<PAGE>
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, 1995 Commission File Number 1-5197
Plymouth Rubber Company, Inc.
(Exact name of registrant as specified in its charter)
Massachusetts 04-1733970
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
104 Revere Street, Canton, Massachusetts 02021
(Address of principal executive offices) (Zip Code)
(617) 828-0220
Registrant's telephone number, including area code
Not Applicable
(Former name, former address, and former fiscal year, if changed since last
report).
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the period covered by this report.
Class A common stock , par value $1 - 810,586
Class B common stock, par value $1 - 1,054,201
<PAGE>
PLYMOUTH RUBBER COMPANY, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Statement of Operations
Balance Sheet
Statement of Cash Flows
Notes To Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
PLYMOUTH RUBBER COMPANY, INC.
STATEMENT OF OPERATIONS
(In Thousands Except Share and Per Share Amounts)
(Unaudited)
<CAPTION>
Second Quarter Ended Six Months Ended
June 2, May 27, June 2, May 27,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Net sales $ 13,948 $ 13,534 $ 26,528 $ 24,500
Cost and Expenses
Cost of products sold 10,619 10,005 20,190 18,388
Selling, general and
administrative 2,170 2,382 4,441 4,363
12,789 12,387 24,631 22,751
Operating income 1,159 1,147 1,897 1,749
Interest expense (354) (248) (693) (489)
Other income (expense),net (5) 15 436 38
Income before taxes 800 914 1,640 1,298
Provision for income taxes (76) (14) (168) (168)
Income before cumulative
effect of changes in
accounting principle 724 900 1,472 1,130
Cumulative effect of
changes in accounting
principle,net -- -- -- 1,274
Net income 724 900 1,472 2,404
Retained earnings(deficit)
at beginning of period (6,952) (7,934) (6,234) (9,438)
Less 10% stock dividend -- -- (1,466) --
Retained earnings(deficit)
at end of period $ (6,228) $ (7,034) $ (6,228) $ (7,034)
Per Share Data:
Income before cumulative
effect of changes in
accounting principle .35 .43 .70 .55
Cumulative effect of
changes in accounting
principle,net -- -- -- .61
Net income .35 .43 .70 1.16
Weighted average number of
shares outstanding 2,095,240 2,079,549 2,094,628 2,072,105
</TABLE>
See Accompanying Notes To Financial Statements
<PAGE>
<TABLE>
PLYMOUTH RUBBER COMPANY, INC.
BALANCE SHEET
(In Thousands)
<CAPTION>
June 2, Dec. 2,
1995 1994
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash $ - $ -
Accounts receivable 7,140 7,055
Allowance for doubtful accounts (527) (540)
Inventories:
Raw materials 2,394 2,102
Work in process 2,439 2,468
Finished goods 4,816 3,652
9,649 8,222
Prepaid expenses and other current assets 1,908 2,083
Total current assets 18,170 16,820
Plant assets 28,232 27,523
Accumulated depreciation (20,693) (20,124)
Net plant assets 7,539 7,399
Other assets 4,162 4,179
TOTAL ASSETS $ 29,871 $ 28,398
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Revolving line of credit $ 6,273 $ 5,979
Trade accounts payable 4,563 4,344
Accrued expenses 3,523 3,649
Current portion of long-term obligations 1,075 1,156
Product warranties 636 616
Total current liabilities 16,070 15,744
Long-Term Liabilities:
Term debt 3,312 3,752
Pension obligation payable 4,842 4,894
Product warranties 291 384
Other liabilities 2,056 1,905
Total long-term liabilities 10,501 10,935
Stockholders' Equity:
Preferred stock - -
Class A voting common stock 810 810
Class B non-voting common stock 1,054 814
Paid in capital 8,303 6,987
Retained earnings (deficit) (6,228) (6,234)
Pension liability adjustment, net of tax (392) (392)
Deferred compensation (247) (266)
Total stockholders' equity 3,300 1,719
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 29,871 $ 28,398
</TABLE>
See Accompanying Notes To Financial Statements
<PAGE>
<TABLE>
PLYMOUTH RUBBER COMPANY, INC.
