-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, U/Gc8iGLjPATO36wPHe8lSqwBnJ5Hin2mbQvHVpwa5s6wkZdBy6W3CQ0fEoGRPQ9 MhJe6OOo2o8gsFRX8e/3Mw== 0000079225-95-000010.txt : 199507170000079225-95-000010.hdr.sgml : 19950717 ACCESSION NUMBER: 0000079225-95-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950602 FILED AS OF DATE: 19950714 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: 95553838 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 June 2, 1995 Commission File Number 1-5197 Plymouth Rubber Company, Inc. (Exact name of registrant as specified in its charter) Massachusetts 04-1733970 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 104 Revere Street, Canton, Massachusetts 02021 (Address of principal executive offices) (Zip Code) (617) 828-0220 Registrant's telephone number, including area code Not Applicable (Former name, former address, and former fiscal year, if changed since last report). Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports, and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the close of the period covered by this report. Class A common stock , par value $1 - 810,586 Class B common stock, par value $1 - 1,054,201 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 PART 1. FINANCIAL INFORMATION Item 1. Financial Statements PLYMOUTH RUBBER COMPANY, INC. STATEMENT OF OPERATIONS (In Thousands Except Share and Per Share Amounts) (Unaudited)
Second Quarter Ended Six Months Ended June 2, May 27, June 2, May 27, 1995 1994 1995 1994 Net sales $ 13,948 $ 13,534 $ 26,528 $ 24,500 Cost and Expenses Cost of products sold 10,619 10,005 20,190 18,388 Selling, general and administrative 2,170 2,382 4,441 4,363 12,789 12,387 24,631 22,751 Operating income 1,159 1,147 1,897 1,749 Interest expense (354) (248) (693) (489) Other income (expense),net (5) 15 436 38 Income before taxes 800 914 1,640 1,298 Provision for income taxes (76) (14) (168) (168) Income before cumulative effect of changes in accounting principle 724 900 1,472 1,130 Cumulative effect of changes in accounting principle,net -- -- -- 1,274 Net income 724 900 1,472 2,404 Retained earnings(deficit) at beginning of period (6,952) (7,934) (6,234) (9,438) Less 10% stock dividend -- -- (1,466) -- Retained earnings(deficit) at end of period $ (6,228) $ (7,034) $ (6,228) $ (7,034) Per Share Data: Income before cumulative effect of changes in accounting principle .35 .43 .70 .55 Cumulative effect of changes in accounting principle,net -- -- -- .61 Net income .35 .43 .70 1.16 Weighted average number of shares outstanding 2,095,240 2,079,549 2,094,628 2,072,105
See Accompanying Notes To Financial Statements PLYMOUTH RUBBER COMPANY, INC. BALANCE SHEET (In Thousands)
June 2, Dec. 2, 1995 1994 (Unaudited) ASSETS Current Assets: Cash $ - $ - Accounts receivable 7,140 7,055 Allowance for doubtful accounts (527) (540) Inventories: Raw materials 2,394 2,102 Work in process 2,439 2,468 Finished goods 4,816 3,652 9,649 8,222 Prepaid expenses and other current assets 1,908 2,083 Total current assets 18,170 16,820 Plant assets 28,232 27,523 Accumulated depreciation (20,693) (20,124) Net plant assets 7,539 7,399 Other assets 4,162 4,179 TOTAL ASSETS $ 29,871 $ 28,398 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Revolving line of credit $ 6,273 $ 5,979 Trade accounts payable 4,563 4,344 Accrued expenses 3,523 3,649 Current portion of long-term obligations 1,075 1,156 Product warranties 636 616 Total current liabilities 16,070 15,744 Long-Term Liabilities: Term debt 3,312 3,752 Pension obligation payable 4,842 4,894 Product warranties 291 384 Other liabilities 2,056 1,905 Total long-term liabilities 10,501 10,935 Stockholders' Equity: Preferred stock - - Class A voting common stock 810 810 Class B non-voting common stock 1,054 814 Paid in capital 8,303 6,987 Retained earnings (deficit) (6,228) (6,234) Pension liability adjustment, net of tax (392) (392) Deferred compensation (247) (266) Total stockholders' equity 3,300 1,719 TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 29,871 $ 28,398
See Accompanying Notes To Financial Statements PLYMOUTH RUBBER COMPANY, INC. STATEMENT OF CASH FLOWS (In Thousands) (Unaudited)
Six Months Ended June 2, May 27, 1995 1994 Cash flows from operating activities: Net Income $ 1,472 $ 2,404 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 569 535 Amortization of deferred compensation 19 19 Change in valuation allowance (476) (350) Cumulative effect of changes in accounting principle, net -- (1,274) Changes in assets and liabilities: Accounts receivable (98) (16) Inventory (1,427) (596) Prepaid expenses 175 296 Other assets 10 (57) Accounts payable 218 (444) Accrued expenses 512 360 Pension obligation (33) 34 Product warranties (73) (166) Other liabilities (17) (67) Net cash provided by (used in) operating activities 851 678 Cash flows from investing activities: Capital expenditures (709) (673) Sale/leaseback of plant assets 223 -- Net cash provided by (used in) investing activities (486) (673) Cash flows from financing activities: Net increase (decrease) in revolving line of credit 294 801 Payments on term loan (459) (499) Payments on capital leases (116) (120) Payments on insurance financing (174) (187) Proceeds from issuance of common stock 90 -- Net cash provided by (used for) financing activities (365) (5) Net change in cash -- -- Cash at the beginning of the period -- -- Cash at the end of the period $ -- $ -- Supplemental Disclosure of Cash Flow Information Cash paid for interest $ 593 $ 481 Cash paid for income taxes $ 90 $ 197 Supplemental Disclosure of Non-Cash Activities: Charge to retained earnings for stock dividend $ 1,466 $ --
