise a buy contract relating to a firm purchase commitment with a
maturity prior to November 28, 1997. The buy contract, which is
denominated in Deutschmarks, is on a notional amount of $3 million at
August 29, 1997. The fair value of the forward exchange contract is
estimated based on quoted market prices from the bank, and at August
29, 1997, the Company would have paid approximately $360,000 to
terminate the buy contract.
(8) On April 11, 1997, Plymouth Rubber Europa, S.A., a subsidiary of the
Company, entered a term loan arrangement with a Spanish Bank syndicate
in the original amount of 250,000,000 pesetas (approximately
$1,721,000) due April, 2007, secured by a first interest in real
property and supported by a bank guarantee in the amount of $500,000.
Semi-annual principal payments of 12,500,000 pesetas (approximately
$86,000), plus interest at the one year Madrid inter-bank market rate
(MIBOR) plus 1.25%. At August 29, 1997, the interest rate was 6.50%.
(9) On August 28, 1997, the Company sold a certain parcel of undeveloped real
estate for $500,000. The proceeds, net of expenses, resulted in a
$496,000 gain which is included in Other Income in the accompanying
Condensed Consolidated Statement of Operations.
Item 2. Management's Discussion & Analysis of Financial Condition
and Results of Operations.
FIRST NINE MONTHS, 1996 COMPARED WITH FIRST NINE MONTHS, 1995
Net sales at $49,386,000 were up 18% compared with the first nine
months of 1996, which were up 7% from the same period in 1995. The
sales increase reflects sales from the October, 1996, and January,
1997, acquisitions now operating as Brite-Line Technologies, Inc.
and Plymouth Rubber Europa, S.A., respectively, and continued growth
in sales of tapes to the export and domestic automotive wire
harnessing industry, up 5% and 12%, respectively. Sales to the
domestic automotive market now represent 45% of sales. Sales to the
other core business markets were approximately flat, with the
exception of sales to the non-automotive OEM market, which declined
29% due to capacity restrictions. In February, 1997, the Company
announced a $10 million capital investment program to substantially
increase the Company's manufacturing capacity, reduce costs and
improve productivity. The largest step in the program, accounting
for over half of the planned expenditure, is a new vinyl calender
and auxiliary equipment, scheduled to begin production in the second
quarter of 1998.
Operating income, at $2,003,000, has increased by $856,000 or 75%
from the prior year. However, operating income is down $715,000, or
26% from the prior year's operating income adjusted for the
$1,571,000 noncash charge to amortize the intangible asset
(Unrecognized Net Obligation at Transition) resulting from the
Company's decision to freeze future employee benefits in the defined
benefit pension plan. Exclusive of the amortization, the
consolidated operating income reduction of $715,000 reflects a one
point gross margin reduction, a 5% increase in selling, general and
administrative expenses pertaining to Plymouth's core business, and
a moderate loss from operations of Brite-Line Technologies, Inc.,
offset in part by a small contribution from Plymouth Rubber Europa,
S.A. (acquired January 3, 1997). The consolidated adjusted
operating income reduction reflects a 13% increase in gross profit,
more than offset by a 28% increase in selling, general and
administrative expenses. The $1,381,000 gross profit increase is
attributable to higher sales volume, 91% of which was contributed by
the acquisitions. The gross margin decreased one point, reflecting
the parent company's less favorable product mix, higher raw material
costs, higher plant maintenance expenses, and production
inefficiencies related to limitations on the Company's production
capacity. In addition, higher indirect labor and training costs are
being incurred in preparation for the Company's planned increase in
manufacturing capacity as discussed above.
Selling expenses increased 34%, reflecting higher costs for
advertising, commissions, salesmen's salaries and foreign warehouse
operations. The increase in selling expenses is primarily due to
the addition of subsidiary companies, with the exception of an
increase pertaining to the parent company's foreign warehouse
operations. General & Administrative expenses, exclusive of the
$147,000 recovery from the settlement of a lawsuit in last year's
first quarter, and a $165,000 environmental charge in last year's
third quarter, increased 19% over the corresponding period of the
prior year, due primarily to the addition of Brite-Line and Europa,
S.A. administration and increased fees for recruitment services,
offset in part by reductions to incentive compensation for the
parent company.