STATEMENT OF CASH FLOWS
(In Thousands) (Unaudited)
<CAPTION>
Six Months Ended
June 2, May 27,
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 1,472 $ 2,404
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 569 535
Amortization of deferred compensation 19 19
Change in valuation allowance (476) (350)
Cumulative effect of changes in
accounting principle, net -- (1,274)
Changes in assets and liabilities:
Accounts receivable (98) (16)
Inventory (1,427) (596)
Prepaid expenses 175 296
Other assets 10 (57)
Accounts payable 218 (444)
Accrued expenses 512 360
Pension obligation (33) 34
Product warranties (73) (166)
Other liabilities (17) (67)
Net cash provided by (used in)
operating activities 851 678
Cash flows from investing activities:
Capital expenditures (709) (673)
Sale/leaseback of plant assets 223 --
Net cash provided by (used in)
investing activities (486) (673)
Cash flows from financing activities:
Net increase (decrease) in revolving
line of credit 294 801
Payments on term loan (459) (499)
Payments on capital leases (116) (120)
Payments on insurance financing (174) (187)
Proceeds from issuance of common stock 90 --
Net cash provided by (used for)
financing activities (365) (5)
Net change in cash -- --
Cash at the beginning of the period -- --
Cash at the end of the period $ -- $ --
Supplemental Disclosure of Cash Flow Information
Cash paid for interest $ 593 $ 481
Cash paid for income taxes $ 90 $ 197
Supplemental Disclosure of Non-Cash Activities:
Charge to retained earnings
for stock dividend $ 1,466 $ --
</TABLE>
See Accompanying Notes To Financial Statements
<PAGE>
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 December 2,
1994, November 26, 1993, and November 28, 1992, included in the Company's
1994 Annual Report on Form 10-K filed with the Securities and Exchange
Commission.
(2) In connection with its former roofing materials business, the Company
issued extended warranties as to the workmanship and performance of its
products. Over 95% of these warranties had expired prior to the end of
1994, with the last of the ten year warranties expiring 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 which resulted in additional charges to operations
during 1994 and 1993 of $325,000, and $750,000, respectively. Some
warranty holders have filed claims or brought suits currently aggregating
approximately $1,183,000 against the Company and others relating to
alleged roof failures. The Company believes, upon advice of counsel, that
its warranty obligation under such warranties is limited to the cost of
the roofing materials and that the amounts of the claims are significantly
in excess of its ultimate liability. The Company is vigorously defending
against these claims and believes that some are without merit and that the
damages claimed in others may not bear any reasonable relationship to the
merits of the claims or the real amount of damage, if any, sustained by
the various claimants. Management believes that the $927,000 reserve
recorded at June 2, 1995 is adequate provision for the Company's remaining
warranty obligations.
The Company is the plaintiff in a legal action against one supplier of
materials previously used in the Company's discontinued roofing systems.
The Company has claimed substantial monetary damages based on the failure
of the subject materials to perform as expected. No amount related to
these claims has been included in the accompanying financial statements.
The Company is also involved in other lawsuits and claims arising in the
normal course of business, including one breach of express and implied
warranty suit claiming damages of up to approximately $600,000 dollars.
The suit, which includes a breach of contract and warranty claim against
both a second defendant, (the direct seller of the product) and the
Company, alleges as to the Company, that as a result of the failure of the
Company's tape product, (as to which neither the plaintiff nor its direct
supplier were a direct purchaser from the Company), the plaintiff lost a
contract with its customer and suffered damages to its reputation.
Management believes such claim is without merit and will vigorously defend
against it. While the final outcome of this and other proceedings is
uncertain, it is management's opinion that the ultimate liability, if any,
for these matters should not have a material impact on the results of
operations and the financial condition of the Company.
The United States Environmental Protection Agency (EPA) has asserted four
claims against the Company under the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), pursuant to which EPA is
seeking to recover from the Company and other "generators" the costs
associated with the clean-up of certain sites used by licensed disposal
companies hired by the Company as independent contractors for the disposal
and/or reclamation of hazardous waste materials. In one case, in the
United States District Court for the District of Massachusetts, the EPA
began an action on or about March 1, 1990 in respect to the Superfund site
known as Re-Solve, Inc., of Dartmouth, Massachusetts. The Company has
entered into a Consent Decree, (embodied in an order of Judgment entered
October 14, 1992), requiring payment by the Company of $100,000 plus
interest over a period of five years in full settlement of the EPA claim.