See Accompanying Notes To Financial Statements PLYMOUTH RUBBER COMPANY, INC. NOTES TO FINANCIAL STATEMENTS (Unaudited) (1) The Company, in its opinion, has included all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the results for the interim periods. The interim financial information is not necessarily indicative of the results that will occur for the full year. The financial statements and notes thereto should be read in conjunction with the financial statements and notes for the years ended December 2, 1994, November 26, 1993, and November 28, 1992, included in the Company's 1994 Annual Report on Form 10-K filed with the Securities and Exchange Commission. (2) In connection with its former roofing materials business, the Company issued extended warranties as to the workmanship and performance of its products. Over 95% of these warranties had expired prior to the end of 1994, with the last of the ten year warranties expiring in 1996. (A small number of certain other, more restrictive, and limited warranties continue thereafter). The estimated costs of these warranties were accrued at the time of sale, subject to subsequent adjustment to reflect actual experience which resulted in additional charges to operations during 1994 and 1993 of $325,000, and $750,000, respectively. Some warranty holders have filed claims or brought suits currently aggregating approximately $1,183,000 against the Company and others relating to alleged roof failures. The Company believes, upon advice of counsel, that its warranty obligation under such warranties is limited to the cost of the roofing materials and that the amounts of the claims are significantly in excess of its ultimate liability. The Company is vigorously defending against these claims and believes that some are without merit and that the damages claimed in others may not bear any reasonable relationship to the merits of the claims or the real amount of damage, if any, sustained by the various claimants. Management believes that the $927,000 reserve recorded at June 2, 1995 is adequate provision for the Company's remaining warranty obligations. The Company is the plaintiff in a legal action against one supplier of materials previously used in the Company's discontinued roofing systems. The Company has claimed substantial monetary damages based on the failure of the subject materials to perform as expected. No amount related to these claims has been included in the accompanying financial statements. The Company is also involved in other lawsuits and claims arising in the normal course of business, including one breach of express and implied warranty suit claiming damages of up to approximately $600,000 dollars. The suit, which includes a breach of contract and warranty claim against both a second defendant, (the direct seller of the product) and the Company, alleges as to the Company, that as a result of the failure of the Company's tape product, (as to which neither the plaintiff nor its direct supplier were a direct purchaser from the Company), the plaintiff lost a contract with its customer and suffered damages to its reputation. Management believes such claim is without merit and will vigorously defend against it. While the final outcome of this and other proceedings is uncertain, it is management's opinion that the ultimate liability, if any, for these matters should not have a material impact on the results of operations and the financial condition of the Company. The United States Environmental Protection Agency (EPA) has asserted four claims against the Company under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), pursuant to which EPA is seeking to recover from the Company and other "generators" the costs associated with the clean-up of certain sites used by licensed disposal companies hired by the Company as independent contractors for the disposal and/or reclamation of hazardous waste materials. In one case, in the United States District Court for the District of Massachusetts, the EPA began an action on or about March 1, 1990 in respect to the Superfund site known as Re-Solve, Inc., of Dartmouth, Massachusetts. The Company has entered into a Consent Decree, (embodied in an order of Judgment entered October 14, 1992), requiring payment by the Company of $100,000 plus interest over a period of five years in full settlement of the EPA claim. The Company has paid $52,000 and owes three payments of $16,000 in each of 1995 through 1997. PLYMOUTH RUBBER COMPANY, INC. NOTES TO FINANCIAL STATEMENTS (Unaudited) Continued On or about March 28, 1986, the Company was notified of potential liability