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 June 2, 2000 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 - 1,226,303
<PAGE>
PLYMOUTH RUBBER COMPANY, INC.
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements: Page No.
Condensed Consolidated Statement of Operations and
Retained Earnings (Deficit). . . . . . . . . . . . . . . . . . 2
Condensed Consolidated Statement of Comprehensive
Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Balance Sheet . . . . . . . . . . . . . . 4
Condensed Consolidated Statement of Cash Flows . . . . . . . . . 5
Notes To Condensed Consolidated Financial Statements . . . . . . 6-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . 12-15
PART II. OTHER INFORMATION 16
1
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PLYMOUTH RUBBER COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
AND RETAINED EARNINGS (DEFICIT)
(In Thousands Except Share and Per Share Amounts)
(Unaudited)
Second Quarter Ended Six Months Ended
-------------------- -------------------
June 2, May 28, June 2, May 28,
2000 1999 2000 1999
-------- -------- -------- --------
Net Sales . . . . . . . . . . . . $ 20,924 $ 21,505 $ 37,897 $ 37,911
-------- -------- -------- --------
Cost and Expenses:
Cost of products sold . . . . 16,247 15,506 29,809 27,557
Selling, general and
administrative . . . . . . . 3,485 4,081 6,895 7,365
Insurance settlement . . . . . -- (1,750) -- (1,750)
-------- -------- -------- --------
19,732 17,837 36,704 33,172
-------- -------- -------- --------
Operating income . . . . . . . . 1,192 3,668 1,193 4,739
Interest expense . . . . . . . . (563) (542) (1,103) (1,027)
Other expense . . . . . . . . . 18 (46) 6 (33)
-------- -------- -------- --------
Income before taxes. . . . . . . 647 3,080 96 3,679
Provision for income taxes . . . (270) (1,237) (38) (1,477)
-------- -------- -------- --------
Net income. . . . . . . . . . . . 377 1,843 58 2,202
Retained earnings (deficit)
at beginning of period . . . 2,359 (85) 2,678 (444)
-------- -------- -------- --------
Retained earnings
at end of period . . . . . . $ 2,736 $ 1,758 $ 2,736 $ 1,758
======== ======== ======== ========
Per Share Data:
Basic Earnings Per Share:
Net Income. . . . . . . . . . . . $ .18 $ .89 $ .03 $ 1.06
======== ======== ======== ========
Weighted average number of
shares outstanding . . . . . . 2,043,956 2,072,033 2,046,072 2,076,700
========= ========= ========= =========
Diluted Earnings Per Share:
Net Income . . . . . . . . . . . $ .18 $ .84 $ .03 $ 1.00
======== ======== ======== ========
Weighted average number of
shares outstanding . . . . . . 2,133,631 2,200,855 2,156,043 2,203,248
========= ========= ========= =========
See Accompanying Notes to Condensed Consolidated Financial Statements
2
<PAGE>
PLYMOUTH RUBBER COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(In Thousands)
(Unaudited)
Second Quarter Ended Six Months Ended
-------------------- -------------------
June 2, May 28, June 2, May 28,
2000 1999 2000 1999
-------- -------- -------- --------
Net income . . . . . . . . . . . $ 377 $ 1,843 $ 58 $ 2,202
Other comprehensive
income, net of tax:
Foreign currency translation
Adjustment . . . . . . . . . (25) (43) (59) (78)
-------- -------- -------- --------
Other comprehensive income . . . (25) (43) (59) (78)
-------- -------- -------- --------
Comprehensive income (loss) . . . $ 352 $ 1,800 $ (1) $ 2,124
======== ======== ======== ========
See Accompanying Notes To Condensed Consolidated Financial Statements
3
<PAGE>
PLYMOUTH RUBBER COMPANY, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In Thousands)
June 2, Dec. 3,
2000 1999
--------- --------
(unaudited)
Assets
Current Assets:
Cash. . . . . . . . . . . . . . . . . . . . . . $ -- $ --
Accounts receivable . . . . . . . . . . . . . . 12,808 12,419
Allowance for doubtful accounts . . . . . . . . (371) (369)
Inventories:
Raw materials . . . . . . . . . . . . . . . 4,498 4,481
Work in process . . . . . . . . . . . . . . 2,291 2,332
Finished goods. . . . . . . . . . . . . . . 8,554 7,661
--------- --------
15,343 14,474
--------- --------
Deferred tax assets, net . . . . . . . . . . . . 1,580 1,580
Prepaid expenses and other current assets . . . 749 913
--------- --------
Total current assets . . . . . . . . 30,109 29,017
--------- --------
Plant Assets:
Plant assets . . . . . . . . . . . . . . . . . . 46,310 43,871
Less: Accumulated depreciation . . . . . . . . 20,942 19,678
--------- --------