Income before taxes at $1,283,000, up $1,079,000 from the first nine
months of 1996, reflects the higher operating income and a $496,000
gain from the sale of unused real estate, offset in part by a 16%
increase in interest expense. Exclusive of the $147,000 settlement,
the $1,571,000 intangible asset amortization, and the $165,000
environmental charge in 1996, and the $496,000 gain from the sale of
real estate in 1997, income before tax is down $1,006,000 (56%) from
FIRST NINE MONTHS, 1997 COMPARED WITH FIRST NINE MONTHS, 1996
(Continued)
the first nine months of 1996 for the same reasons outlined above.
The $149,000 increase in interest expense reflects a higher loan
volume due primarily to the financing of the two acquisitions,
offset in part by reduced interest rates.
Net income at $748,000 is down 59% from the prior year's first nine
month's income of $1,828,000, as the prior year's income benefited
from a $1,624,000 net tax benefit, as the result of a $1,706,000
recapture of a Deferred Tax Valuation Allowance and a $627,000
increase in net deferred tax assets.
Changes in Financial Condition; Liquidity and Capital Resources
For the first nine months of fiscal 1997, no cash was generated from
operations, as positive cash flow from net income of $748,000,
noncash charges (depreciation and amortization) of $1,124,000, and
a $690,000 increase in accounts payable was offset by a $1,845,000
increase in accounts receivable and a $688,000 change in the
Company's pension obligation. The increase in accounts payable
reflects the seasonality of the Company's Brite-Line subsidiary,
which is expected to significantly reduce its accounts receivable in
the fourth quarter of 1997.
During the first nine months of 1997, the Company used $5,771,000 in
proceeds from additional term debt, and $1,708,000 from its
revolving line of credit to (1) fund the cash portion of the
purchase of Cintas Adhesivas Nunez, S.A. (now operating as Plymouth
Rubber Europa, S.A.) for $2,234,000, (2) increase its investment in
Brite-Line Technologies, Inc. by $502,000, (3) purchase $3,399,000
of capital equipment, and (4) reduce term debt by $1,192,000.
As of August 29, 1997, because of collateral limitations and after
consideration of the letter of credit related to the purchase of the
calender and auxiliary equipment associated therewith, the Company
had approximately $800,000 of unused borrowing capacity, under its
$15 million line of credit with its primary lender.
In the opinion of management, anticipated profits, funds generated
by the sale and leaseback of certain capital equipment, as well as
unused capacity under existing borrowing arrangements with the
Company's primary lender, will provide sufficient funds to meet
expected needs during the remainder of 1997, including necessary
working capital expansion to support anticipated moderate sales
growth and finance the planned investment in improved technology and
capital equipment.
THIRD QUARTER, 1997 COMPARED WITH THIRD QUARTER, 1996
Net sales at $16,396,000 were up 17% from the third quarter of 1996,
which was up 10% from the same period in 1995. The sales increase
reflects sales of Brite-Line Technologies, Inc. and Plymouth Rubber
Europa, S.A., which were acquired in October, 1996, and January,
1997, respectively. Sales of Plymouth's core business were down 3%
from the third quarter of 1996, despite an increase of 13% to export
markets. Sales to other markets, with the exception of domestic
automotive, which was unchanged from the prior year's third quarter,
were down 14%, as sales continue to be restricted by capacity
limitations. Significant additional vinyl film capacity is expected
to be operational in the second quarter of 1998, as the new vinyl
equipment currently under construction comes on line.
Operating income at $757,000 is down 6% from the third quarter of
the prior year, exclusive of the prior year's third quarter noncash
charge of $1,571,000 to amortize an intangible asset (Unrecognized
Net Obligation at Transition) pertaining to the Company's decision
to freeze future employee benefits in the defined benefit pension
plan. Inclusive of the prior year's amortization, operating income
is up $1,520,000.
The $320,000 increase in gross profit (up 9% from the corresponding
quarter of the prior year) is attributable to the higher sales
volume contributed by the subsidiary companies as consolidated
margins declined approximately two points reflecting the negative
impact of the strengthening dollar on export sales and the parent
company's less favorable product mix, higher raw material costs,
higher plant maintenance expenses, and production inefficiencies
related to limitations on the Company's production capacity. In
addition, higher labor and training costs continue to be incurred in
preparation for the Company's planned increase in manufacturing
capacity as discussed above.
