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 28, 1998 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 Identification No.)
incorporation or organization)
104 Revere Street, 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 receding 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 - 1,271,548
<PAGE>1
PLYMOUTH RUBBER COMPANY, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements: Page No.
Consolidated Statement of Operations and
Retained Earnings (Deficit). . . . . . . . . . . . . . . . . 2
Consolidated Balance Sheet. . . . . . . . . . . . . . . . . . 3
Consolidated Statement of Cash Flows. . . . . . . . . . . . . 4
Notes To Consolidated Financial Statements. . . . . . . . . . 5-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . 10-12
PART II. OTHER INFORMATION 13
1
<PAGE>2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
PLYMOUTH RUBBER COMPANY, INC.
CONSOLIDATED STATEMENT OF OPERATIONS AND
RETAINED EARNINGS (DEFICIT)
(In Thousands Except Share and Per Share Amounts)
(Unaudited)
Third Quarter Ended Nine Months Ended
Aug. 28, Aug. 29, Aug. 28, Aug. 29,
1998 1997 1998 1997
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Net Sales . . . . . . . . . . $ 17,087 $ 16,396 $ 50,061 $ 49,386
------- ------- ------- -------
Cost and Expenses:
Cost of products sold . . . 12,859 12,477 37,470 37,767
Selling, general and
administrative . . . . . . 3,077 3,162 9,452 9,616
------- ------- ------- -------
15,936 15,639 46,922 47,383
------- ------- ------- -------
Operating income. . . . . . . 1,151 757 3,139 2,003
Interest expense . . . . . . (496) (430) (1,347) (1,111)
Other income (expense). . . . (7) 442 (41) 391
-------- ------- -------- -------
Income before taxes . . . . . 648 769 1,751 1,283
Provision for income taxes. . (262) (332) (708) (535)
-------- ------- -------- -------
Net income. . . . . . . . . . 386 437 1,043 748
Retained earnings (deficit)
at beginning of period . . (1,625) (3,237) (2,282) (3,548)
-------- -------- -------- --------
Retained earnings (deficit)
at end of period. . . . . . $ (1,239) $ (2,800) $ (1,239) $ (2,800)
======== ======== ======== ========
Per Share Data:
Basic Earnings Per Share:
Net Income. . . . . . . . . . $ .19 $ .22 $ .50 $ .37
======== ======= ======= =======
Weighted average number of
shares outstanding . . . . 2,079,825 2,030,513 2,069,544 2,024,484
========= ========= ========= =========
Diluted Earnings Per Share:
Net Income.. . . . . . . . . $ .17 $ .20 $ .47 $ .34
======== ======= ======= =======
Weighted average number of
shares outstanding . . . . 2,227,070 2,160,486 2,196,757 2,179,654
========= ========= ========= =========
</TABLE>
See Accompanying Notes To Consolidated Financial Statements
2
<PAGE>3
<TABLE>
<CAPTION>
PLYMOUTH RUBBER COMPANY, INC.
