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 30, 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 - 1,192,003
<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>
Third Quarter Ended Nine Months Ended
Aug 30, Sept 1, Aug 30, Sept 1,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net sales $ 14,003 $ 12,730 $ 41,881 $ 39,258
Cost and Expenses
Cost of products sold 11,830 9,669 33,069 29,859
Selling, general and
administrative 2,936 2,315 7,665 6,756
14,766 11,984 40,734 36,615
Operating income (loss) (763) 746 1,147 2,643
Interest expense (333) (360) (962) (1,053)
Other income (expense), net 52 16 19 452
Income before taxes (1,044) 402 204 2,042
(Provision) benefit for
income taxes 1,948 (22) 1,624 (190)
Net income 904 380 1,828 1,852
Retained earnings (deficit)
at beginning of period (4,496) (6,228) (4,577) (6,234)
Less stock dividend -- -- (843) (1,466)
Retained earnings (deficit)
at end of period $ (3,592) $ (5,848) $ (3,592) $ (5,848)
Per Share Data:
Net income .41 .17 .82 .84
Weighted average number of
shares outstanding 2,221,652 2,199,999 2,231,414 2,203,395
</TABLE>
See Accompanying Notes To Financial Statements
<PAGE> 3
[CAPTION]
PLYMOUTH RUBBER COMPANY, INC.
BALANCE SHEET
(In Thousands)
<TABLE>
Aug 30, Dec. 1,
1996 1995
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ -- $ --
Accounts receivable 7,360 6,615
Allowance for doubtful accounts (242) (174)
Inventories:
Raw materials 3,042 2,474
Work in process 2,059 2,270
Finished goods 5,966 5,589
11,067 10,333
Prepaid expenses and other current assets 2,981 2,857
Total current assets 21,166 19,631
Plant assets 28,885 26,961
Accumulated depreciation (19,739) (18,901)
Net plant assets 9,146 8,060
Other assets 3,066 3,791
TOTAL ASSETS $ 33,378 $ 31,482
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Revolving line of credit $ 5,001 $ 4,331
Trade accounts payable 4,104 5,497
Accrued expenses 3,597 3,976
Current portion of long-term obligations 1,449 2,392
Current portion of product warranties 220 580
Total current liabilities 14,371 16,776
Long-Term Liabilities
Borrowings 5,045 3,143
Pension obligation 4,615 4,880
Product warranties 586 294
Other 2,181 1,743
Total long-term liabilities 12,427 10,060
STOCKHOLDERS' EQUITY
Preferred stock -- --
Class A voting common stock 810 810
Class B non-voting common stock 1,192 1,054
Paid in capital 9,086 8,303
Retained earnings (deficit) (3,592) (4,577)
Pension liability adjustment, net of tax (716) (716)
Deferred compensation (200) (228)
Total stockholders' equity 6,580 4,646
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 33,378 $ 31,482
</TABLE>
See Accompanying Notes To Financial Statements
<PAGE> 4
[CAPTION]
PLYMOUTH RUBBER COMPANY, INC.
STATEMENT OF CASH FLOWS
(In Thousands) (Unaudited)
<TABLE>
Nine Months Ended
Aug 30, Sept 1,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 1,828 $ 1,852
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 838 775
Amortization of deferred compensation 28 28
Deferred income tax (benefit) provision (2,334) (612)
Amortization of unrecognized net
obligation at transition 1,571 --
Changes in assets and liabilities:
Accounts receivable (677) (59)
Inventory (734) (1,654)
Prepaid expenses 689 99
Other assets (104) (7)
Accounts payable (1,394) 641
Accrued expenses 574 413
Pension obligation (322) (261)
Product warranties (68) (95)
Other liabilities (133) (54)
Net cash provided by (used in)
operating activities (238) 1,066
Cash flows from investing activities:
Capital expenditures (1,491) (1,255)
Sale/leaseback of plant assets 258 223
Net cash provided by (used in)
investing activities (1,233) (1,032)
Cash flows from financing activities:
Net increase (decrease) in revolving
line of credit (1,047) 801
Proceeds from term loan 6,657 --
Payments of term loan (4,098) (710)
Payments on capital leases (117) (144)
Proceeds from insurance financing 126 115
Payments on insurance financing (129) (187)
Proceeds from issuance of common stock 79 91
Net cash provided by (used for)
financing activities 1,471 (34)
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 $ 947 $ 959
Cash paid for income taxes $ 147 $ 122
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 $742,000
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 $806,000 reserve recorded at
August 30, 1996 is adequate provision for the Company's remaining
warranty obligations.