Selling expenses increased 30%, compared to the third quarter of
1996, reflecting increases in advertising, outgoing freight,
salesmen's salaries and fringe benefits, and costs of foreign
warehousing and distribution. Despite the addition of Brite-Line
and Europa, S.A. administration, General & Administrative expenses
decreased $106,000 from the prior year's third quarter, which
included a $165,000 charge to increase environmental reserves,
reflecting reductions in incentive compensation and bad debts.
Income before taxes at $769,000 is up $242,000 from the prior year,
exclusive of the intangible asset amortization, reflecting a
$446,000 gain on the sale of real estate, offset in part by reduced
adjusted operating income and a 29% increase in interest expense.
The $97,000 interest expense increase is due to higher loan volume
due primarily to the financing of the acquisitions.
Net income at $437,000 for the third quarter is down $467,000 from
the prior year's third quarter, which benefited from a net tax
benefit of $1,948,000, generated by a $1,531,000 recapture of a
Deferred Tax Valuation Allowance, and a $627,000 increase in net
deferred tax assets as the result of the noncash charge to amortize
the Unrecognized Net Obligation at Transition pertaining to the
Company's decision to freeze future employee benefits in the defined
benefit pension plan.
This quarterly report contains forward-looking statements within the
meeting of Section 27A of the Securities Act of 1933, and Section 21E
of the Securities & Exchange Act of 1934. The Company's actual results
could differ materially from those set forth in the forward-looking
statements.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to the information contained in Item 3 of the
Company's Annual Report on Form 10-K/A for its fiscal year ended
November 29, 1996, and in Note 14 of the Notes To Consolidated
Financial Statements, contained in said Annual Report.
Reference is made to those certain claims asserted by the United
States Environmental Protection Agency ("EPA") and the
information contained in Item 3 of the Company's Annual Report
on Form 10-K/A for its fiscal year ended November 29, 1996, and
in Note 14 of the Notes To Consolidated Financial Statements
contained in said Annual Report and as further described in Item
1 of the Company's Quarterly Report for the quarter ended May
30, 1997 and in Note 2 to the Consolidated Financial Statements
contained in said Quarterly Report.
With respect to the third assertion against the Company under
CERCLA relative to a Superfund Site known as Old Southington
Landfill, ("OSL"), of which the Company was notified in January,
1994, the Company will pay approximately $139,000 in settlement
of the first phase of the clean up. The settlement of the
second phase is currently being mediated.
With respect to that certain environmental matter concerning the
Notice of Responsibility from the Massachusetts Department of
Environmental Protection, ("DEP") pursuant to M.G.L. ch. 21E
concerning the certain sites identified as The Ledge, 757-782
State Road, Dartmouth: RTN No. 4-0234; and Ridge Hill Road,
Freetown: RTN No. 4-0086 received by the Company on or about
January 21, 1997, in compliance with DEP requests and statutory
requirements, the Company has hired a Licensed Site Professional
to perform certain technical service at the sites. Recent
sampling of existing wells at the Freetown site contained no
finding of any volatile organic chemicals ("VOC's"). However,
the Company has little information regarding the Dartmouth site
and its potential involvement, including the identity and
contributions of other PRP's and the scope of the clean up
necessary.
With respect to that certain environmental matter concerning
which the Company notified the Massachusetts Department of
Environmental Protection ("DEP") on or about August 24, 1994
(RTN3-11520) regarding soil contamination in a small localized
area near certain underground storage tanks, the assessment by
the Licensed Site Professional employed by the Company as
required by M.G.L. c.21E, has been completed, and the
remediation procedure has been recommended. It is expected that
the remaining costs for same will not exceed the additional sum
of approximately $276,000.
Pursuant to the Company's compliance with EPA and Massachusetts
regulations concerning the upgrade or replacement of underground
storage tanks by December 22, 1998, the Company arranged for the
testing of the area adjacent to three underground storage tanks,
and on July 25, 1997, filed the results of such tests with the
Massachusetts Department of Environmental Protection, Release
Notification Form. According to the preliminary information
obtained by an independent Licensed Site Professional, a limited
amount of solvent was found in the soil in the vicinity of the
tanks; however, additional sampling is required. The Company
has several options under the law to protect, remove or replace
the tanks and plans to take whatever remedial action is deemed
appropriate. Pending further investigation, the costs
associated with this activity have not yet been determined.
OTHER INFORMATION
(Continued)
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
Not Applicable
Item 4. Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: See Index To Exhibits
(b) Not Applicable
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 thereto duly authorized.