Total plant assets, net . . . . . . . 25,368 24,193
--------- --------
Other Assets:
Deferred tax assets, net . . . . . . . . . . . . 686 678
Other long-term assets . . . . . . . . . . . . . 909 1,027
--------- --------
Total other assets. . . . . . . . . . . . . . 1,595 1,705
--------- --------
$ 57,072 $ 54,915
========= ========
Liabilities and Stockholders' Equity
Current Liabilities:
Revolving line of credit . . . . . . . . . . . . $ 13,325 $ 11,233
Trade accounts payable . . . . . . . . . . . . . 8,801 6,827
Accrued expenses . . . . . . . . . . . . . . . . 3,177 4,378
Current portion of long-term borrowings . . . . 3,384 3,260
--------- --------
Total current liabilities . . . . . . 28,687 25,698
--------- --------
Long-Term Liabilities:
Borrowings . . . . . . . . . . . . . . . . . . . 10,332 10,796
Pension obligation . . . . . . . . . . . . . . . 2,318 2,546
Other . . . . . . . . . . . . . . . . . . . . . 2,446 2,538
--------- --------
Total long-term liabilities. . . . . . 15,096 15,880
--------- --------
Stockholders' Equity:
Preferred stock . . . . . . . . . . . . . . . . -- --
Class A voting common stock . . . . . . . . . . 810 810
Class B non-voting common stock . . . . . . . . 1,281 1,280
Paid in capital. . . . . . . . . . . . . . . . . 9,084 9,083
Retained earnings . . . . . . . . . . . . . . . 2,736 2,678
Accumulated other comprehensive . . . . . . . . (238) (179)
Deferred compensation . . . . . . . . . . . . . (57) (76)
--------- --------
13,616 13,596
Less: Treasury stock at cost . . . . . . . . . (327) (259)
--------- --------
Total stockholders' equity . . . . . 13,289 13,337
--------- --------
$ 57,072 $ 54,915
========= ========
See Accompanying Notes To Condensed Consolidated Financial Statements
4
<PAGE>
PLYMOUTH RUBBER COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands) (Unaudited)
Six Months Ended
--------------------
June 2, May 28,
2000 1999
--------- --------
Cash flows relating to operating activities:
Net Income . . . . . . . . . . . . . . . . . . . $ 58 $ 2,202
Adjustments to reconcile net income to
net cash provided by (used in)operating
activities:
Depreciation and amortization . . . . . 1,456 1,248
Amortization of deferred compensation . 19 19
Changes in assets and liabilities:
Accounts receivable . . . . . . . . . . (519) (3,779)
Inventory . . . . . . . . . . . . . . . (931) (1,469)
Prepaid expenses . . . . . . . . . . . . 162 172
Other assets . . . . . . . . . . . . . . 34 (20)
Accounts payable . . . . . . . . . . . . 2,043 7
Accrued expenses . . . . . . . . . . . . (1,170) 1,035
Pension obligation . . . . . . . . . . . (228) (144)
Other liabilities . . . . . . . . . . . (92) (38)
--------- --------
Net cash provided by (used in) operating activities 832 (767)
--------- --------
Cash flows relating to investing activities:
Capital expenditures . . . . . . . . . . . . . (2,702) (2,380)
Sale/leaseback of plant assets . . . . . . . . -- 155
--------- --------
Net cash used in investing activities (2,702) (2,225)
--------- --------
Cash flows relating to financing activities:
Net increase in revolving line of credit . . . . 2,145 2,444
Proceeds from term loan . . . . . . . . . . . . 1,521 1,750
Payments of term loan . . . . . . . . . . . . . (1,444) (884)
Payments on capital leases . . . . . . . . . . . (308) (285)
Treasury stock purchase . . . . . . . . . . . . (68) (101)
Proceeds from issuance of common stock . . . . . 2 6
--------- --------
Net cash provided by financing activities 1,848 2,930
--------- --------
Effect of exchange rates on cash . . . . . . . . . . 22 12
--------- --------
Net change in cash . . . . . . . . . . . . . . . . . -- (50)
Cash at the beginning of the period . . . . . . . . -- 54
--------- --------
Cash at the end of the period . . . . . . . . . . . $ -- $ 4
========= ========
Supplemental Disclosure of Cash Flow Information
Cash paid for interest . . . . . . . . . . . . . . . $ 1,194 $ 1,014
========= ========
Cash paid for income taxes . . . . . . . . . . . . . $ 198 $ 176
========= ========
See Accompanying Notes to Condensed Consolidated Financial Statements
5
<PAGE>
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) The Company, in its opinion, has included all adjustments (consisting of
normal recurring adjustments) 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 December 3, 1999, November 27, 1998,
and November 28, 1997, included in the Company's 1999 Annual Report to the
Securities and Exchange Commission on Form 10-K.