CONSOLIDATED BALANCE SHEET
(In Thousands)
Aug. 28, Nov. 28,
1998 1997
(Unaudited)
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash . . . . . . . . . . . . . . $ 24 $ 12
Accounts receivable. . . . . . . 11,940 10,347
Allowance for doubtful accounts. (456) (314)
-------- --------
11,484 10,033
Inventories: -------- --------
Raw materials. . . . . . . . 4,059 3,772
Work in process. . . . . . . 2,762 1,472
Finished goods . . . . . . . 4,956 5,208
-------- --------
11,777 10,452
-------- --------
Deferred tax assets, net . . . . 1,689 1,689
Prepaid expenses and other
current assets . . . . . . . . 611 873
-------- --------
Total current assets . . . . 25,585 23,059
-------- --------
PLANT ASSETS:
Plant assets . . . . . . . . . . 40,033 35,390
Less: Accumulated depreciation. (19,344) (18,049)
-------- --------
Total plant assets, net. . . 20,689 17,341
-------- --------
OTHER ASSETS
Deferred tax assets, net . . . . 2,038 2,346
Other long-term assets . . . . . 1,238 1,318
-------- --------
3,276 3,664
-------- --------
TOTAL ASSETS $ 49,550 $ 44,064
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving line of credit . . . $ 10,419 $ 8,221
Trade accounts payable. . . . . 6,318 6,034
Accrued expenses. . . . . . . . 3,991 3,212
Current portion of long-term
Borrowings. . . . . . . . . . 2,381 2,138
Current portion of product
warranties. . . . . . . . . . 45 160
-------- --------
Total current liabilities 23,154 19,765
-------- --------
LONG-TERM LIABILITIES:
Borrowings. . . . . . . . . . . 11,317 9,874
Pension obligation. . . . . . . 2,900 3,358
Product warranties. . . . . . . 491 516
Other . . . . . . . . . . . . . 2,161 2,110
-------- --------
Total long-term liabilities 16,869 15,858
-------- --------
STOCKHOLDERS' EQUITY
Preferred stock . . . . . . . . -- --
Class A voting common stock. . 810 810
Class B non-voting common stock 1,272 1,234
Paid in capital . . . . . . . . 9,073 9,067
Retained earnings (deficit) . . (1,239) (2,282)
Cumulative translation
Adjustment. . . . . . . . . . (109) (91)
Pension liability adjustment,
net of tax. . . . . . . . . . (145) (145)
Deferred compensation . . . . . (124) (152)
-------- --------
9,538 8,441
Less: Treasury stock at cost. . (11) --
-------- --------
9,527 8,441
TOTAL LIABILITIES & -------- --------
STOCKHOLDERS' EQUITY $ 49,550 $ 44,064
======== ========
</TABLE>
See Accompanying Notes To Consolidated Financial Statements
3
<PAGE>4
<TABLE>
<CAPTION>
PLYMOUTH RUBBER COMPANY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands) (Unaudited)
Nine Months Ended
Aug. 28, Aug. 29,
1998 1997
---------- ---------
<S> <C> <C>
Cash flows relating to operating
activities:
Net Income . . . . . . . . . . . $ 1,043 $ 748
Adjustments to reconcile net
income to net cash provided
by (used in)operating
activities:
Depreciation and amortization. 1,401 1,124
Amortization of deferred
compensation. . . . . . . . . 28 28
Changes in assets and liabilities:
Accounts receivable. . . . . . . (1,481) (1,845)
Inventory. . . . . . . . . . . . (1,335) 111
Prepaid expenses . . . . . . . . 262 (68)
Other assets . . . . . . . . . . (9) (14)
Accounts payable . . . . . . . . 301 690
Accrued expenses . . . . . . . . 1,132 (75)
Pension obligation . . . . . . . (313) (688)
Product warranties . . . . . . . (140) (80)
Other liabilities. . . . . . . . 51 (25)
Net cash provided by (used in) -------- --------
operating activities 940 (94)
-------- --------
Cash flows relating to investing
activities:
Capital expenditures . . . . . . . (4,726) (3,399)
Sale/lease back of plant assets. . 569 --
Acquisition of Cintas Adhesivas
Nunez, S.A., net of cash
acquired of $90. . . . . . . . . -- (2,155)
Acquisition of certain assets of
Brite-Line Industries, Inc . . . -- (502)
-------- --------
Net cash used in investing activities (4,157) (6,056)
-------- --------
Cash flows relating to financing
activities:
Net increase in revolving line
of credit . . . . . . . . . . . . 2,204 1,708
Proceeds from term loan. . . . . . 4,687 5,771
Payments of term loan. . . . . . . (3,239) (1,192)
Payments on capital leases . . . . (297) (164)
Proceeds from insurance financing. -- 157
Payments on insurance financing. . (166) (96)
Treasury stock purchase. . . . . . (11) --
Proceeds from issuance of common
Stock. . . . . . . . . . . . . . 44 23
-------- --------
Net cash provided by financing
activities 3,222 6,207
-------- --------
Effect of exchange rates on cash . . 7 (11)
-------- --------
Net change in cash . . . . . . . . . 12 46
Cash at the beginning of the period. 12 --
-------- --------
Cash at the end of the period. . . . $ 24 $ 46
======== ========
Supplemental Disclosure of Cash Flow Information
Cash paid for interest . . . . . . . $ 1,371 $ 1,194
======= =======
Cash paid for income taxes . . . . . $ 103 $ 106
======= =======
</TABLE>
See Accompanying Notes To Consolidated Financial Statements
4
<PAGE>5
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 28, 1997, November 29, 1996,
and December 1, 1995, included in the Company's 1997 Annual Report to the
Securities and Exchange Commission on Form 10-K.