with respect to the Cannons Engineering Corporation site in Bridgewater, Massachusetts, and the Cannons Engineering Corporation site in Plymouth, Massachusetts and of its alleged ranking number 128 of more than 300 generators. The Company had rejected offers of approximately $40,000 and approximately $24,000 to settle the matter, since such settlements would not have released the Company with respect to liability for any future clean-up at the sites in question. EPA has settled with a number of the generators who have, in turn threatened legal action against the Company. A reiteration of a 1991 contribution demand was made in 1994 by certain settling PRP's in the amount of $175,000. No actions have been filed by EPA or the settling parties against the Company. Based on all available information, as well as its prior experience, management believes a reasonable estimate of its ultimate liability is $50,000 and has accrued this amount in Other Liabilities in the accompanying Balance Sheet as of December 2, 1994. With respect to the third assertion against the Company under CERCLA, a General Notice of Potential Liability was sent to 1,659 Potentially Responsible Parties ("PRP") including the Company, in June, 1992, relative to a Superfund Site known as Solvent Recovery System of New England ("SRS") at a location in Southington, Connecticut, concerning shipments to the site which occurred between June 1, 1956, and January 25, 1974. Revised volumetric assessments were made on or about July 7, 1993. The EPA has attributed 852,445 gallons of an aggregate of 48,953,983 gallons of waste volume to the Company (a 1.74% share). The Company believes that this attribution may be overstated by failing to account for the portion of the gross waste volume actually returned to the Company. This belief is based on the Company's facts and circumstances related to SRS, which are similar in many respects to those in the Re-Solve case. An SRS PRP Group, formed to negotiate the clean-up with EPA, has obtained consent to undertake the first phase of a remediation program, estimated to cost $3,600,000. Phase II, as proposed by EPA, is estimated to cost approximately $25,000,000, to be incurred over approximately a three-year period. The PRP Group opposes the Phase II proposal. While the Company has declined to participate in the PRP Group to date, its share (without adjustment for overstated attribution) of the Phase I remediation and the Phase II program, if it were adopted, would be a total of $570,000. The most currently available estimate is that the cost of the entire clean up will range from approximately $45 million to less than $70 million. Based on all available information as well as its prior experience, management believes a reasonable estimate of its ultimate liability is $400,000 and has accrued this amount in Other Liabilities in the accompanying Balance Sheet as of December 2, 1994. This amount is subject to adjustment for future developments that may arise from the long-range nature of this EPA case, legislative changes, insurance coverage, the uncertainties associated with the ultimate outcome of the Record of Decision ("ROD"), the joint and several liability provisions of CERCLA, and the Company's ability to successfully negotiate an outcome similar to its previous experience in these matters. No actions have been currently filed by the EPA or the settling parties against the Company, and no direct dialogue with the EPA is expected before the end of 1995. On January 25, 1994, the Company received a notification dated January 21, 1994 of an additional Superfund Site, Old Southington Landfill, (the "OSL Site") regarding which the EPA asserts that the Company is a PRP. The OSL Site is related to the SRS Site in that, the EPA alleges, after receipt and processing of various hazardous substances from PRP's, the owners and/or operators of the SRS Site shipped the resultant contaminated soil from the SRS Site to the OSL Site. Since the Company is alleged to have shipped materials to the SRS Site between 1956 and 1974, the EPA alleges that the Company is also a PRP of the OSL Site. In addition, there were three (3) direct shippers to the site, the Town of Southington, General Electric, and Pratt & Whitney, as well as other transporters and/or users. Based on EPA's asserted volume of shipments to SRS during that time period, the EPA has attributed 380,710 gallons, or 4.89% of waste volume of all SRS customers, to the Company; no attempt has been made by EPA to adjust the waste volume for the distillation done by SRS PLYMOUTH RUBBER COMPANY, INC. NOTES TO FINANCIAL STATEMENTS (Unaudited) Continued prior to shipment to OSL, or to allocate a percentage to the Company in relation to direct users of the OSL Site, or in relation to a combination of direct and indirect users of the site. An ROD was issued in September, 1994 for the first Phase of the clean-up, estimated to cost approximately $16 million dollars. A PRP Group has been formed; however, the Company has, to date, declined to participate in the PRP Group. The Company has learned that the PRP's have agreed among themselves