(2) Claims under CERCLA
The Company has been named as a Potentially Responsible Party ("PRP") by the
United States Environmental Protection Agency ("EPA") in two ongoing claims
under the Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"). These CERCLA claims involve attempts by the EPA to recover the
costs associated with the cleanup of two Superfund Sites in Southington,
Connecticut--the Solvent Recovery Service of New England Superfund Site
("SRS Site") and the Old Southington Landfill Superfund Site ("OSL Site").
SRS was an independent and licensed solvent recycler/disposal company. The EPA
asserts that SRS, after receiving and processing various hazardous substances
from PRPs, shipped some resultant sludges and wastewater from the SRS Site to
the OSL Site.
The Company received a PRP notification regarding the SRS Site in June, 1992.
The EPA originally attributed a 1.74% share of the aggregate waste volume at
the SRS Site to the Company. Remedial action is ongoing at the Site, and the
Company is a participant in the performing PRP group. Largely because of
"orphaned" and non-participating parties' shares, the Company recently has
been contributing approximately 2.05% toward the performing PRP group's
ongoing expenses. To date approximately $15 million in response costs have
been spent or committed at this Site. Based upon the extensive investigations
and remedial actions conducted at the Site to date, it is presently estimated
that the total future costs at the SRS Site may range from approximately $18
million to $50 million. In the accompanying consolidated financial statements
as of June 2, 2000, management has accrued $484,000 as a reserve against the
Company's potential future liability in this matter, which is net of
approximately $242,000 in payments made to date by the Company.
The Company received a PRP notification regarding the OSL Site in January,
1994. In addition to numerous "SRS transshipper" PRPs (such as the Company),
EPA has named a number of other PRPs who allegedly shipped waste materials
directly to the OSL Site. Based on EPA's asserted volume of shipments to SRS,
EPA originally attributed 4.89% of the SRS transshipper PRPs' waste volume at
the OSL Site to the Company, which is a fraction of the undetermined total
waste volume at the Site. The remediation program at the OSL Site has been
divided into two phases, called Operable Units ("OU"). OU#1 involves capping
of the site and OU#2 is groundwater remediation, if any. A Record of
Decision ("ROD") was issued in September, 1994 for OU#1 and, in December, 1997,
following mediation, the Company contributed $140,180 in full settlement of OU#1
(toward a total contribution by the SRS transshipper PRPs of approximately
$2.5 million). The SRS transshipper PRPs' payment of $2.5 million represented
approximately 8% of the OU#1 total settlement. At present, neither the remedy
for OU#2 nor the allocation of the costs thereof among the PRPs has been
determined. Whatever remedy ultimately is selected, the SRS transshippers'
allocable share of the OU#2 expenses likely will be
greater than the 8% paid for OU#1. It has been estimated that the total costs
of OU#2 may range from $10 million to $50 million. Management has accrued
$337,000 in the accompanying consolidated financial statements as a reserve
against the Company's potential future liability in this matter, which is net
of approximately $168,000 in payments made to date by the Company.
6
<PAGE>
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (Continued)
Based on all available information as well as its prior experience, management
believes that its accruals in these two matters are reasonable. However, in
each case the reserved amount is subject to adjustment for future developments
that may arise from one or more of the following -- the long range
nature of the case, legislative changes, insurance coverage, the joint and
several liability provisions of CERCLA, the uncertainties associated with the
ultimate groundwater remedy selected, and the Company's ability to successfully
negotiate an outcome similar to its previous experience in these matters.
Claims under Massachusetts General Laws, Chapter 21E
While in the process of eliminating the use of underground storage tanks at the
Company's facility in Canton, Massachusetts, the Company arranged for the
testing of the areas adjacent to the tanks in question--a set of five tanks in
1994 and a set of three tanks in 1997. The tests indicated that some localized
soil contamination had occurred. The Company duly reported these findings
regarding each location to the Massachusetts Department of Environmental
Protection ("DEP") in 1994 and 1997 respectively, and DEP
issued Notices of Responsibility under Massachusetts General Laws Chapter 21E
to the Company for each location (RTN No. 3-11520 and RTN No. 3-15347,
respectively). The Company has retained an independent Licensed Site
Professional ("LSP") to perform assessment and remediation work at the two
locations. With regard to the first matter (involving the set of five tanks),
the LSP has determined that the soil contamination appears to be confined to a
small area and does not pose an environmental risk to surrounding property or
community. With regard to the second matter (involving the set of three
tanks), a limited amount of solvent has been found in the soil in the vicinity
of the tanks; however, additional sampling is required. It presently is
estimated that the combined future costs to complete the assessment and
remediation actions at the two locations will total approximately $172,000,
and that amount has been accrued in the accompanying financial statements.
