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 May 31, 1996 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 -1,097,197(1)
(1) Does not reflect 5% stock dividend declared June 11, 1996
<PAGE> 1
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> 2
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
[CAPTION]
PLYMOUTH RUBBER COMPANY, INC.
STATEMENT OF OPERATIONS
(In Thousands Except Share and Per Share Amounts)
(Unaudited)
<TABLE>
Second Quarter Ended Six Months Ended
May 31, June 2, May 31, June 2,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net sales $ 14,566 $ 13,948 $ 27,878 $ 26,528
Cost and Expenses
Cost of products sold 10,887 10,619 21,238 20,190
Selling, general and
administrative 2,504 2,170 4,730 4,441
13,391 12,789 25,968 24,631
Operating income 1,175 1,159 1,910 1,879
Interest expense (327) (354) (629) (693)
Other income (expense), net (12) (5) (33) 436
Income before taxes 836 800 1,248 1,640
Provision for income taxes (217) (76) (324) (168)
Net income 619 724 924 1,472
Retained earnings (deficit)
at beginning of period (4,272) (6,952) (4,577) (6,234)
Less stock dividend (843) -- (843) (1,466)
Retained earnings (deficit)
at end of period $ (4,496) $ (6,228) $ (4,496) $ (6,228)
Per Share Data:
Net income .28 .33 .41 .67
Weighted average number of
shares outstanding 2,230,952 2,205,622 2,233,967 2,205,014
</TABLE>
See Accompanying Notes To Financial Statements
<PAGE> 3
[CAPTION]
PLYMOUTH RUBBER COMPANY, INC.
BALANCE SHEET
(In Thousands)
<TABLE>
May 31, Dec. 1,
1996 1995
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ -- $ --
Accounts receivable 7,361 6,615
Allowance for doubtful accounts (192) (174)
Inventories:
Raw materials 2,788 2,474
Work in process 2,078 2,270
Finished goods 5,234 5,589
10,100 10,333
Prepaid expenses and other current assets 2,132 2,857
Total current assets 19,401 19,631
Plant assets 28,550 26,961
Accumulated depreciation (19,469) (18,901)
Net plant assets 9,081 8,060
Other assets 3,644 3,791
TOTAL ASSETS $ 32,126 $ 31,482
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Revolving line of credit $ 3,891 $ 4,331
Trade accounts payable 4,388 5,497
Accrued expenses 3,318 3,976
Current portion of long-term obligations 1,529 2,392
Current portion of product warranties 462 580
Total current liabilities 13,588 16,776
Long-Term Liabilities
Borrowings 5,299 3,143
Pension obligation 5,012 4,880
Product warranties 364 294
Other 2,230 1,743
Total long-term liabilities 12,905 10,060
STOCKHOLDERS' EQUITY
Preferred stock -- --
Class A voting common stock 810 810
Class B non-voting common stock 1,185 1,054
Paid in capital 9,059 8,303
Retained earnings (deficit) (4,496) (4,577)
Pension liability adjustment, net of tax (716) (716)
Deferred compensation (209) (228)
Total stockholders' equity 5,633 4,646
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 32,126 $ 31,482
</TABLE>
See Accompanying Notes To Financial Statements
<PAGE> 4
[CAPTION]
PLYMOUTH RUBBER COMPANY, INC.
STATEMENT OF CASH FLOWS
(In Thousands) (Unaudited)
<TABLE>
Six Months Ended
May 31, June 2,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 924 $ 1,472
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 568 569
Amortization of deferred compensation 19 19
Change in valuation allowance (175) (476)
Changes in assets and liabilities:
Accounts receivable (728) (98)
Inventory 233 (1,427)
Prepaid expenses 725 175
Other assets (42) 10
Accounts payable (1,110) 218
Accrued expenses 211 512
Pension obligation (179) (33)
Product warranties (48) (73)
Other liabilities (113) (17)
Net cash provided by (used in)
operating activities 285 851
Cash flows from investing activities:
Capital expenditures (1,156) (709)
Sale/leaseback of plant assets 258 223
Net cash provided by (used in)
investing activities (898) (486)
Cash flows from financing activities:
Net increase (decrease) in revolving
line of credit (357) 294
Proceeds from term loan 3,657 --
Payments of term loan (2,563) (459)
Payments on capital leases (62) (116)
Payments on insurance financing (107) (174)
Proceeds from issuance of common stock 45 90
Net cash provided by (used for)
financing activities 613 (365)
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 $ 513 $ 593
Cash paid for income taxes $ 97 $ 90
Supplemental Disclosure of Non-Cash Activities:
Assets acquired under capital lease
obligations $ 433 $ --
Charge to retained earnings for
stock dividend $ 843 $ 1,466
</TABLE>
See Accompanying Notes To Financial Statements
<PAGE> 5
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(1) The Company, in its opinion, has included all adjustments (consisting of
normal recurring accruals) necessary for a fair presentation of the
results for the interim periods. The interim financial information is not
necessarily indicative of the results that will occur for the full year.