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.
The United States Environmental Protection Agency (EPA) asserted four
(4) claims against the Company under the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"), two of which were
settled and dismissed with prejudice as described herein below. In those
claims, EPA sought or 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 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 and 1997.
<PAGE> 6
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. 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 reimburse
-ment 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. To date the Company has expended approximately
$135,000 and the remainder of $365,000 is provided for in Accrued Expenses
and Other Liabilities in the accompanying Balance Sheet as of August 30,
1996. 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. In addition, the
Company participated in a mediation and allocation process with the EPA and
other PRP's which resulted in an agreement to perform, allocate, and pay
costs of a Phase I clean-up on a de minimus basis. The Company's share of
said settlement is expected to
<PAGE> 8
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited) Continued
be between $165,000 and $190,000.
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 $165,000 and has accrued this amount in Other Liabilities
in the accompanying Balance Sheet as of August 30, 1996. 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 $318,000. To date the Company has
expended approximately $108,000 and the remainder of $210,000 is provided
for within Accrued Expenses in the accompanying financial statements.
(3) Checks outstanding in excess of certain cash balances totaling $556,000 and
$659,000 at August 30, 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 was 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 was paid in lieu of fractional
shares using the closing price of Class B common stock on June 10, 1996,
<PAGE> 9
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited) Continued
and was 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):
Third Quarter Ended Nine Months Ended
Aug 30, Sept 1, Aug 30, Sept 1,
1996 1995 1996 1995
Average shares outstanding 2,000,279 1,958,026 1,992,251 1,928,197
Adjustments thereto(1)(2) 221,373 241,973 239,163 275,198
Weighted average shares
outstanding 2,221,652 2,199,999 2,231,414 2,203,395
(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 $1,707,000 to $337,000 at August 30, 1996
based
upon revised estimates of future taxable income beyond fiscal 2000.
(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 o
verall 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.
(8) The Company's Defined Benefit Pension Plan will be frozen as of November
30, 1996, accordingly the Company has amortized the remaining balance of
the intangible asset (Unrecognized Net Obligation at Transition) of
$1,571,000 in the quarter ending August 30, 1996.
<PAGE> 10
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited) Continued
(9) Subsequent Event
On October 4, 1996, L B Acquisition Corp., a wholly owned subsidiary of
the company, acquired the assets of Brite-Line Industries, Inc. out of
foreclosure from Brite-Line's senior secured creditors for a cost of
$150,000, plus a $2,100,000 guarantee of Brite-Line Industries' accounts
receivable valued at $2,600,000. L B Acquisition Corp., to be re-named
Brite-Line Technologies, Inc. intends to produce and distribute rubber-
based highway marking tapes in the Denver, Colorado facility, formerly
occupied by Brite-Line Industries, Inc.
Included in the purchased assets are inventories, machinery and equipment,
and intangibles including patents, trademarks, trade names, and state and
municipal product approvals. The purchase will be recorded on the acquiring
company's balance sheet as inventory valued at $150,000 plus acquisition
costs currently estimated at $80,000.
The Company is preparing Form 8-K, which will be filed in the near future
to provide the financial information required by Regulation S-X, including
the Rule 3-05 historical audited financial statements of Brite-Line
Industries, Inc. and the Article 11 proforma information.
<PAGE> 11
Item 2. Management's Discussion & Analysis of Financial Condition and Results
of Operations.
FIRST NINE MONTHS, 1996 COMPARED WITH FIRST NINE MONTHS, 1995
Net sales, at $41,881,000 were up 7% compared with the first nine months of
1995, which was up 7% 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 14% and 48% of sales, respectively, offset in part by shortfalls
in the other markets.