The Company has paid $52,000 and owes three payments of $16,000 in each of
1995 through 1997.
<PAGE>
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited) Continued
On or about March 28, 1986, the Company was notified of potential
liability with respect to the Cannons Engineering Corporation site in
Bridgewater, Massachusetts, and the Cannons Engineering Corporation site
in Plymouth, Massachusetts and of its alleged ranking number 128 of more
than 300 generators. The Company had rejected offers of approximately
$40,000 and approximately $24,000 to settle the matter, since such
settlements would not have released the Company with respect to liability
for any future clean-up at the sites in question. EPA has settled with
a number of the generators who have, in turn threatened legal action
against the Company. A reiteration of a 1991 contribution demand was made
in 1994 by certain settling PRP's in the amount of $175,000. No actions
have been filed by EPA or the settling parties against the Company. Based
on all available information, as well as its prior experience, management
believes a reasonable estimate of its ultimate liability is $50,000 and
has accrued this amount in Other Liabilities in the accompanying Balance
Sheet as of December 2, 1994.
With respect to the third assertion against the Company under CERCLA, a
General Notice of Potential Liability was sent to 1,659 Potentially
Responsible Parties ("PRP") including the Company, in June, 1992, relative
to a Superfund Site known as Solvent Recovery System of New England
("SRS") at a location in Southington, Connecticut, concerning shipments
to the site which occurred between June 1, 1956, and January 25, 1974.
Revised volumetric assessments were made on or about July 7, 1993. The
EPA has attributed 852,445 gallons of an aggregate of 48,953,983 gallons
of waste volume to the Company (a 1.74% share). The Company believes that
this attribution may be overstated by failing to account for the portion
of the gross waste volume actually returned to the Company. This belief
is based on the Company's facts and circumstances related to SRS, which
are similar in many respects to those in the Re-Solve case. An SRS PRP
Group, formed to negotiate the clean-up with EPA, has obtained consent to
undertake the first phase of a remediation program, estimated to cost
$3,600,000. Phase II, as proposed by EPA, is estimated to cost
approximately $25,000,000, to be incurred over approximately a three-year
period. The PRP Group opposes the Phase II proposal. While the Company
has declined to participate in the PRP Group to date, its share (without
adjustment for overstated attribution) of the Phase I remediation and the
Phase II program, if it were adopted, would be a total of $570,000. The
most currently available estimate is that the cost of the entire clean up
will range from approximately $45 million to less than $70 million. Based
on all available information as well as its prior experience, management
believes a reasonable estimate of its ultimate liability is $400,000 and
has accrued this amount in Other Liabilities in the accompanying Balance
Sheet as of December 2, 1994. This amount is subject to adjustment for
future developments that may arise from the long-range nature of this EPA
case, legislative changes, insurance coverage, the uncertainties
associated with the ultimate outcome of the Record of Decision ("ROD"),
the joint and several liability provisions of CERCLA, and the Company's
ability to successfully negotiate an outcome similar to its previous
experience in these matters. No actions have been currently filed by the
EPA or the settling parties against the Company, and no direct dialogue
with the EPA is expected before the end of 1995.