The financial statements and notes thereto should be read in conjunction
with the financial statements and notes for the years ended December 1,
1995, December 2, 1994, and November 26, 1993, included in the Company's
1995 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, 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 $874,000 reserve recorded
at December 1, 1995 is adequate provision for the Company's remaining
warranty obligations.
The Company was 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. On or about September 11,
1995, the legal action was settled for a cash payment of $825,000 by the
defendant, which resulted in a $825,000 gain during the fourth quarter of
1995 that is reflected as Other Income, net within the 1995 Statement of
Operations and Retained Earnings.
The Company is a defendant in several other lawsuits arising in the normal
course of business. Based upon advice of counsel, management believes
that these lawsuits will not have a material adverse effect on the
Company's Results of Operations or its financial position.
<PAGE> 6
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited)
The United States Environmental Protection Agency (EPA) has asserted four
(4) 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 $68,000 and owes two payments of $16,000 in each of
1996 through 1997.
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. No action was ever filed by the EPA against the
Company. EPA settled with a number of the generators who had, in turn
threatened legal action against the Company. 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"), a settling generator. Olin sought
to recover its contribution as a result of a settlement entered into on
June 26, 1992 between Olin, et al., and the United States, the State of
New Hampshire, and the Commonwealth of Massachusetts, (the "Governments")
for reimbursement of the Governments' response costs in connection with
the Cannons site. A settlement was subsequently reached whereby the
Company paid the Plaintiff the sum of $40,000 in exchange for the
execution of mutual general Releases and the filing of a Stipulation of
Dismissal, with prejudice.
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 approxi-
<PAGE> 7
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited) Continued
mately $25,000,000, to be incurred over approximately a three-year period.
The PRP Group opposes the Phase II proposal. The Company's 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 $498,000. The
most currently available estimate is that the cost of the entire clean up
will range from approximately $38 million to less than $70 million. On or
about January 16, 1996, the Company entered into a payment agreement with
the SRS PRP Group to pay its unpaid prior and current assessments in the
total amount of $101,000 and whereby it will be permitted to participate
as a settling party in the Administrative Order relating to the NTCRA and
RI/FS settlement. Based on all available information, as well as its prior
experience, management believes a reasonable amount of its ultimate
liability is $500,000 and has accrued this amount in Accrued Expenses and
Other Liabilities in the accompanying Balance Sheet as of December 1,
1995. 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 1996. Therefore, while the Company is participating in
the PRP Group, it is impossible to determine the Company's total ultimate
liability and/or responsibility at this time.
On January 25, 1994, the Company received a notification 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
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 was formed. The Company
executed agreements and paid assessments to date of $17,040 to
participate in the Joint Defense Group of OSL/SRS "transshipper" PRP's
settlement negotiations and Alternative Dispute Resolution Process with
the EPA.
<PAGE> 8
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited) Continued
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 1,
1995. 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.
Therefore, while the Company intends to vigorously defend this matter, it
is impossible to determine the Company's total ultimate liability and/or
responsibility at this time.
In the process of preparing to eliminate the use of certain underground
storage tanks located at the Company's manufacturing facility, the Company
determined that some soil contamination had occurred in a small localized
area near the tanks in question. According to the information obtained by
an independent Licensed Site Professional, the contamination of the soil
appears to be confined to a small area and does not pose an environmental
risk to the surrounding property or community. In accordance with
Massachusetts Department of Environmental Protection ("DEP") of the
foregoing on or about August 24, 1994. In response thereto, on or about
September 9, 1994, the Company received a Notice of Responsibility from
the "DEP," (the "Notice"). The Notice was given to inform the Company of
its legal responsibilities under state law for assessing and/or
remediating a release of oil and/or hazardous material at the Company's
property. Plymouth has employed a Licensed Site Professional as required
by statute to investigate the site. A submittal has been made to DEP of
an initial Phase I site investigation and a Tier II Classification which
does not require written approval to proceed with studies for remediation.