Operating income, at $2,718,000, exclusive of the $1,571,000 noncash charge to
amortize an intangible asset (Unrecognized Net Obligation at Transition)
pertaining to the Company's decision to freeze future employee benefits in the
Defined Benefit Pension Plan, is up 3% from the corresponding period of 1995,
which itself was up 16% ($360,000) from 1994, reflecting a 9% increase in gross
profit exclusive of the intangible amortization (up $839,000), offset in part
by a 13% increase in selling, general and administrative expenses. The adjusted
gross profit increased 9%, reflecting the higher sales volume, as the increase
in manufacturing overhead put in place to service the anticipated 1996 volume,
offset moderately decreased material costs and volume oriented cost reductions,
and resulted in a 24% gross margin, unchanged from the prior year's first nine
months.
Selling expenses increased 14% compared to the first nine months of 1995, which
itself increased 13% over 1994, to serve both current and expected volume
increases in the expanded Domestic auto and Export markets. The increased
expense was primarily attributable to increases in freight, salaries and fringe
benefits, and foreign selling expenses. General and administrative expenses,
exclusive of the amortization of the intangible asset , a $165,000 increase in
environmental reserves and a $147,000 recovery from a lawsuit in the current
year, and a $250,000 recovery from an insurance settlement in 1995, increased
2%, reflecting increased salaries and bad debts expense offset in part by
reduced depreciation, incentive compensation, computer supplies, and computer
equipment rental.
Income before taxes at $204,000 is down $1,838,000 from the first nine months of
1995, which benefited from both a $395,000 favorable settlement of litigation
related to the Company's previously discontinued Consumer Products Division and
a $250,000 insurance settlement. Exclusive of the $395,000 and the $250,000
settlements in 1995, the $1,571,000 intangible asset amortization, the $165,000
environmental charge and the $147,000 settlement in 1996, income before tax for
the first nine months is up $396,000 from the prior year's corresponding period,
reflecting higher adjusted operating income, and a $91,000 reduction in interest
expense which was offset in part by a $38,000 decrease in other income. The
reduced Interest expense is the result of both lower loan volume and reduced
interest rates as a result of (1) decreases in the prime rate and the replace-
ment of the Company's prime lender on June 6, 1996, and (2) 230 basis points on
the $3.6 million term loan refinanced on December 29, 1995 with a new lender.
Net income at $1,828,000 is down $24,000 from the first nine months of 1995,
which included a $612,000 recapture of deferred tax valuation allowance, which
<PAGE> 12
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
(Continued)
resulted in an effective income tax rate of approximately 5%. The current year
net income includes a $1,706,000 recapture of a deferred tax valuation allowance
and a $627,000 increase in net deferred tax assets, which results in a net tax
benefit of $1,624,000. The deferred tax valuation allowance as of December 1,
1995 was $2,044,000 bases on estimates at that time, of future taxable income
through fiscal 2000.
The valuation allowance has been reduced by $1,706,000 to $337,000 at August 30,
1996 based upon current estimates of future taxable income and the ability to
significantly increase capital expenditures to provide the capacity required to
meet expected demand for insulating, automotive and industrial tapes and films.
During the first nine months of 1996, net cash used by operating activities was
$238,000 compared to $1,066,000 provided during the first nine months of 1995.
Cash provided from net income exclusive of the deferred income tax benefit and
amortization of intangible asset ($1,065,000), depreciation ($838,000), the
reduction of prepaid expenses ($689,000), and the increase in accrued expenses
($574,000) partially offset the cash used to increase accounts receivable
($677,000), to increase inventory ($734,000) and to reduce accounts payable
($1,394,000),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 $6,657,000 proceeds from the term debt
refinancing was used to finance capital investment ($1,233,000), reduce the
revolving line of credit ($1,047,000), and to pay down term debt ($4,098,000),
and capital lease obligations.
At August 30, 1996, the Company had approximately $2,500,000 in unused borrowing
capacity under its new $11 million revolving line of credit and term loan bor-
rowing 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> 13
THIRD QUARTER, 1996 COMPARED WITH THIRD QUARTER, 1995
Net sales, at $14,003,000, were up 10% compared with the third quarter of 1995,
which was up 4% from the same period in 1994. The increase is due to signifi-
cantly increased sales to the Export and Domestic Automotive markets, which
represent 14% and 48% of sales, respectively, offset in part by shortfalls in
the other markets. Sales into the domestic automotive industry rose 21%. Export
sales rose nearly 14 percent, reflecting the continuing expansion of Plymouth's
sales to customers in Europe, South America, North Africa, and the Middle East.