On January 25, 1994, the Company received a notification dated January 21,
1994 of an additional Superfund Site, Old Southington Landfill, (the "OSL
Site") regarding which the EPA asserts that the Company is a PRP. The OSL
Site is related to the SRS Site in that, the EPA alleges, after receipt
and processing of various hazardous substances from PRP's, the owners
and/or operators of the SRS Site shipped the resultant contaminated soil
from the SRS Site to the OSL Site. Since the Company is alleged to have
shipped materials to the SRS Site between 1956 and 1974, the EPA alleges
that the Company is also a PRP of the OSL Site. In addition, there were
three (3) direct shippers to the site, the Town of Southington, General
Electric, and Pratt & Whitney, as well as other transporters and/or
users. Based on EPA's asserted volume of shipments to SRS during that
time period, the EPA has attributed 380,710 gallons, or 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
<PAGE>
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited) Continued
prior to shipment to OSL, or to allocate a percentage to the Company in
relation to direct users of the OSL Site, or in relation to a
combination of direct and indirect users of the site. An ROD was issued
in September, 1994 for the first Phase of the clean-up, estimated to cost
approximately $16 million dollars. A PRP Group has been formed; however,
the Company has, to date, declined to participate in the PRP Group. The
Company has learned that the PRP's have agreed among themselves to cap the
liability of the "SRS Parties", (i.e. the indirect shippers, and the group
to which the Company would belong), for the first phase of a clean-up at
24.5%; (the amount assessed the direct shippers and the other OSL Parties
will be 51% and 24.5%, respectively). There is no publicly available
information yet concerning Phase II ground water remediation costs;
however, such costs are likely to be significant. Based on all available
information as well as its prior experience, management believes a
reasonable estimate of its ultimate liability for Phase I costs is
$100,000 and has accrued this amount in Other Liabilities in the
accompanying Balance Sheet as of December 2, 1994. 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 ROD and the
joint and several liability provisions of CERCLA, and the Company's
ability to successfully negotiate an outcome similar to its previous
experience in these matters. No actions have been currently filed by the
EPA or the settling parties against the Company, and no direct dialogue
with the EPA is expected before the end of 1995.
(3) Checks outstanding in excess of certain cash balances totaling $433,000
and $598,000 at June 2, 1995, and December 2, 1994, have been included in
accounts payable.
(4) On March 7, 1995, the Company declared a 10% stock dividend on both Class
A (voting) and Class B (non-voting) common stock. The dividend was paid
in Class B shares on May 23, 1995 to shareholders of record as of March
24, 1995. Retained earnings has been charged for $1,466,000 based on the
dividend value of $8.875 per share. Cash was paid in lieu of fractional
shares using the closing price of Class B common stock on March 6, 1995,
and was less than $1,000. Earnings per share was adjusted to reflect the
stock dividend paid. The common shares outstanding, and the common stock
equivalents, are shown below.
Common and Common Equivalent Shares:
Second Quarter Ended Six Months Ended
June 2, May 27, June 2, May 27,
1995 1994 1995 1994
Average shares outstanding 1,847,743 1,786,018 1,822,174 1,786,018
Adjustments thereto(A) 247,497 293,531 272,454 286,087
Weighted average shares
outstanding 2,095,240 2,079,549 2,094,628 2,072,105
(A) Adjust for options and warrants under the treasury stock method
using average market value during the period.
<PAGE>
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
(5) A deferred tax asset and a related valuation allowance was established at
$6,069,000 and $3,475,000, respectively, at December 2, 1994 based upon
estimates of future taxable income through fiscal 1997. The valuation
allowance has been reduced by $476,000 to $2,999,000 at June 2, 1995 based
upon estimates of future taxable income through the second quarter of
fiscal 1998.
(6) Certain reclassifications of prior year balances have been made to conform
to the current presentation.
Subsequent Events
(7) Reference is made to those certain claims asserted by the United States
Environmental Protection Agency ("EPA") and the information contained in
Item 3 of the Company's Annual Report on Form 10-K for its fiscal year
ended December 2, 1994, and in Note 13 of the Notes To Financial
Statements contained in said Annual Report and as further described in
Item 1 of the Company's Quarterly Report for the quarter ended March 3,
1995 and in Note 2 to the Financial Statements contained in said Quarterly
Report.
With respect to the claim asserted by the EPA identified as the Solvent
Recovery Service of New England ("SRS") site, on or about June 19, 1995,
the Company received an "Invitation to Perform a Remedial
Investigation/Feasibility Study,", ("RI/FS")," and Non-Time Critical
Removal Action", ("NTCRA"), from the EPA in which the EPA invites all
PRP's to perform or finance a RI/FS and a NTCRA. In addition, the EPA
stated its intention to negotiate exclusively with the SRS site PRP Group,
to issue a draft administrative order and statement of work regarding the
RI/FS and NTCRA within thirty (30) days of the letter, and to require
responses thereto within thirty (30) days and to continue negotiation with
the PRP Group for an additional forty-five (45) days. The Company is
currently evaluating its position with regard to this matter.