Various remediation options are being evaluated to determine the most cost
effective method. A decision on the proposed remedial action will be
submitted within the next few months. It is expected that such assessment
and remediation will take up to two years to complete and that the costs
for same will not exceed the sum of $250,000, which has been provided for
within Accrued Expenses in the accompanying financial statements.
(3) Checks outstanding in excess of certain cash balances totaling $354,000
and $659,000 at May 31, 1996, and December 1, 1995, respectively, have
been included in accounts payable.
(4) On June 11, 1996, the Company declared a 5% stock dividend on both Class
A (voting) and Class B (non-voting) common stock. The dividend will be
paid in Class B shares on August 19, 1996 to shareholders of record as of
June 24, 1996. Retained earnings has been charged for $843,000 based on
the dividend value of $8.875 per share. Cash will be paid in lieu of
fractional shares using the closing price of Class B common stock on June
<PAGE> 9
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited) Continued
10, 1996, and will amount to less than $2,000. Earnings per share have
been adjusted to reflect the stock dividend declared. The common shares
outstanding, and the common stock equivalents, are shown below.
Common and Common Equivalent Shares (Primary and Fully Diluted Basis):
Second Quarter Ended Six Months Ended
May 31, June 2, May 31, June 2,
1996 1995 1996 1995
Average shares outstanding 1,995,659 1,940,130 1,988,237 1,913,283
Adjustments thereto(1)(2) 235,293 265,492 245,730 291,731
Weighted average shares
outstanding 2,230,952 2,205,622 2,233,967 2,205,014
(1) For primary basis, adjust for options and warrants under the
treasury stock method using average market value during the period.
(2) For fully diluted basis, same as (1) except using market value at
the end of the period, if greater than the average market value
during the period.
(5) A deferred tax asset and a related valuation allowance was established at
$5,309,000 and $2,044,000, respectively, at December 1, 1995 based upon
estimates of future taxable income through fiscal 2000. The valuation
allowance has been reduced by $175,000 to $1,869,000 at May 31, 1996 based
upon estimates of future taxable income through the second quarter of
fiscal 2001.
(6) Certain reclassifications of prior year balances have been made to conform
to the current presentation.
(7) On June 6, 1996 the Company refinanced a significant portion of its
existing debt with a new lender, which resulted in an expansion of its
overall credit facility and a reduction in interest rates. The principal
terms of the facility include a secured maximum borrowing amount of $11
million, comprised of a $3 million term loan and a revolving line of
credit, with a reduction in interest from prime plus 2% to prime plus
1/4%. The term loan calls for monthly payments of $50,000 plus interest.
The proceeds from the refinancing were used to payoff the existing
revolving line of credit and term loan with the Company's former primary
lender. Accordingly, the financial statements have been adjusted to
reflect the $3,000,000 term debt by reclassifying $1,800,000 of the
revolving line of credit and $600,000, net of the $600,000 of the new term
debt's current portion, to long term.
<PAGE> 10
Item 2. Management's Discussion & Analysis of Financial Condition and Results
of Operations.
FIRST SIX MONTHS, 1996 COMPARED WITH FIRST SIX MONTHS, 1995
Net sales, at $27,878,000 were up 5% compared with the first six months of 1995,
which was up 8% from the same period in 1994, despite production time lost to
the unusually harsh New England weather, and the three-week strike at General
Motors in March, 1996. The Company estimates the General Motors strike reduced
second quarter sales by between $700,000 and $1,000,000. The increase is due to
significantly increased sales to the Export and Domestic Automotive markets,
which represent 15% and 47% of sales, respectively, offset in part by shortfalls
in the other markets.
Operating income, at $1,910,000, is unchanged from the corresponding period of
1995, which itself was up 8% ($148,000) from 1994, reflecting a 5% increase in
gross profit (up $301,000), offset in part by a 6% increase in selling, general
and administrative expenses. The gross profit increased 5%, reflecting the
higher sales volume, as the increase in manufacturing overhead put in place to
service the anticipated 1996 volume, offset volume oriented cost reductions, and
resulted in a 24% gross margin, unchanged from the prior year's first six
months.