(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 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 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 $536,000 reserve recorded at August 28, 1998 is
adequate provision for the Company's remaining warranty obligations.
The United States Environmental Protection Agency (EPA) has asserted two (2)
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 the first case, 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 Solvents Recovery Service of New England
("SRS") at a location in Southington, Connecticut, concerning shipments to the
site which occurred between June 1, 1956, and January 25, 1974. The EPA has
attributed a 1.74% share of the aggregate waste volume to the Company. The
Company is a participant in the performing PRP group. The first phase of a
remediation program is estimated to cost $3.6 million. The Administrative Order
on Consent for Removal Action and Remedial/Feasibility study was entered on
or about February 6, 1997. Phase II of the clean-up and the Remedial
Investigation/Feasibility Study ("RI/FS"), is projected to cost $2.1 million.
The most currently available estimate is that the total 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 $511,000, which is net of approximately
$215,000 in total payments made by the Company, in the accompanying consoli-
dated financial statements as of August 28, 1998, 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.
5
<PAGE>6
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
In the second case, 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 sludge and waste water from the
SRS Site to the OSL Site, prior to October, 1967. 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 direct shippers to the
site, among them 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. An ROD was issued in September, 1994 for the first Phase
of the clean-up. On or about December 20, 1997, the Company executed the
Consent Decree and paid $140,180 in full settlement of the first phase of the
clean up. The allocation among the parties and scope of the remedy for the
second phase has not been agreed upon; total costs are estimated at between
$10 and $50 million. The Company has been notified that 21 parties of which
the Company is one will likely be precluded from participating in an early
mediated settlement for the second phase on a "de minimis" basis. Based on
all available information as well as its prior experience, management
believes a reasonable estimate of its remaining liability is $337,000 and
has accrued this amount in the accompanying consolidated financial
statements as of August 28, 1998. 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
outcome of the second remedial phase, if any, 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.
On or about January 21, 1997, the Company received a Notice of Responsibility
from the DEP pursuant to M.G.L. c. 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 between 1979 and 1981 by the 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 DEP has now issued more than
seventy-five notices to other PRP's. In compliance with DEP requests and
statutory requirements, the Company has hired an LSP to perform certain
technical services at the sites. Recent sampling of existing wells at the
Freetown site contained no finding of any volatile organic chemicals ("VOC's").
Initial sampling at the Dartmouth site was recently completed, and found low
VOC levels at or below drinking water standards. Until additional data is
gathered, the extent of the problem and or remedial action required, if any,
cannot be determined. Further, the total number of PRP's is not yet known.
Accordingly, at the current time, the Company is not able to estimate its
portion of any liability ultimately arising from the site. Therefore, as of
August 28, 1998, no reserves have been provided in the accompanying financial
statements.
In addition, in the process of preparing to eliminate the use of certain
underground storage tanks located at the Company's manufacturing facility in
Canton, Massachusetts, the Company determined that some soil contamination
had occurred in a small localized area near the tanks in question. In
accordance with Massachusetts requirements, the
6
<PAGE>7
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
Company notified the Massachusetts Department of Environmental Protection
("DEP") of the foregoing, and on or about September 9, 1994, the DEP issued
a Notice of Responsibility, RTN No. 3-11520, pursuant to M.G.L. c. 21E.
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. Remediation action is in process. It is expected that such
assessment and remediation will take up to two years to complete and that the
remaining costs for same will not exceed the additional sum of $261,000, which
has been provided for in the accompanying financial statements.