With respect to the claim asserted by the EPA identified as the Old
Southington Landfill, ("OSL") site, on or about June 20, 1995, the Company
executed agreements and paid a $3,000 assessment to become a participant
in the Joint Defense Group of OSL/SRS "transshipper" PRPs and in the
Alternative Dispute Resolution Process.
With respect to the claims asserted by the EPA and a certain settling PRP
and identified as the Cannons Engineering Corporation ("Cannons") site, the
Company received notification that a lawsuit was filed against it on June
23, 1995 in the United States District Court for the District of
Massachusetts by Olin Hunt Specialty Products, Inc., ("Olin"). Olin seeks
to recover contribution under Section 113 of the CERCLA, (42 U.S.C. Section
9613), as a result of a settlement entered into on June 26, 1992 between
Olin et al. and the United States, the State of New Hamphsire, and the
Commonwealth of Massachusetts, (the "Governments") for reimbursement of
the Governments' response costs in connection with the Cannons site.
The Company intends to vigorously defend this matter; however, it is
impossible to determine the Company's total liability or responsibility
at this time.
<PAGE>
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
With respect to that certain EPA matter concerning the elimination of use
of certain underground storage tanks located at the Company's
manufacturing facility as to which the Company received a Notice of
Responsibility from the Massachusetts Department of Environmental
Protection ("DEP"), the Company has adjusted its estimate of the costs for
such activity to not exceed the sum of Two Hundred and Fifty Thousand
($250,000) Dollars, which resulted in the recording of an increase to the
reserves of $75,000 in the quarter ended June 2, 1995.
Reference is made to certain other lawsuits arising in the normal course
of business, including one breach of express and implied warranty suit
claiming damages of up to approximately $600,000 dollars, described in
Note 13 of the Notes to the Financial Statements contained in the Company's
Annual Report on Form 10-K for its fiscal year ended December 2, 1994. On
or about May 26, 1995 the aforementioned breach of express and implied
warranty suit was settled and dismissed with prejudice, without the
Company making any further payment.
<PAGE>
Item 2. Management's Discussion & Analysis of Financial Condition and
Results of Operations.
FIRST SIX MONTHS, 1995 COMPARED WITH FIRST SIX MONTHS, 1994
Despite continuing capacity constraints, net sales for the six months ending
June 2, 1995, at $26,528,000, were up 8% from the prior year, which exceeded
1993 net sales by 3%. Significant sales increases were achieved for the
Domestic Automotive, Electrical Contractor, and Export markets, offset in
part by shortfalls in other markets. Sales to the Domestic Automotive and
Export markets each increased 20% over the prior year's first six months,
representing 46% and 11% of the period's sales. In addition to increasing
sales in the first six months, the Company increased finished goods
inventories by approximately $1,200,000, both to service current demand, and
to support the new "global" contract with the Delphi Packard Electric
Division of General Motors. The Packard portion of this inventory increase
is to service Packard operations on a "just in time basis" in 15 countries
in Europe, North Africa, and the Middle East. In response to the increased
demand, the Company has both modified work schedules and accelerated its
capital investment program. If current level of demand continues, the
Company expects continued sales growth in the last six months of the year.
Operating income at $1,897,000, was up 8% ($148,000) from the corresponding
period of 1994 (which was down $440,000 from 1993), and reflects a 4%
increase in gross profit (up $226,000), offset in part by a 2% increase in
Selling, General and Administrative expenses (up $78,000). Despite
favorable volume variances, gross margin decreased one point on the higher
sales volume, due primarily to significantly higher raw material costs,
only a part of which have been passed through in product pricing. In
addition, reserves pertaining to the removal of certain storage tanks at the
Canton facility were increased by $75,000.
Selling expenses increased 14% over the first six months of the prior year,
which increased 10% over 1993, reflecting higher advertising, freight,
salaries and fringe benefits, and travel expenses of $70,000, $107,000,
$84,000, and $43,000, respectively. General and administrative expenses,
exclusive of a $250,000 recovery from an insurance settlement, decreased 1%
from the prior year's first six months, on reduced incentive compensation
and professional fees, offset in part by increased supplies and computer
equipment rental. In addition, the prior year's period included charges
approximating $275,000, inclusive of legal costs, for settlement of
litigation arising from the Company's previously discontinued coated fabrics
business, and included a partial recapture of a provision for doubtful
accounts.