In January, 1997 the Company received a Chapter 21E Notice of Responsibility
from DEP concerning two sites located in Dartmouth, Massachusetts
(RTN No. 4-0234) and Freetown, Massachusetts (RTN No. 4-0086), respectively.
According to DEP, drums containing oil and/or hazardous materials were
discovered at the two sites in 1979, which led to some cleanup actions by the
DEP. DEP contends that an independent disposal firm allegedly hired by the
Company and other PRPs, H & M Drum Company, was responsible for disposing of
drums at the two sites. To date, the DEP has issued Notices
of Responsibility to approximately 100 PRPs. A group of PRPs, including the
Company, has retained an LSP to conduct subsurface investigations at both
sites. The LSP has completed Limited Subsurface Investigations at both
sites. At the Freetown site, no reportable contamination was found either in
soil or groundwater, and the LSP has recommended that DEP close the site out.
At the Dartmouth site, no reportable contamination was found in soil, while
reportable, but lower than historical levels of contaminants were found in
groundwater. The LSP's investigation at the Dartmouth site
further indicates that there may be an upgradient off-site source of
contaminants (which Plymouth would not be responsible for) that is impacting
the site, and recommends further investigation into that possibility. While
the results of the Limited Subsurface Investigations at these sites are
relatively encouraging, until additional data is gathered, it is not possible
to reasonably estimate the costs of any further investigation or cleanup
that may be required at either or both sites, or the Company's potential
share of liability or responsibility therefor. Accordingly, no reserve has
been accrued in the accompanying financial statements with respect to these
two sites.
7
<PAGE>
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (Continued)
In April, 2000 the Company received a Chapter 21E Notice of Responsibility from
DEP concerning an oil release in the portion of the East Branch of the Neponset
River that flows through the Company's property in Canton, Massachusetts
(RTN No. 3-19407). The Company had duly reported the presence of oil in the
river to the appropriate government agencies. The Company commenced cleanup
and investigatory actions as soon as it became aware of the presence of the
oil, and immediately retained both an LSP to oversee response actions in this
matter and also an environmental services firm to perform cleanup and
containment services. At the present time, neither the source nor the cause
of the release has been positively determined. Costs incurred to date have
totaled approximately $205,000. These costs have been expensed as incurred
and have been funded through operating cash flows. It is not yet possible to
estimate the total costs of any further investigation or remedial actions that
may be required in this matter, or Plymouth's potential share of liability or
responsibility therefor.
(3) 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 potentially dilutive common stock.
Second Quarter Ended June 2, 2000
----------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ---------- --------
Basic EPS
Income available to common
stockholders $ 377,000 2,043,956 $ .18
========
Effect of Dilutive Security (A)
options -- 89,675
----------- ----------
Diluted EPS
Income available to common
stockholders and assumed
conversions $ 377,000 2,133,631 $ .18
=========== ========== ========
Second Quarter Ended May 28, 1999
----------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ---------- --------
Basic EPS
Income available to common
stockholders $ 1,843,000 2,072,033 $ .89
========
Effect of Dilutive Security (A)
options -- 128,822
----------- ----------
Diluted EPS
Income available to common
stockholders and assumed
conversions $ 1,843,000 2,200,855 $ .84
=========== ========== ========
8
<PAGE>
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (Continued)
(A) Options for 261,030 and 188,400 shares of common stock were outstanding at
June 2, 2000 and May 28, 1999, respectively, but were not included in computing
diluted earnings per share in each of the respective periods because their
effects were antidilutive.
Six Months Ended June 2, 2000
----------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ---------- --------
Basic EPS
Income available to common
stockholders $ 58,000 2,046,072 $ .03
========
Effect of Dilutive Security (B)
options -- 109,971
----------- ----------
Diluted EPS
Income available to common
stockholders and assumed
conversions $ 58,000 2,156,043 $ .03
=========== ========== ========
Six Months Ended May 28, 1999
----------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ---------- --------
Basic EPS
Income available to common
stockholders $ 2,202,000 2,076,700 $ 1.06
========
Effect of Dilutive Security (B)
options -- 126,548
----------- ----------
Diluted EPS
Income available to common
stockholders and assumed
conversions $ 2,202,000 2,203,248 $ 1.00
=========== ========== ========
(B) Options for 261,030 and 195,900 shares of common stock were outstanding at
June 2, 2000 and May 28, 1999, respectively, but were not included in computing
diluted earnings per share in each of the respective periods because their
effects were antidilutive.