Selling expenses increased 13% compared to the first six months of 1995, which
itself increased 14% over 1994, to serve both current and expected volume
increases in the expanded Domestic auto and Export markets. The increased ex-
pense was primarily attributable to increases in advertising, freight, salaries
and fringe benefits, and foreign selling expenses. General and administrative
expenses, exclusive of a $147,000 recovery from a lawsuit in the current year,
and a $250,000 recovery from an insurance settlement in 1995, decreased 9%,
reflecting reduced depreciation, incentive compensation, computer supplies, and
computer equipment rental.
Income before taxes at $1,248,000 is down $392,000 from the first six months of
1995, which benefited from a $395,000 favorable settlement of litigation related
to the Company's previously discontinued Consumer Products Division. Exclusive
of the $395,000 and the $250,000 settlements in 1995, and the $147,000 settle-
ment in 1996, income before tax for the first six months is up $106,000 from
the prior year's corresponding period, reflecting higher adjusted operating
income, and a $74,000 increase in other expense, which was offset in part by a
$64,000 reduction in interest expense. The reduced Interest expense is the
result of both lower loan volume and reduced interest rates of
(1) approximately 70 basis points (as a result of decreases in the prime
rate) on monies borrowed on the Company's line of credit with its primary
lender, and (2) 230 basis points on the $3.6 million term loan refinanced on
December 29, 1995 with a new lender.
Net income at $924,000 is down $548,000 from the first six months of 1995, which
included a $476,000 recapture of deferred tax valuation allowance, which re-
sulted in an effective income tax rate of approximately 10%. The current year
net income includes a $175,000 recapture of a deferred tax valuation allowance
which results in an effective income tax rate of approximately 26%.
The deferred tax valuation allowance as of December 1, 1995 was $2,044,000 on
estimates of future taxable income through fiscal 2000. The valuation allowance
has been reduced by $175,000 to $1,869,000 at May 31,1996 based upon estimates
of future taxable income through the second quarter of fiscal 2001. The
valuation allowance was established in recognition of the difficulty inherent in
estimating beyond a five-year horizon particularly due to the uncertainty
created by the Company's dependency on the automotive industry in general, and
its significant customer in particular.
<PAGE> 11
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
(Continued)
During the first half of 1996, net cash generated from operating activities was
$285,000 compared to $851,000 during the first six months of 1995. Cash provided
from net income exclusive of the deferred tax asset valuation allowance recap-
ture ($749,000), depreciation ($568,000), the reduction of inventory ($233,000),
and the reduction of prepaid expenses ($725,000) exceeded the cash used to
increase accounts receivable ($728,000) and to reduce accounts payable
($1,110,000), other liabilities and pension obligations. In accordance with the
Company's agreement with its primary lender, all cash receipts were applied
against the revolving loan. The $285,000 generated from operating activities
along with the $3,657,000 proceeds from the partial term debt refinancing was
used to finance capital investment ($898,000), reduce the revolving line of
credit ($357,000), and to pay down term debt ($2,563,000), and financed
insurance obligations.
At June 6, 1996, the Company had approximately $2,000,000 in unused borrowing
capacity under its new $11 million revolving line of credit and term loan
borrowing arrangement. In the opinion of management, anticipated profits, as
well as unused capacity under its existing borrowing arrangements, will provide
sufficient funds to meet the Company's needs during 1996, including working
capital expansion to support Export sales growth, and investment in improved
technology and capital equipment.
<PAGE> 12
SECOND QUARTER, 1996 COMPARED WITH SECOND QUARTER, 1995
Despite the three-week General Motors strike, net sales, at $14,566,000, were up
4% compared with the second quarter of 1995, which was up 3% from the same
period in 1994. The Company estimates the strike reduced sales by between
$700,000 and $1,000,000 during the quarter. The increase is due to significantly
increased Export sales, and to moderate increases in the Contractor/ Industrial,
Telephone, Utility and Automotive markets, offset in part by shortfalls in other
markets. Export sales rose nearly 36 percent, reflecting the continuing
expansion of Plymouth's sales to customers in Europe, North Africa, and the
Middle East.
Operating income at $1,175,000, unchanged from both the corresponding period of
1995 and 1994, reflects a 10% increase in gross profit (up $349,000), offset
in part by a 15% increase in selling, general and administrative expenses. Gross
profit increased 10% (margin up 1.4 points), reflecting the higher sales volume
and somewhat lower material costs, offset in part by increased manufacturing
overhead put in place to service the anticipated 1996 volume.