Income before taxes at $1,640,000 is up 26% ($342,000) from the prior year's
first six months, reflecting the 8% increase in operating income, noted
above, and a $398,000 increase in other income, offset in part by a $204,000
increase in interest expense. Other income reflects a $395,000 favorable
settlement of litigation related to the Company's previously discontinued
Consumer Products Division. The increased interest expense is the result
of increased loan volume and an increased rate of 258 basis points (as a
result of increases in the prime rate) on monies borrowed on the Company's
line of credit and term loan with its primary lender.
Net income, is up $342,000 (30%) from the first six months of the prior
year, exclusive of the $1,274,000 net benefit from cumulative effect of the
Company's simultaneous adoption of Financial Accounting Standards #109 (FAS
109 - Accounting for Income Taxes), and #106 (FAS 106 - Employers'
Accounting for Postretirement Benefits Other than Pensions). Current year
net income includes a $476,000 recapture of deferred tax valuation
allowance, which resulted in an effective income tax rate of approximately
10%. The prior year's first six months tax rate approximated 13%.
<PAGE>
FIRST SIX MONTHS, 1995 COMPARED WITH FIRST SIX MONTHS, 1994
(Continued)
The deferred tax valuation allowance was established at $3,475,000, as of
December 2, 1994, based upon estimates of foreseeable future taxable income
through fiscal 1997. The valuation allowance has been reduced by $476,000
to $2,999,000 as of June 2, 1995, based upon estimates of foreseeable future
taxable income through the second quarter of fiscal 1998, and the
incremental taxable income of $645,000 from the favorable litigation and
insurance settlements outlined above.
During the first two quarters, net cash generated from operating activities
was $851,000, compared to $678,000 during the first six months of the prior
year. Cash provided by net income, exclusive of deferred tax asset
valuation allowance recapture ($996,000), depreciation ($569,000), and the
increases in accrued expenses ($512,000), exceeded the cash used to increase
inventory and accounts receivable ($1,427,000 and $98,000, respectively),
and reduce product warranties ($73,000). In accordance with the Company's
agreement with its primary lender, all cash receipts were applied against
the revolving loan. The $851,000 generated from operating activities, the
$294,000 increase in loans under the revolving line of credit, and a
$223,000 sale and lease back of new production equipment, were used to
finance capital investment ($709,000) and to pay down term debt, capital
leases, and financed insurance obligations.
In the remaining months of fiscal 1995, management intends to increase
capital investment by an estimated additional $1,100,000 to continue to
expand capacity, to improve quality and to lower costs with the long term
goals of world-class quality and cost. As of June 2, 1995, the Company had
approximately $600,000 in unused borrowing capacity, because of collateral
limitations under its $9 million revolving line of credit. In the opinion
of management, anticipated profits, as well as unused capacity under
existing borrowing arrangements, will provide sufficient funds to meet the
Company's needs during 1995, including working capital expansion to support
sales growth and investment in improved technology and capital equipment.
<PAGE>
SECOND QUARTER, 1995 COMPARED WITH SECOND QUARTER, 1994
Despite continuing capacity constraints in the first half of the quarter,
net sales at $13,948,000 were up 3% from the prior year's second quarter,
which itself exceeded the 1993 second quarter by 7%. Significant sales
increases were achieved in the Domestic Automotive and Export markets (up
17% and 30%, respectively), which were partially offset by shortfalls in the
Original Equipment Manufacturers and Utility markets.
Operating income at $1,159,000 was virtually unchanged from the prior year's
second quarter and reflects a $200,000 decrease in gross profit, offset by
a $212,000 reduction in Selling, General and Administrative expenses.
Included is a $175,000 net gain from an insurance settlement and an
increase in reserves for tank removal at the Company's Canton facility. The
decreased gross profit reflects a margin reduction of two points on the
higher sales due primarily to significantly increased raw material costs
despite the Company's emphasis on cost reductions. In addition, tank
removal reserves were increased $75,000 during the quarter as noted above.