(4) The Company's revolving credit loan and long term debt agreements
contain various covenants which, among other things, prohibit cash dividends
without the consent of the lender and specify that the Company meet certain
financial requirements, including certain net worth, fixed charge and EBITDA
coverage ratios and minimum working capital levels. In addition, for certain
short-term borrowings, the agreements contain certain subjective provisions
which would result in an event of default if the bank would deem itself
"insecure" for any reason. The short-term borrowings are also payable on
demand. As of June 2, 2000 the Company was in technical default of the
minimum working capital and fixed charge coverage ratios on the term debt
secured by equipment, and has obtained a waiver of these defaults, effective
June 2, 2000.
9
<PAGE>
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (Continued)
(5) On December 30, 1999 the Company entered into a new loan agreement in
the amount of $550,000 with an equipment lender to finance the acquisition of
certain equipment. The new loan is secured by a first interest in the
equipment. On March 3, 2000 the Company entered into a new loan agreement in
the amount of $810,250 with an equipment lender to finance the acquisition
of certain equipment. The new loan is secured by a first interest in the
equipment. On May 3, 2000 the Company entered into a new loan agreement in
the amount of $161,313 with an equipment lender to finance the acquisition
of certain equipment. The new loan is secured by a first interest in the
equipment.
(6) In June, 1998, the Financial Accounting Standards Board issued FAS 133
- Accounting for Derivative Instruments and Hedging Activities. FAS 133 will
require the Company to record derivative instruments, such as foreign currency
hedges, on the Consolidated Balance Sheet as assets or liabilities, measured
at fair value. Currently, the Company treats such instruments as off-
balance-sheet items. Gains or losses resulting from changes in the values of
those derivatives would be accounted for depending on the specific use of each
derivative instrument and whether it qualifies for hedge accounting treatment
as stated in the standard. In June 1999, the Financial Accounting Standards
Board issued FAS 137 - Accounting for Derivative and Similar Financial
Instruments and for Hedging Activities - Deferral of the Effective Date of FAS
133. FAS 137 changed the effective date for implementation of FAS 133.
FAS 133 will be effective for the Company on December 2, 2000, the beginning
of fiscal year 2001. The Company currently does not expect the impact of
adopting FAS 133 to be material.
(7) In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 - Revenue Recognition in Financial Statements
("SAB 101"). SAB 101 summarizes certain of the staff's views in applying
generally accepted accounting principles to revenue recognition in financial
statements. SAB 101 will be effective for the Company no later that the
fourth fiscal quarter of fiscal years beginning after December 15, 1999.
The Company currently does not expect the impact of adopting SAB 101 to be
material.
10
<PAGE>
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (Continued)
(8) Plymouth Rubber Company, Inc. and its subsidiaries primarily operate
through the following two business segments: Plymouth Tapes and Brite-Line
Technologies. Management has determined these to be Plymouth Rubber Company's
business segments, based upon its process of reviewing and assessing Company
performance, and allocating resources. Plymouth Tapes manufactures plastic
and rubber products, including automotive, electrical, and industrial tapes.
Brite-Line Technologies manufactures and supplies rubber and plastic highway
marking and safety products.
Management evaluates the performance of its segments and allocates resources
to them primarily based upon sales and operating income. Intersegment sales
are at cost and are eliminated in consolidation. In addition, certain of the
selling, general and administrative expenses recorded in Plymouth Tapes could
be considered as incurred for the benefit of Brite-Line, but are currently not
allocated to that segment. These expenses include certain management,
accounting, personnel and sales services, and a limited amount of travel,
insurance, directors fees and other expenses.
The table below presents information related to Plymouth Rubber's business
segments for the three months and the six months ended June 2, 2000 and
May 28, 1999.
Second Quarter Ended Six Months Ended
------------------- ------------------
June 2, May 28, June 2, May 28,
2000 1999 2000 1999
------- ------- ------- -------
Segment sales to unaffiliated customers:
Plymouth Tapes . . . . . . . . . . $ 17,775 $ 17,150 $ 34,103 $ 32,867
Brite-Line Technologies. . . . . . 3,149 4,355 3,794 5,044
------- ------- ------- -------
Consolidated net sales . . . . . . $ 20,924 $ 21,505 $ 37,897 $ 37,911
======== ======= ======= =======
Segment income:
Plymouth Tapes . . . . . . . . . . $ 409 $ 2,821 $ 749 $ 4,363
Brite-Line Technologies. . . . . . 783 847 444 376
------- ------- ------- -------
Consolidated operating income 1,192 3,668 1,193 4,739
Interest expense . . . . . . . . . (563) (542) (1,103) (1,027)
Other, net . . . . . . . . . . . . 18 (46) 6 (33)
------- ------- ------- -------
Consolidated income
before tax . . . . . . . . . $ 647 $ 3,080 $ 96 $ 3,679
======== ======= ======= =======
11
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
First Six Months, 2000, Compared with First Six Months, 1999
In the first six months of 2000, sales were approximately level at $37,897,000,
compared to $37,911,000 last year. Sales at Plymouth Tapes increased 4%, to
$34,103,000, from $32,867,000 last year. Sales increases in the electrical,
export, and vinyl films markets were offset by the automotive market, which was
down approximately 2% from last year. At Brite-Line Technologies, sales
decreased 25% to $3,794,000 from $5,044,000 last year, largely due to
unacceptable pricing in Europe due to currency exchange rates, and unfavorable
spring weather conditions in certain key market regions.