Pursuant to the Company's compliance with EPA and Massachusetts regulations
which require 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 located at the Company's manufacturing
facility in Canton, Massachusetts. A limited amount of solvent was found in
the soil in the vicinity of the tanks; however, additional sampling is
required. The Company notified DEP of its test results, and on November 19,
1997, the DEP issued a written response, notifying the Company of its
responsibility, RTN No. 3-15347, under M.G.L. c. 21E as an unclassified site
for response and remedial action. 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. The Company is in the process of
determining the costs associated with each of these alternatives and has
hired an LSP to perform initial site investigation activities.
The Company is defending other legal matters arising in the normal course of
business. Based upon advice of counsel, management believes that such legal
matters will not have a material adverse effect on the Company's results of
operations or its financial position.
7
<PAGE>8
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
(3) During the first quarter of fiscal 1998, the Company adopted Statement of
Financial Accounting Standards No. 128, Earnings Per Share. Primary and
fully diluted earning per share have been replaced with basic and diluted
earnings per share. All prior year earnings per share amounts have been
restated to conform with the requirements of SFAS No. 128.
The following table reflects the factors used in computing earnings per share
and the effect on income and the weighted average number of shares of dilutive
potential common stock.
Third Quarter Ended August 28, 1998
Income Shares Per Share
(Numerator) (Denominator) Amount
Basic EPS
Income available to common
stockholders $ 386,000 2,079,825 $ .19
=======
Effect of Dilutive Security
(A) options -- 147,245
--------- ----------
Diluted EPS
Income available to common
stockholders and assumed
conversions $ 386,000 2,227,070 $ .17
========= ========== =======
Third Quarter Ended August 29, 1997
Income Shares Per Share
(Numerator) (Denominator) Amount
Basic EPS
Income available to common
stockholders $ 437,000 2,030,513 $ .22
=======
Effect of Dilutive Security
(A)options -- 129,973
--------- ---------
Diluted EPS
Income available to common
stockholders and assumed
conversions $ 437,000 2,160,486 $ .20
========= ========= =======
(A) Options for 96,425 and 139,160 shares of common stock were outstanding at
August 28, 1998 and August 29, 1997, respectively, but were not included in
computing diluted earnings per share in each of the respective periods
because their effects were anti-dilutive.
8
<PAGE>9
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
(3) Continued...
Nine Months Ended August 28, 1998
Income Shares Per Share
(Numerator) (Denominator) Amount
Basic EPS
Income available to common
stockholders $1,043,000 2,069,544 $ .50
=======
Effect of Dilutive Security
(B) options -- 127,213
--------- ---------
Diluted EPS
Income available to common
stockholders and assumed
conversions $1,043,000 2,196,757 $ .47
========= ========= =======
Nine Months Ended August 29, 1997
Income Shares Per Share
(Numerator) (Denominator) Amount
Basic EPS
Income available to common
stockholders $ 748,000 2,024,484 $ .37
=======
Effect of Dilutive Security
(B)options -- 155,170
-------- ---------
Diluted EPS
Income available to common
stockholders and assumed
conversions $ 748,000 2,179,654 $ .34
======== ========= =======
(B) Options for 182,733 and 136,938 shares of common stock were outstanding
at August 28, 1998 and August 29, 1997, respectively, but were not included
in computing diluted earnings per share in each of the respective periods
because their effects were anti-dilutive.
(4) On April 13, 1998 the Company refinanced one of its term loans with an
existing lender. The new term loan, in the principal amount of $3,710,000,
due May, 2003, is secured by a first interest in certain equipment. Monthly
payments, beginning June, 1998, are $75,296, including interest at 8.04%.
The proceeds from the refinancing were used to pay down $1,418,000 of the
revolving line of credit, $35,000 of accrued interest and $2,257,000 of term
debt. This term loan agreement contains loan covenants similar to the Company's
existing term loans.