Selling expenses increased 15% over the prior year's second quarter, on
increased advertising, freight, salaries and fringe benefits, and travel
expenses - up $40,000, $50,000, $39,000, and $21,000, respectively. General
and Administrative expenses, exclusive of the $250,000 favorable insurance
settlement, decreased 14% from the prior year's second quarter, reflecting
reduced incentive compensation and professional fees. Included in the prior
year's second quarter were charges approximating $275,000, inclusive of
legal costs, pertaining to a settlement of litigation arising from the
Company's previously discontinued coated fabrics business, and a partial
recapture of a provision for doubtful accounts.
Income before taxes at $800,000 is down $114,000 from the prior year's
second quarter, reflecting a flat operating income, significantly reduced
by a 43% increase in interest expense and a $20,000 reduction in other
income. The increased interest expense is the result of increased loan
volume and an increased rate of 250 basis points (as a result of increases
in the prime rate) on monies borrowed on the Company's line of credit and
term loan with its primary lender.
Net Income at $724,000 is down 20% from the prior year's second quarter,
reflecting the reduced income before taxes and a higher tax rate. The
current year's net income includes a $238,000 recapture of deferred tax
valuation allowance, which resulted in an effective income tax rate of
approximately 10%, as compared with the prior year's second quarter, which
benefited from a 2% rate generated by a $350,000 benefit from the recapture
of deferred tax valuation allowance.
<PAGE>
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 2, 1994, and in Note 13 of the Notes to Financial
Statements, contained in said Annual Report.
Reference is made to those certain claims asserted by the United
States Environmental Protection Agency ("EPA") and the information
contained in Item 3 of the Company's Annual Report on Form 10-K for
its fiscal year ended December 2, 1994, and in Note 13 of the Notes To
Financial Statements contained in said Annual Report and as further
described in Item 1 of the Company's Quarterly Report for the quarter
ended March 3, 1995 and in Note 2 to the Financial Statements
contained in said Quarterly Report.
With respect to the claim asserted by the EPA identified as the
Solvent Recovery Service of New England ("SRS") site, on or about
June 19, 1995, the Company received an "Invitation to Perform a
Remedial Investigation/Feasibility Study,", ("RI/FS")," and Non-Time
Critical Removal Action", ("NTCRA"), from the EPA in which the EPA
invites all PRP's to perform or finance a RI/FS and a NTCRA. In
addition, the EPA stated its intention to negotiate exclusively with
the SRS site PRP Group, to issue a draft administrative order and
statement of work regarding the RI/FS and NTCRA within thirty (30)
days of the letter, and to require responses thereto within thirty
(30) days and to continue negotiation with the PRP Group for an
additional forty-five (45) days. The Company is currently evaluating
its position with regard to this matter.
With respect to the claim asserted by the EPA identified as the Old
Southington Landfill, ("OSL") site, on or about June 20, 1995, the
Company executed agreements and paid a $3,000 assessment to become
a participant in the Joint Defense Group of OSL/SRS "transshipper"
PRPs and in the Alternative Dispute Resolution Process.
With respect to the claims asserted by the EPA and a certain settling
PRP and identified as the Cannons Engineering Corporation ("Cannons")
site, the Company received notification that a lawsuit was filed
against it on June 23, 1995 in the United States District Court for
the District of Massachusetts by Olin Hunt Specialty Products, Inc.,
("Olin"). Olin seeks to recover contribution under Section 113 of
the CERCLA, (42 U.S.C. Section 9613), as a result of a settlement
entered into on June 26, 1992 between Olin et al. and the United
States, the State of New Hamphsire, and the Commonwealth of
Massachusetts, (the "Governments") for reimbursement of the
Governments' response costs in connection with the Cannons site. The
Company intends to vigorously defend this matter; however, it is
impossible to determine the Company's total liability or
responsibility at this time.
With respect to that certain EPA matter concerning the elimination
of use of certain underground storage tanks located at the Company's
manufacturing facility as to which the Company received a Notice of
Responsibility from the Massachusetts Department of Environmental
Protection ("DEP"), the Company has adjusted its estimate of the
costs for such activity to not exceed the sum of Two Hundred and
Fifty Thousand (250,000) Dollars.