Gross margin decreased to 21.3% from 27.3% last year. Plymouth Tapes' gross
margin decreased to 19.6% from 26.3% last year. The major factor was rising
raw material purchase prices, primarily for PVC resins, which increased product
costs significantly compared to last year. Overall processing yields were
unfavorable compared to 1999, and were a major contributor to the lower gross
margin. Manufacturing and development costs were higher for certain
automotive products. Increases were also experienced in labor rates,
healthcare costs, and utility costs. Lower contractual selling prices,
mainly to a major automotive customer, also contributed to the margin decrease,
as did unfavorable European pricing caused by currency exchange rates.
Partially offsetting this was the gross margin at Brite-Line Technologies,
which increased to 37.0% from 33.8% last year, due to a shift to higher
margin customers, and to higher selling prices, offset by lower manufacturing
absorption.
Selling, general and administrative expenses, as a percentage of sales, were
lower in 2000 at 18.2%, compared to 19.4% last year. At Plymouth Tapes,
selling, general and administrative expenses, as a percentage of sales,
decreased to 17.4% from 18.4% last year. The major factor was a decrease in
bonus and profit sharing of approximately $480,000. In addition, lower
professional fees, advertising, and outside warehouse costs contributed to the
decrease. These decreases were offset in part by an environmental cleanup
cost of $205,000 incurred this year. At Brite-Line Technologies, selling,
general and administrative expenses, as a percentage of sales, decreased to
25.3% of sales, from 26.3% last year. The major factor was decreased
professional fees of $300,000, largely because of a reduction in patent
litigation activities, and freight and sales salaries were also reduced
from last year.
Interest expense increased $76,000 from last year, because of both higher
average loan balances and higher interest rates on the revolving line of credit
in 2000 as compared to 1999. This was offset in part by lower balances for
term debt and a favorable shift in loan balances to Libor-based interest rates.
The above factors generated a pre-tax profit of $96,000, compared to a
$3,679,000 last year, and net income of $58,000, compared to $2,202,000 last
year. Included in last year's results was a $1,750,000 pretax ($1,050,000
after tax) gain from an insurance settlement with one of Plymouth's previous
liability insurance carriers.
Liquidity
Cash generated from operating activities was $0.8 million in the first half of
2000, as compared to $0.8 million used in the first half of 1999. The major
factors contributing to cash from operating activities include depreciation and
amortization of $1.5 million, primarily at Plymouth Tapes, an increase in
accounts payable of $2.0 million, and a decrease in prepaid expenses of $0.2.
This was offset, in part, by a reduction in accrued expenses of $1.2 million,
primarily at Plymouth Tapes, an increase in inventory of $0.9 million,
primarily at Plymouth Tapes, an increase in accounts receivable of $0.5 million
to support higher seasonal activity at Brite-Line, and a decrease in other
liabilities of $0.3 million. This operating cash flow, an increase in the
revolving line of credit of $2.1 million, and additional term borrowings
totaling $1.5 million, were used to finance capital expenditures of $2.7
million and pay off or reduce term debt and capital leases of $1.7 million.
12
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
(Continued)
As of June 2, 2000, the Company had approximately $0.3 million of unused
borrowing capacity under its $18 million line of credit with its primary
lender, after consideration of collateral limitations and the letter of credit
related to a guarantee of 80 million pesetas (approximately $0.6 million) on a
term loan agreement with a Spanish bank syndicate. On the first business day
of the third quarter, the Company recorded a normal monthly cash payment of
$2.0 million from a major customer, increasing the borrowing capacity to
approximately $1.6 million. As of June 2, 2000, the Company was technically
in default of certain of its financial borrowing covenants. The Company has
subsequently received a waiver of these defaults from the applicable lenders,
effective June 2, 2000.
In the opinion of management, anticipated cash flow from operations, unused
capacity under existing borrowing agreements, and additional funds generated
from a capital expenditure line of credit and/or the sale/leaseback of capital
equipment, will provide sufficient funds to meet expected needs during fiscal
2000, including necessary working capital expansion to support anticipated
revenue growth and investments in capital equipment, and to service its
indebtedness. Although management expects to be able to accomplish its plans,
there is no assurance that it will be able to do so. Failure to accomplish
these plans could have an adverse impact on the Company's liquidity and
financial position.