Operating income at $808,000, exclusive of the $1,571,000 noncash charge to
amortize an intangible asset (Unrecognized Net Obligation at Transition) per-
taining to the Company's decision to freeze future employee benefits in the
Defined Benefit Pension Plan, was up 8% from the corresponding period of 1995
which was up 40% from 1994, reflecting a 17% increase in gross profit, offset
in part by a 21% increase in selling, general and administrative expenses. Gross
profit increased 17% (margin up 1.6 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 17% compared to the third quarter of 1995, which
itself increased 9% 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
administrative expenses increased 9%, exclusive of the amortization of the
intangible asset, a $165,000 increase in environmental reserves, on increased
incentive compensation and bad debts, offset in part by reduced depreciation,
computer equipment rental and supplies, and professional fees.
Income before taxes, at $527,000, exclusive of the intangible asset amortization
is up 31% from the third quarter of 1995 reflecting the higher operating income,
and an 8% reduction ($27,000) in interest expense. The reduced Interest expense
is the result of both lower loan volume and reduced interest rates of (1)
approximately 250 basis points as a result of decreases in the prime rate and
the replacement of the Company's prime lender on June 6, 1996, 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 $904,000 is up $524,000 from the third quarter of 1995, which
included a $136,000 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 $1,531,000 recapture of a deferred tax valuation allowance
and a $627,000 increase in net deferred tax assets, which results in a net tax
benefit of $1,948,000.
On October 4, 1996, L B Acquisition Corp., a wholly owned subsidiary of the
company, acquired the assets of Brite-Line Industries, Inc. out of foreclosure
from Brite-Line's senior secured creditors for a cost of $150,000, plus a
$2,100,000 guarantee of Brite-Line Industries' accounts receivable valued at
$2,600,000. L B Acquisition Corp., to be re-named Brite-Line Technologies, Inc.
intends to produce and market rubber-based highway marking tapes in the
Denver, Colorado facility, formerly occupied by Brite-Line Industries, Inc.
<PAGE> 14
THIRD QUARTER, 1996 COMPARED WITH THIRD QUARTER, 1995
(Continued)
Included in the purchased assets are inventories, machinery and equipment, and
intangibles including patents, trademarks, trade names, and state and municipal
product approvals. The purchase will be recorded on the acquiring company's
balance sheet as inventory valued at $150,000 plus acquisition costs currently
estimated at $80,000.
The Company is preparing Form 8-K, which will be filed in the near future to
provide the financial information required by Regulation S-X, including the Rule
3-05 historical audited financial statements of Brite-Line Industries, Inc. and
the Article 11 proforma information. The Company believes that as a vertically
integrated part of the Company, Brite-Line Technologies will have both lower
overhead and higher margins than Brite-Line Industries had, and that the combin-
ation of Brite-Line's proprietary reflective coating technology and market
presence with the Company's technology and manufacturing know-how, will allow
rapidly increased penetration of this growing market. It is expected that the
acquisition will moderately increase the Company's 1997 sales, and because of
its highly seasonal product line, will begin to contribute to the Company's
earnings in the latter part of fiscal 1997.
<PAGE> 15
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
Not Applicable
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> 16
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: October 15, 1996
<PAGE> 17
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 -- incorporated by reference to
Exhibit (4)(vii) to report on Form 10-Q for the
Quarter ended March 1, 1996.
<PAGE> 18
PLYMOUTH RUBBER COMPANY, INC.
INDEX TO EXHIBITS
(Continued)
(a) Exhibits:
Exhibit No. Description
(4)(viii) 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 report on Form
10-Q for the quarter ended March 1, 1996.
(4)(ix) 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)(x) 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.
(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.
<PAGE> 19
PLYMOUTH RUBBER COMPANY, INC.
INDEX TO EXHIBITS
(Continued)
(a) Exhibits:
Exhibit No. Description
(18) Not applicable.
(19) Not applicable.
(22) Not applicable.
(23) Not applicable.
(24) Not applicable.
(27) Financial data schedule three months ended August
30, 1996.
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