-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Nb3WlxYECPCJLMz1GnWidlujEg5YzTM5vj7rCAnhj1yy5pDXhn505hQ0ut8srkmE Fap/B+fzEowN2uY4zxts4A== 0000079225-96-000007.txt : 19960712 0000079225-96-000007.hdr.sgml : 19960712 ACCESSION NUMBER: 0000079225-96-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960531 FILED AS OF DATE: 19960711 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: PLYMOUTH RUBBER CO INC CENTRAL INDEX KEY: 0000079225 STANDARD INDUSTRIAL CLASSIFICATION: FABRICATED RUBBER PRODUCTS, NEC [3060] IRS NUMBER: 041733970 STATE OF INCORPORATION: MA FISCAL YEAR END: 1127 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-05197 FILM NUMBER: 96593532 BUSINESS ADDRESS: STREET 1: 104 REVERE ST CITY: CANTON STATE: MA ZIP: 02021 BUSINESS PHONE: 6178280220 MAIL ADDRESS: STREET 1: 104 REVERE ST STREET 2: 104 REVERE ST CITY: CANTON STATE: MA ZIP: 02021 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended 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 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 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) Second Quarter Ended Six Months Ended May 31, June 2, May 31, June 2, 1996 1995 1996 1995 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
See Accompanying Notes To Financial Statements 3 [CAPTION] PLYMOUTH RUBBER COMPANY, INC. BALANCE SHEET (In Thousands) May 31, Dec. 1, 1996 1995 (Unaudited) 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
See Accompanying Notes To Financial Statements 4 [CAPTION] PLYMOUTH RUBBER COMPANY, INC. STATEMENT OF CASH FLOWS (In Thousands) (Unaudited) Six Months Ended May 31, June 2, 1996 1995 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
See Accompanying Notes To Financial Statements 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. 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- 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. 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 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. 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. 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. 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%. 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 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 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. 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. EX-27 2
5 6-MOS NOV-29-1996 MAY-31-1996 0 0 7361 192 10100 19401 28550 19469 32126 13588 0 0 0 1995 3638 32126 27878 27878 25968 25968 0 27 629 1248 324 924 0 0 0 924 .41 .41
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