(5) On June 30, 1998 the Company entered into a new loan agreement which
provides for borrowing up to $2,000,000 through December 1, 1998, to finance
the acquisition of various pieces of equipment. The Company has borrowed
$977,000 under this agreement to date. The new loan calls for monthly payments
of interest only at LIBOR plus 2.75% on the outstanding balance. On December
1, 1998 the outstanding balance under this agreement will be converted to a
five-year term loan. The loan is secured by a first interest in certain
equipment. This loan agreement contains loan covenants similar to the
Company's existing term loans.
9
<PAGE>10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
FIRST NINE MONTHS, 1998, COMPARED WITH FIRST NINE MONTHS, 1997
Net sales at $50,061,000 increased 1% from $49,386,000 last year. Sales at
Brite-Line Technologies increased 79% from last year, reflecting continued
increased business from new and existing customers. Plymouth Europa's sales
increased 38%, partly because of higher demand, and partly because the
subsidiary's operations were only included from January, 1997 in last year's
amounts. Sales at Plymouth's Canton operations decreased 8% from last year,
primarily because of capacity constraints and product mix, and also because
of reduced demand due to the General Motors strike. It is estimated that
the strike reduced sales by approximately $1.5 million during the period.
Gross margin increased to 25.2% from 23.5% last year. Gross margin in
Plymouth's Canton operations increased to 24.7% from 23.1% last year. The
primary factors contributing to the increase were lower product costs as a
result of improved production output, lower manufacturing spending, and lower
raw material purchase prices, offset by higher unfavorable volume variances.
Gross margin at Brite-Line also increased to 30.4% from 27.9% last year,
reflecting favorable overhead absorption from the higher production activity,
a favorable product mix, and lower purchase prices, offset by higher
production costs. Plymouth Europa's gross margins decreased to 21.3% from
23.5% last year, reflecting a change in product mix.
Selling, general and administrative expenses, as a percentage of sales,
decreased to 18.9% from 19.5% last year. The major contributing factors were
lower warehouse handling charges, commissions, freight, advertising and
selling salaries, offset by higher accrued bonus and profit sharing, and
higher professional fees.
Interest expense increased to $1,347,000 from $1,111,000 last year, because
of higher loan balances to finance capital expenditures and operating
activities.
Other expense in 1998 was $41,000, as compared to $391,000 of other income in
1997. The first nine months in 1997 has a $496,000 one-time gain from the
sale of real estate.
As a result of the above factors, income before tax increased 36% to $1,751,000
from $1,283,000 last year, and net income increased 39% to $1,043,000 from
$748,000 last year.
The tax rate decreased to 40.4% from 41.7% in the prior year, due to
management's estimate of the effective tax rate at the beginning of the
current year, which was based on the actual effective tax rate of the prior
year.
Cash generated from operations was $940,000, as compared to $94,000 used in
the first nine months of 1997. The major contributors to cash inflows were
net income of $1,043,000, depreciation and amortization of $1,401,000, and an
increase in accrued expenses and accounts payable of $1,433,000. The major
operating uses of cash were an increase in accounts receivable of $1,481,000
, and an increase in inventory of $1,335,000. During 1998, the Company used
$2,204,000 from its revolving line of credit, and $4,687,000 from a
refinancing of capital equipment, and a capital expenditure line of credit to
pay off or to reduce term debt of $3,239,000, and to finance capital
expenditures of $4,726,000.
As of August 28, 1998, because of collateral limitations and after consideration
of a letter of credit related to the purchase of new equipment and to a
guarantee of 80,000,000 pesetas (approximately $577,000) on a long-term loan
agreement with a Spanish Bank syndicate, the Company had approximately
$1,900,000 of unused borrowing capacity under its $15 million line
10
<PAGE>11
FIRST NINE MONTHS, 1998, COMPARED WITH FIRST NINE MONTHS, 1997
(Continued)
of credit with its primary lender. In the opinion of management, anticipated
cash flow from operations, and additional funds generated by the capital
expenditure line of credit, will provide sufficient funds to meet expected
needs during fiscal 1998, including necessary working capital to support
anticipated growth.
Year 2000
Computers, software and other equipment utilizing microprocessors that use
only two digits to identify a year in a data field may be unable to process
accurately certain date-based information at or after the year 2000. This is
commonly referred to as the "Year 2000 issue," and the Company has assembled
a task force to oversee the entire Year 2000 project, for both information
technology ("IT") and non-IT systems. This task force has identified four
phases of the Year 2000 compliance project for its IT and non-IT systems.