Plymouth Rubber Company, Inc.
(Registrant)
Joseph J. Berns
Joseph J. Berns
Vice President - Finance
Date: October 14, 1997
PLYMOUTH RUBBER COMPANY, INC.
INDEX TO EXHIBITS
(a) Exhibits:
Exhibit No. Description
(2) Not Applicable.
(3)(i) Not Applicable.
(4)(i) Promissory Note between Plymouth Rubber Company,
Inc., and Thrift Institution Fund for Economic
Development dated June 14, 1989 -- incorporated by
reference to Exhibit (4)(iii) to report on Form 10-Q
for the quarter ended May 27, 1994.
(4)(ii) Loan and Security Agreement between Plymouth Rubber
Company, Inc. and Thrift Institution Fund for
Economic Development dated June 14, 1989 --
incorporated by reference to Exhibit (4)(iv) to
report on Form 10-Q for the quarter ended May 27, 1994.
(4)(iii) Mortgage Note between Plymouth Rubber Company, Inc.
and the Board of Education of Charles County,
Maryland, dated November 1, 1991 -- incorporated by
reference to Exhibit (2)(xiii) to report on Form
10-Q for the Quarter Ended May 30, 1992.
(4)(iv) Promissory Note between Plymouth Rubber Company,
Inc. and Foothill Capital Corporation dated October
1, 1993 -- incorporated by reference to Exhibit
(2)(I) to the Report on Form 8-K with cover page
dated October 1, 1993.
(4)(v) Loan and Security Agreement between Plymouth Rubber
Company, Inc. and Foothill Capital Corporation dated
October 1, 1993 -- incorporated by reference to
Exhibit (2)(ii) to the Report on Form 8-K with cover
page dated October 1, 1993.
(4)(vi) Amendment to Promissory Note between Plymouth Rubber
Company, Inc. and Thrift Institutions Fund For
Economic Development dated November 30, 1993 --
incorporated by reference to Exhibit (4)(x) to
Report on 10-K for the year ended November 26, 1993.
(4)(vii) Promissory Note between Plymouth Rubber Company,
Inc. and General Electric Capital Corporation dated
December 29, 1995 -- incorporated by reference to
Exhibit (4)(vii) to report on Form 10-Q for the
Quarter ended March 1, 1996.
(4)(viii) Master Security Agreement between Plymouth Rubber
Company, Inc. and General Electric Capital
Corporation dated December 29, 1995 -- incorporated
by reference to Exhibit (4)(viii) to report on Form
10-Q for the quarter ended March 1, 1996.
PLYMOUTH RUBBER COMPANY, INC.
INDEX TO EXHIBITS
(Continued)
(a) Exhibits:
Exhibit No. Description
(4)(ix) Demand Note between Plymouth Rubber Company, Inc.
and LaSalle National Bank dated June 6, 1996 --
incorporated by reference to Exhibit (2)(i) to the
report on Form 8-K with cover page dated June 6, 1996.
(4)(x) Loan and Security Agreement between Plymouth Rubber
Company, Inc. and LaSalle National Bank dated June
6, 1996 -- incorporated by reference to Exhibit
(2)(ii) to the report on Form 8-K with cover page
dated June 6, 1996.
(4)(xi) Amendment to Master Security Agreement between
Plymouth Rubber Company, Inc. and General Electric
Capital Corporation dated February 19, 1997 --
incorporated by reference to Exhibit (4)(xi) to the
report on Form 10-Q for the quarter ended February
28, 1997.
(4)(xii) Master Security Agreement between Plymouth Rubber
Company, Inc. and General Electric Capital
Corporation dated January 29, 1997 -- incorporated
by reference to Exhibit (4)(xii) to the Company's
report on Form 10-Q for the quarter ended February
28, 1997.
(4)(xiii) Demand Note between Brite-Line Technologies, Inc.
and LaSalle National Bank dated February 25, 1997 --
incorporated by reference to Exhibit (4)(xiii) to
the Company's report on Form 10-Q for the quarter
ended May 30, 1997.
(4)(xiv) Loan and Security Agreement between Brite-Line
Technologies, Inc. and LaSalle National Bank dated
February 25, 1997 -- incorporated by reference to
Exhibit (4)(xiv) to the Company's report on Form 10-Q
for the quarter ended May 30, 1997.