<PAGE>
PART II OTHER INFORMATION (Continued)
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 20, 1995. The
following members were elected to the Company's Board of Directors
to hold office for the ensuing three year term:
Nominee In Favor Withheld
Susan Y. Friedman 758,265 163
Joseph D. Hamilburg 758,265 163
The results on the voting of the following additional items were as
follows:
The ratification of Plymouth Rubber Company, Inc. 1995 Non-Employee
Director Stock Option Plan:
In Favor Opposed Abstain No Vote
501,081 37,756 453 219,138
The ratification of Plymouth Rubber Company, Inc. 1995 Employee
Incentive Stock Option Plan:
In Favor Against Abstain No Vote
502,009 36,556 725 219,138
The ratification of the appointment of Price Waterhouse as
independent auditors of the Company for the next fiscal year:
In Favor Opposed Abstain No Vote
757,840 75 513 0
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: See Index To Exhibits
(b) Not Applicable
<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)
D. E. Wheeler
D. E. Wheeler
Vice President - Finance
Date: July 13, 1995
<PAGE>
PLYMOUTH RUBBER COMPANY, INC.
INDEX TO EXHIBITS
(a) Exhibits:
Exhibit No. Description
(2) Not Applicable.
(4)(i) Promissory Note between Plymouth Rubber Company,
Inc., and Mortgage Investors Corporation dated
November 10, 1987 -- incorporated by reference to
Exhibit (4)(i) of the Company's Annual Report on
Form 10-K for the year ended November 28, 1992.
(4)(ii) Mortgage and Security Agreement between Plymouth
Rubber Company, Inc., and Mortgage Investors
Corporation dated November 10, 1987 --
incorporated by reference to Exhibit (4)(ii) of
the Company's Annual Report on Form 10-K for the
year ended November 28, 1992.
(4)(iii) Promissory Note between Plymouth Rubber Company,
Inc., and Thrift Institution Fund for Economic
Development dated June 14, 1989 -- incorporated
by reference to Exhibit (4)(iv) to report on Form
10-Q for the quarter ended May 27, 1994.
(4)(iv) Loan and Security Agreement between Plymouth
Rubber Company, Inc. and Thrift Institution Fund
for Economic Development dated June 14, 1989 --
incorporated by reference to Exhibit (4)(iv) to
report on Form 10-Q for the quarter ended May 27,
1994.
(4)(v) Mortgage Note between Plymouth Rubber Company,
Inc. and the Board of Education of Charles
County, Maryland, dated November 1, 1991 --
incorporated by reference to Exhibit (2)(xiii) to
Report on Form 10-Q for the Quarter Ended May 30,
1992.
(4)(vi) Amendment to Promissory Note and Security
Documents between Plymouth Rubber Company, Inc.
and SL Mortgage Company, Limited Partnership,
assignee to Mortgage Investors Corporation, dated
April 6, 1992 -- incorporated by reference to
Exhibit (4)(xv) of the Company's Annual Report on
Form 10-K for the Year Ended November 28, 1992.
(4)(vii) Second Amendment to Promissory Note and Security
Documents between Plymouth Rubber Company, Inc.
and SL Mortgage Company, Limited Partnership,
assignee to Mortgage Investors Corporation, dated
February 9, 1993 -- incorporated by reference to
the Report on Form 8-K with cover page dated
February 9, 1993.
(4)(viii) 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)(ix) 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.
<PAGE>
PLYMOUTH RUBBER COMPANY, INC.
INDEX TO EXHIBITS
(Continued)
(a) Exhibits:
Exhibit No. Description
(4)(x) Amendment to Promissory Note between Plymouth
Rubber Company, Inc. and Thrift Institutions Fund
For Economic Development dated November 30, 1993
-- incorporated by reference to Exhibit (4)(x) to
Report on 10-K for the year ended November 26,
1993.
(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) Option Agreement between Plymouth Rubber Company,
Inc. and SL Mortgage Company, Limited Partnership
-- incorporated by reference to Exhibit (10)(iii)
of the Company's Annual Report on Form 10-K for
the year ended November 28, 1992.
(10)(iv) 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)(v) 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)(vi) 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.
(11) Not applicable.
(15) Not applicable.
(18) Not applicable.
(19) Not applicable.
(22) Not applicable.
(23) Not applicable.
(24) Not applicable.
(27) Financial data schedule six months ended June
2, 1995.
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