These phases are 1) issue identification, 2) assessment, 3) development of
remediation and contingency plans, and 4) implementation and testing.
The Company's Year 2000 project is currently in the assessment phase and,
with respect to certain information systems and products, in the remediation
phase. The Company believes that its greatest potential risks are associated
with its IT systems and non-IT systems embedded in its operations and
infrastructure. The Company is at the beginning stage of assessment for its
operations and infrastructure. The Company has not yet determined the extent
of contingency planning that may be required for both IT and non-IT systems.
Costs incurred to date have not been material to its financial condition or
results of operations and have been expensed. The Company currently
estimates that total costs of its Year 2000 project will not be material, and
it currently plans to be able to fund the costs of this project through
operating cash flows. However, the Company has not yet completed its
assessments, developed remediation for all problems, developed any contingency
plans, or completely implemented or tested any of its remediation plans.
The Company's expectations as to the extent and timeliness of modifications
required in order to achieve Year 2000 compliance is a forward-looking
statement subject to risks and uncertainties. Actual results may vary
materially as a result of a number of factors including the degree of
compliance achieved by suppliers and customers on whom the Company relies.
The Company will need to obtain assurance from its significant customer with
respect to its Year 2000 compliance. There can be no assurance that variou
s factors relating to the Year 2000 compliance issues will not have a
material adverse effect on the Company's business, operating results or
financial position.
Certain statements in this report, in the Company's press releases and in
oral statements made by or with the approval of an authorized executive
officer of the Company may constitute "forward-looking statements" as that
term is defined under the Private Securities Litigation reform Act of 1995.
These may include statements projecting, forecasting or estimating Company
performance and industry trends. The achievement of the projections,
forecasts or estimate is subject to certain risks and uncertainties. Actual
results may differ materially from those projected, forecasted or estimated.
The applicable risks and uncertainties include general economic and industry
conditions that affect all international businesses, as well as matters that
are specific to the Company and the markets it serves. General risks that
may impact the achievement of such forecast include: compliance with new
laws and regula-tions, significant raw material price fluctuations, currency
exchange rate fluctuations, limits on the repatriation of funds and political
uncertainty. Specific risks to the Company include: risk of recession in the
economies in which its products are sold, the concentration of a substantial
percentage of the Company's sales with a few major automotive customers, and
competition in pricing.
11
<PAGE>12
THIRD QUARTER, 1998 COMPARED WITH THIRD QUARTER, 1997
Net sales at $17,087,000 increased 4% from last year. Sales at Brite-Line
Technologies increased 77% from last year, reflecting continued increased
business from new and existing customers. Sales at Plymouth Europa increased
27% because of higher demand in the contractor/industrial, automotive, and
export markets. These increases were offset by a sales decrease of 7% at
Plymouth's Canton operations, because of reduced demand due to the General
Motor's strike. It is estimated that the strike reduced sales by approximately
$1.5 million during the period.
Gross margin increased to 24.7% from 23.9% last year. Gross margin at
Plymouth's Canton operations increased slightly to 23.5% from 22.9% last year.
Lower raw material purchase prices and lower manufacturing spending were
offset by higher unfavorable volume variances. Gross margin at Europa
increased to 22.2% from 21.2% last year, and gross margin at Brite-Line
decreased to 30.6% from 33.1% last year.
Selling, general and administrative expenses, as a percentage of sales,
decreased to 18.0% from 19.3% last year. Lower warehouse handling charges
and freight were offset by higher accrued profit sharing and bonus.
Interest expense increased to $496,000 from $430,000 last year, reflecting
higher loan balances to finance capital expenditures and operating activities.
Other expense in 1998 was $7,000, as compared to $442,000 of other income in
1997. 1997 had a $446,000 one-time gain from the sale of real estate.
Excluding the one-time real estate gain, income before tax increased 101% to
$648,000 from $323,000 last year. Including the one-time gain, income before
tax decreased to $648,000 from $769,000 last year, and net income decreased
to $386,000 from $437,000 last year.