(4)(xv) Continuing Unconditional Guaranty between Brite-Line
Technologies, Inc. and LaSalle National Bank dated
February 25, 1997 -- incorporated by reference to
Exhibit (4)(xv) to the Company's report on Form 10-Q
for the quarter ended May 30, 1997.
(4)(xvi) Amendment to Loan and Security Agreement between
Plymouth Rubber Company, Inc. and LaSalle National
Bank dated May 7, 1997 -- incorporated by reference
to Exhibit (4)(xvi) to the Company's report on Form
10-Q for the quarter ended May 30, 1997.
(4)(xvii) Continuing Unconditional Guaranty between Plymouth
Rubber Company, Inc. and LaSalle National Bank dated
March 20, 1997 -- incorporated by reference to
Exhibit (4)(xvii) to the Company's report on Form
10-Q for the quarter ended May 30, 1997.
PLYMOUTH RUBBER COMPANY, INC.
INDEX TO EXHIBITS
(Continued)
(a) Exhibits:
Exhibit No. Description
(4)(xviii) Public Deed which contains the loan guaranteed by
mortgage and granted between Plymouth Rubber Europa,
S.A. and Caja de Ahorros Municipal de Vigo, Banco de
Bilbao, and Vizcaya y Banco de Comercio dated April
11, 1997 -- incorporated by reference to Exhibit
(4)(xviii) to the Company's report on Form 10-Q for
the quarter ended May 30, 1997.
(4)(xix) Corporate Guaranty between Plymouth Rubber Company,
Inc. and Caja de Ahorros Municipal de Vigo, Banco de
Bilbao, and Vizcaya y Banco de Comercio dated April
11, 1997 -- incorporated by reference to Exhibit
(4)(xix) to the Company's report on Form 10-Q for
the quarter ended May 30, 1997.
(10)(i) 1982 Employee Incentive Stock Option Plan --
incorporated by reference to Exhibit (10)(i) of the
Company's Annual Report on Form 10-K for the year
ended November 26, 1993.
(10)(ii) General Form of Deferred Compensation Agreement
entered into between the Company and certain
officers -- incorporated by reference to Exhibit
(10)(ii) of the Company's Annual Report on Form 10-K
for the year ended November 26, 1993.
(10)(iii) 1992 Employee Incentive Stock Option Plan --
Incorporated by reference to Exhibit (10)(iv) of the
Company's Annual Report on Form 10-K for the year
ended November 26, 1993.
(10)(iv) 1995 Non-Employee Director Stock Option Plan --
Incorporated by reference to Exhibit (4.3) of the
Company's Registration Statement on Form S-8 dated
May 4, 1995.
(10)(v) 1995 Employee Incentive Stock Option Plan --
Incorporated by reference to Exhibit (4.4) of the
Company's Registration Statement on Form S-8 dated
May 4, 1995.
(10)(vi) Sales contract entered into between the Company and
Kleinewefers Kunststoffanlangen GmbH -- incorporated
by reference to Exhibit (10)(vi) of the Company's
report on Form 10-Q for the quarter ended February
28, 1997.
(11) Not applicable.
(15) Not applicable.
(18) Not applicable.
(19) Not applicable.
(22) Not applicable.
(23) Not applicable.
(24) Not applicable.
(27) Financial data schedule nine months ended August 29,
1997.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-28-1997
<PERIOD-END> AUG-29-1997
<CASH> 46
<SECURITIES> 0
<RECEIVABLES> 10717
<ALLOWANCES> 330
<INVENTORY> 11448
<CURRENT-ASSETS> 24669
<PP&E> 33879
<DEPRECIATION> 20472
<TOTAL-ASSETS> 41640
<CURRENT-LIABILITIES> 18718
<BONDS> 0
0
0
<COMMON> 2030
<OTHER-SE> 5851
<TOTAL-LIABILITY-AND-EQUITY> 41640
<SALES> 49386
<TOTAL-REVENUES> 49386
<CGS> 37767
<TOTAL-COSTS> 47383
<OTHER-EXPENSES> (391)
<LOSS-PROVISION> 76
<INTEREST-EXPENSE> 1111
<INCOME-PRETAX> 1283
<INCOME-TAX> 535
<INCOME-CONTINUING> 748
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 748
<EPS-PRIMARY> .34
<EPS-DILUTED> .34
</TABLE>