13
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
(Continued)
Second Quarter, 2000, Compared with Second Quarter, 1999
In the second quarter of 2000, sales decreased 3% to $20,924,000 compared to
$21,505,000 last year. Sales at Plymouth Tapes increased 4%, to $17,775,000
from $17,150,000 last year. Sales increases in the electrical and vinyl films
markets were offset by the automotive market, which was down approximately 3%
from last year. At Brite-Line Technologies, sales decreased 28% to $3,149,000
from $4,355,000 last year, largely due to unacceptable pricing in Europe due
to currency exchange rates, and unfavorable spring weather conditions in
certain key market regions.
Gross margin decreased to 22.4% from 27.9% last year. Plymouth Tapes' gross
margin decreased to 19.0% from 24.3% last year. The major factor was rising
raw material purchase prices, primarily for PVC resins, which increased product
costs significantly compared to last year. Overall processing yields were
unfavorable compared to last year, and were a major contributor to the lower
gross margin. Increases were also experienced in labor rates, healthcare
costs, and utility costs. Lower contractual selling prices, mainly to a major
automotive customer, also contributed to the margin decrease, as did
unfavorable European pricing caused by currency exchange rates. At Brite-Line
Technologies, gross margin decreased to 41.5% from 42.2% last year, due to
lower manufacturing absorption, mostly offset by a shift to higher margin
customers and higher selling prices.
Selling, general and administrative expenses, as a percentage of sales, were
lower in 2000 at 16.7%, compared to 19.0% last year. At Plymouth Tapes,
selling, general and administrative expenses, as a percentage of sales,
decreased to 16.7% from 18.0% last year. The major factor was a decrease in
bonus and profit sharing of approximately $440,000. In addition, lower
advertising and outside warehouse costs contributed to the decrease. These
decreases were offset in part by an environmental cleanup cost of $205,000
incurred this year. At Brite-Line Technologies, selling, general and
administrative expenses, as a percentage of sales, decreased to 16.6% of
sales, from 22.7% last year. The major factor was decreased professional fees
of $409,000, largely because of a reduction in patent litigation activities,
and freight and sales salaries were also reduced from last year.
Interest expense increased $21,000 from last year, because of both higher
average loan balances and higher interest rates on the revolving line of
credit in 2000 as compared to 1999. This was offset in part by lower balances
for term debt and a favorable shift in loan balances to Libor-based interest
rates.
The above factors generated a pre-tax profit of $647,000, compared to a
$3,080,000 last year, and net income of $377,000, compared to a $1,843,000
last year. Included in last year's results was a $1,750,000 pretax
($1,050,000 after tax) gain from an insurance settlement with one of Plymouth's
previous liability insurance carriers.
14
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
(Continued)
Impact of New Accounting Pronouncements
In June, 1998, the Financial Accounting Standards Board issued FAS 133 -
Accounting for Derivative Instruments and Hedging Activities. FAS 133 will
require the Company to record derivative instruments, such as foreign currency
hedges, on the Consolidated Balance Sheet as assets or liabilities, measured at
fair value. Currently, the Company treats such instruments as off-balance
-sheet items. Gains or losses resulting from changes in the values of those
derivatives would be accounted for depending on the specific use of each
derivative instrument and whether it qualifies for hedge accounting
treatment as stated in the standard. In June, 1999, the Financial
Accounting Standards Board issued FAS 137 - Accounting for Derivative and
Similar Financial Instruments and for Hedging Activities - Deferral of the
Effective Date of FAS 133. FAS 137 changed the effective date for
implementation of FAS 133. FAS 133 will be effective for the Company on
December 2, 2000, the beginning of fiscal year 2001. The Company currently
does not expect the impact of adopting FAS 133 to be material.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 - Revenue Recognition in Financial Statements
("SAB 101"). SAB 101 summarizes certain of the staff's views in applying
generally accepted accounting principles to revenue recognition in financial
statements. SAB 101 will be effective for the Company no later that the
fourth fiscal quarter of fiscal years beginning after December 15, 1999.
The Company currently does not expect the impact of adopting SAB 101 to be
material.
Safe Harbor Statement
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 regulations,
significant raw material price fluctuations, changes in interest rates,
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.
15
<PAGE>
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 December 3, 1999, 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
The Company's Annual Meeting was held on April 27, 2000.