The tax rate decreased to 40.4% from 43.2% in the prior year, due to
management's estimate of the effective tax rate at the beginning of the
current year, which was based on the actual effective tax rate of the prior
year.
12
<PAGE>13
PLYMOUTH RUBBER COMPANY, INC.
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 for its fiscal year ended November 28, 1997, and
in Note 12 of the Notes To Consolidated Financial Statements contained in said
report.
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
13
<PAGE>14
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)
/S/ Joseph J. Berns
Joseph J. Berns
Vice President - Finance
Date: October 12, 1998
14
PLYMOUTH RUBBER COMPANY, INC.
INDEX TO EXHIBITS
Exhibit
No. Description
(2) Not Applicable.
(3)(i) Restated Articles of Organization -- incorporated by reference to
Exhibit 3(i) of the Company's Annual Report on Form 10-K for the year ended
December 2, 1994.
(3)(ii) By Laws, as amended -- incorporated by reference to Exhibit (3)(ii)
of the Company's Annual Report on Form 10-K for the year ended November 26,
1993.
(4)(i) 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 the report on Form 10-Q for the Quarter
Ended May 30, 1992.
(4)(ii) 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)(iii) 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)(iv) Promissory Note between Plymouth Rubber Company, Inc. and General
Electric Capital Corporation dated December 29, 1995 -- incorporated by
reference to Exhibit (4)(viii) to the report on Form 10-Q for the Quarter
ended March 1, 1996.
(4)(v) 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 the report on Form 10-Q for the quarter
ended March 1, 1996.
(4)(vi) 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)(vii) 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)(viii) 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 25, 1997.
(4)(ix) 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 25, 1997.
(4)(x) Demand Note between Brite-Line Technologies, Inc. and LaSalle
National Bank dated February 28, 1997 -- incorporated by reference to Exhibit
(4)(xiii) to the Company's report on Form 10-Q for the quarter ended May 30,
1997.
15
PLYMOUTH RUBBER COMPANY, INC.
INDEX TO EXHIBITS
(Continued)
Exhibit
No. Description
(4)(xi) 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)(xii) Continuing Unconditional Guaranty between Brite-Line Technologies,
Inc. 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)(xiii) 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)(xiv) 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.
(4)(xv) 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)(xvi) 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.
(4)(xvii) Amendment to Master Security Agreements between Plymouth Rubber
Company, Inc. and General Electric Capital Corporation dated December 29,
1995 and January 27, 1997 - incorporated by reference to Exhibit (4)(xvii)
to the Company's report on Form 10-Q for the quarter ended May 29, 1998.
(4)(xviii) Promissory Note between Plymouth Rubber Company, Inc. and General
Electric Capital Corporation dated April 13, 1998 - incorporated by reference
to Exhibit (4)(xviii) to the Company's report on Form 10-Q for the quarter ended
May 29, 1998.
(9)(i) Voting Trust Agreement, as amended, relating to certain shares of
Company's common stock -- incorporated by reference to Exhibit (9) of the
Company's Annual Report on Form 10-K for the year ended November 26, 1993.
(9)(ii) Voting Trust Amendment Number 6 -- incorporated by reference to
Exhibit 9(ii) of the Company's Annual Report on Form 10-K for the year ended
December 2, 1994.
(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.
16
PLYMOUTH RUBBER COMPANY, INC.
INDEX TO EXHIBITS
(Continued)
Exhibit
No. Description
(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
Kunststoffanlagen 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.
(12) Not Applicable.
(13) Not Applicable.
(15) Not Applicable
(16) Not Applicable.
(18) Not Applicable.
(19) Not Applicable
(21) Brite-Line Technologies, Inc. (incorporated in Massachusetts) and
Plymouth Rubber Europa, S.A. (organized under the laws of Spain).
(22) Not Applicable.
(23) Not Applicable.
(24) Not Applicable.
(27) Financial data schedule for the nine months ended August 28, 1998.
(28) Not Applicable.
(29) Not Applicable.
17
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