Selling expenses increased 9% compared to the second quarter of 1995, which
itself increased 15% over 1994, to serve both current and expected volume
increases in the expanded Domestic auto and Export markets. The increased
expense for the quarter was primarily attributable to increases in freight,
salaries and fringe benefits, and foreign selling expenses. General and admini-
strative expenses decreased 5%, exclusive of the prior year's $250,000 favorable
insurance settlement, on reduced depreciation, computer equipment rental and
supplies, and professional fees, offset in part by increased incentive
compensation.
Income before taxes, at $836,000, is up $36,000 from the second quarter of 1995,
reflecting flat operating income and reduced interest expense. The reduced
Interest expense is the result of both lower loan volume and reduced interest
rates of (1) approximately 75 basis points (as a result of decreases in the
prime rate) on monies borrowed on the Company's line of credit with its primary
lender, and (2) 247 basis points on the $3.6 million term loan refinanced on
December 29, 1995 with a new lender.
Net income at $619,000 is down $105,000 from the second quarter of 1995, which
included a $238,000 recapture of deferred tax valuation allowance, which re-
sulted in an effective income tax rate of approximately 10%. The current year
net income includes a $117,000 recapture of a deferred tax valuation allowance
which results in an effective income tax rate of approximately 26%.
<PAGE> 13
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 1, 1995, and in Note 13 of the Notes To Financial
Statements, contained in said Annual 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 19, 1996. The
following nominee was elected to the Company's Board of Directors to
hold office for the ensuing one year term:
Nominee In Favor Opposed
Duane E. Wheeler 751,028 2,509
The following members were elected to the Company's Board of
Directors to hold office for the ensuing three year term:
Nominee In Favor Opposed
Jane H. Guy 751,028 2,509
Melvin L. Keating
James M. Oates
The results on the voting of the following additional items were as
follows:
The ratification of the appointment of Price Waterhouse LLP as
independent auditors of the Company for the next fiscal year:
In Favor Opposed Abstain No Vote
752,814 503 220 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> 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)
D. E. Wheeler
Vice President - Finance
Date: July 11, 1996
<PAGE> 15
PLYMOUTH RUBBER COMPANY, INC.
INDEX TO EXHIBITS
(a) Exhibits:
Exhibit No. Description
(2) Not Applicable.
(3)(i) Not Applicable.
(4)(i) Promissory Note between Plymouth Rubber Company,
Inc., and Thrift Institution Fund for Economic
Development dated June 14, 1989 -- incorporated
by reference to Exhibit (4)(iii) to report on
Form 10-Q for the quarter ended May 27, 1994.
(4)(ii) Loan and Security Agreement between Plymouth
Rubber Company, Inc. and Thrift Institution Fund
for Economic Development dated June 14, 1989 --
incorporated by reference to Exhibit (4)(iv) to
report on Form 10-Q for the quarter ended May 27,
1994.
(4)(iii) Mortgage Note between Plymouth Rubber Company,
Inc. and the Board of Education of Charles
County, Maryland, dated November 1, 1991 --
incorporated by reference to Exhibit (2)(xiii) to
Report on Form 10-Q for the Quarter Ended May 30,
1992.
(4)(iv) Promissory Note between Plymouth Rubber Company,
Inc. and Foothill Capital Corporation dated
October 1, 1993 -- incorporated by reference to
Exhibit (2)(I) to the Report on Form 8-K with
cover page dated October 1, 1993.
(4)(v) Loan and Security Agreement between Plymouth
Rubber Company, Inc. and Foothill Capital
Corporation dated October 1, 1993 -- incorporated
by reference to Exhibit (2)(ii) to the Report on
Form 8-K with cover page dated October 1, 1993.
(4)(vi) Amendment to Promissory Note between Plymouth
Rubber Company, Inc. and Thrift Institutions Fund
For Economic Development dated November 30, 1993
-- incorporated by reference to Exhibit (4)(x) to
Report on 10-K for the year ended November 26,
1993.
(4)(vii) Promissory Note between Plymouth Rubber Company,
Inc. and General Electric Capital Corporation
dated December 29, 1995.
(4)(viii) Master Security Agreement between Plymouth Rubber
Company, Inc. and General Electric Capital
Corporation dated December 29, 1995.
<PAGE> 16
PLYMOUTH RUBBER COMPANY, INC.
INDEX TO EXHIBITS
(Continued)
(a) Exhibits:
Exhibit No. Description
(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.
(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 three months ended May
31, 1996.
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