The following members were elected to the Company's Board of Directors to hold
office for the ensuing three-year term:
Nominees In Favor Opposed
Maurice J. Hamilburg, Duane E. Wheeler
and Sumner Kaufman 764,343 1,960
The results on the voting of the following additional item were as follows:
Approval of the Company's two amendments to the 1995 Non-Employee
Directors' Stock Option Plan:
In Favor Opposed Abstain No Vote
505,149 34,842 473 -0-
Approval of the Company's amendment to the 1995 Employee Incentive Stock
Option Plan:
In Favor Opposed Abstain No Vote
505,150 34,841 473 -0-
The ratification of the appointment of PricewaterhouseCoopers LLP as
independent auditors of the Company for the next fiscal year:
In Favor Opposed Abstain No Vote
763,630 100 613 -0-
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: See Index to Exhibits
(b) Not Applicable
16
<PAGE>
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: July 17, 2000
17
<PAGE>
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) 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 Quarterly
Report on Form 10-Q for the Quarter ended March 1, 1996.
(4)(ii) 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
Quarterly Report on Form 10-Q for the quarter ended March 1,
1996.
(4)(iii) 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)(iv) 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)(v) 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 Quarterly Report on Form 10-Q for the quarter
ended February 25, 1997.
(4)(vi) 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 Quarterly Report on Form 10-Q for the quarter ended
February 25, 1997.
(4)(vii) 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 Quarterly Report
on Form 10-Q for the quarter ended May 30, 1997.
(4)(viii) 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 Quarterly Report on Form 10-Q for the quarter ended
May 30, 1997.
(4)(ix) 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
Quarterly Report on Form 10-Q for the quarter ended May 30,
1997.
(4)(x) 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 Quarterly Report on Form 10-Q for the quarter ended
May 30, 1997.
18
<PAGE>
PLYMOUTH RUBBER COMPANY, INC.
INDEX TO EXHIBITS
(Continued)
Exhibit
No. Description
(4)(xi) 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
Quarterly Report on Form 10-Q or the quarter ended May 30,
1997.
(4)(xii) 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 Quarterly Report on Form 10-
Q for the quarter ended May 30, 1997.
(4)(xiii) 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 Quarterly
Report on Form 10-Q for the quarter ended May 30, 1997.
(4)(xiv) Promissory Note between Plymouth Rubber Company, Inc. and
General Electric Capital Corporation dated December 3, 1997 -
incorporated by reference to Exhibit (4)(xiv) to the Company's
Annual Report on Form 10-K for the year ended November 27, 1998.
(4)(xv) Promissory Note between Plymouth Rubber Company, Inc. and
General Electric Capital Corporation dated April 13, 1998 -
incorporated by reference to Exhibit (4)(xv) to the Company's
Annual Report on Form 10-K for the year ended November 27, 1998.
(4)(xvi) Promissory Note between Plymouth Rubber Company, Inc. and
General Electric Capital Corporation dated November 12, 1998 -
incorporated by reference to Exhibit (4)(xvi) to the Company's
report on Form 10-K for the year ended November 27, 1998.
(4)(xvii) Promissory Note between Plymouth Rubber Company, Inc. and
General Electric Capital Corporation dated November 25, 1998 -
incorporated by reference to Exhibit (4)(xvii) to the Company's
report on Form 10-K for the year ended November 27, 1998.
(4)(xviii) Amendments to Loan and Security Agreement between Plymouth
Rubber Company, Inc., and LaSalle National Bank dated July 15,1998 and
February 18, 1999 - incorporated by reference to Exhibit (4)(xviii)
to the Company's report on Form 10-Q for the quarter ended
February 26, 1999.
(4)(xix) Amendment to Loan and Security Agreement between Brite-Line
Technologies, Inc., and LaSalle National Bank dated February 18,
1999 - incorporated by reference to Exhibit (4)(xix) to the Company's
report on Form 10-Q for the quarter ended February 26, 1999.
(4)(xx) Promissory Note between Plymouth Rubber Company, Inc. and
General Electric Capital Corporation dated July 29, 1999 -
incorporated by reference to Exhibit (4)(xx) to the Company's
report on Form 10-Q for the quarter ended August 27, 1999.
(4)(xxi) First Amended and Restated Schedule A - Special Provisions to
Loan and Security Agreement between Plymouth Rubber Company, Inc., and
LaSalle National Bank dated June 16, 1999 - incorporated by reference
to Exhibit (4)(xix) to the Company's report on Form 10-Q for the quarter
ended March 3, 2000.
(4)(xxii) Promissory Note between Plymouth Rubber Company, Inc. and
General Electric Capital Corporation dated December 29, 1999 - incorporated
by reference to Exhibit (4)(xix) to the Company's report on Form 10-Q for
the quarter ended March 3, 2000.
19
<PAGE>
PLYMOUTH RUBBER COMPANY, INC.
INDEX TO EXHIBITS
(Continued)
Exhibit
No. Description
(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.
(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 six months ended June 2, 2000.
(28) Not Applicable.
(29) Not Applicable.
20
