-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OESpQYYiIiZBeVpqoTF2Ant23gkm4DrlMt23BcKW8lffy4QfdfMrCoeUgx7qktFy HxT7ORyZv7FharLp02WDRQ== 0000079225-98-000009.txt : 19981014 0000079225-98-000009.hdr.sgml : 19981014 ACCESSION NUMBER: 0000079225-98-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980828 FILED AS OF DATE: 19981013 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: PLYMOUTH RUBBER CO INC CENTRAL INDEX KEY: 0000079225 STANDARD INDUSTRIAL CLASSIFICATION: FABRICATED RUBBER PRODUCTS, NEC [3060] IRS NUMBER: 041733970 STATE OF INCORPORATION: MA FISCAL YEAR END: 1127 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-05197 FILM NUMBER: 98724026 BUSINESS ADDRESS: STREET 1: 104 REVERE ST CITY: CANTON STATE: MA ZIP: 02021 BUSINESS PHONE: 6178280220 MAIL ADDRESS: STREET 1: PLYMOUTH RUBBER CO INC STREET 2: 104 REVERE ST CITY: CANTON STATE: MA ZIP: 02021 10-Q 1 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 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 2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements
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 -------- -------- --------- -------- 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 ========= ========= ========= =========
See Accompanying Notes To Consolidated Financial Statements 2 3
PLYMOUTH RUBBER COMPANY, INC. CONSOLIDATED BALANCE SHEET (In Thousands) Aug. 28, Nov. 28, 1998 1997 (Unaudited) ---------- ---------- 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 ======== ========
See Accompanying Notes To Consolidated Financial Statements 3 4
PLYMOUTH RUBBER COMPANY, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (In Thousands) (Unaudited) Nine Months Ended Aug. 28, Aug. 29, 1998 1997 ---------- --------- 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 ======= =======
See Accompanying Notes To Consolidated Financial Statements 4 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 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 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 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 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 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 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 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 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 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 EX-27 2
5 1,000 9-MOS NOV-27-1998 AUG-28-1998 24 0 11,940 456 11,777 25,585 40,033 19,344 49,550 23,154 0 0 0 1,352 8,157 49,550 50,061 50,061 37,470 46,922 41 101 1,347 1,751 708 1,043 0 0 0 1,043 .50 .47
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