to cap the liability of the "SRS Parties", (i.e. the indirect shippers, and the group to which the Company would belong), for the first phase of a clean-up at 24.5%; (the amount assessed the direct shippers and the other OSL Parties will be 51% and 24.5%, respectively). There is no publicly available information yet concerning Phase II ground water remediation costs; however, such costs are likely to be significant. Based on all available information as well as its prior experience, management believes a reasonable estimate of its ultimate liability for Phase I costs is $100,000 and has accrued this amount in Other Liabilities in the accompanying Balance Sheet as of December 2, 1994. This amount is subject to adjustment for future developments that may arise from the long-range nature of this EPA case, legislative changes, insurance coverage, the uncertainties associated with the ultimate outcome of the ROD and the joint and several liability provisions of CERCLA, and the Company's ability to successfully negotiate an outcome similar to its previous experience in these matters. No actions have been currently filed by the EPA or the settling parties against the Company, and no direct dialogue with the EPA is expected before the end of 1995. (3) Checks outstanding in excess of certain cash balances totaling $433,000 and $598,000 at June 2, 1995, and December 2, 1994, have been included in accounts payable. (4) On March 7, 1995, the Company declared a 10% stock dividend on both Class A (voting) and Class B (non-voting) common stock. The dividend was paid in Class B shares on May 23, 1995 to shareholders of record as of March 24, 1995. Retained earnings has been charged for $1,466,000 based on the dividend value of $8.875 per share. Cash was paid in lieu of fractional shares using the closing price of Class B common stock on March 6, 1995, and was less than $1,000. Earnings per share was adjusted to reflect the stock dividend paid. The common shares outstanding, and the common stock equivalents, are shown below. Common and Common Equivalent Shares: Second Quarter Ended Six Months Ended June 2, May 27, June 2, May 27, 1995 1994 1995 1994 Average shares outstanding 1,847,743 1,786,018 1,822,174 1,786,018 Adjustments thereto(A) 247,497 293,531 272,454 286,087 Weighted average shares outstanding 2,095,240 2,079,549 2,094,628 2,072,105 (A) Adjust for options and warrants under the treasury stock method using average market value during the period. PLYMOUTH RUBBER COMPANY, INC. NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued) (5) A deferred tax asset and a related valuation allowance was established at $6,069,000 and $3,475,000, respectively, at December 2, 1994 based upon estimates of future taxable income through fiscal 1997. The valuation allowance has been reduced by $476,000 to $2,999,000 at June 2, 1995 based upon estimates of future taxable income through the second quarter of fiscal 1998. (6) Certain reclassifications of prior year balances have been made to conform to the current presentation. Subsequent Events (7) Reference is made to those certain claims asserted by the United States Environmental Protection Agency ("EPA") and the information contained in Item 3 of the Company's Annual Report on Form 10-K for its fiscal year ended December 2, 1994, and in Note 13 of the Notes To Financial Statements contained in said Annual Report and as further described in Item 1 of the Company's Quarterly Report for the quarter ended March 3, 1995 and in Note 2 to the Financial Statements contained in said Quarterly Report. With respect to the claim asserted by the EPA identified as the Solvent Recovery Service of New England ("SRS") site, on or about June 19, 1995, the Company received an "Invitation to Perform a Remedial Investigation/Feasibility Study,", ("RI/FS")," and Non-Time Critical Removal Action", ("NTCRA"), from the EPA in which the EPA invites all PRP's to perform or finance a RI/FS and a NTCRA. In addition, the EPA stated its intention to negotiate exclusively with the SRS site PRP Group, to issue a draft administrative order and statement of work regarding the RI/FS and NTCRA within thirty (30) days of the letter, and to require responses thereto within thirty (30) days and to continue negotiation with the PRP Group for an additional forty-five (45) days. The Company is currently evaluating its position with regard to this matter. With respect to the claim asserted by the EPA identified as the Old Southington Landfill, ("OSL") site, on or about June 20, 1995, the Company executed agreements and paid a $3,000 assessment to become a participant in the Joint Defense Group of OSL/SRS "transshipper" PRPs and in the Alternative Dispute Resolution Process. With respect to the claims asserted by the EPA and a certain settling PRP and identified as the Cannons Engineering Corporation ("Cannons") site, the Company received notification that a lawsuit was filed against it on June 23, 1995 in the United States District Court for the District of Massachusetts by Olin Hunt Specialty Products, Inc., ("Olin"). Olin seeks to recover contribution under Section 113 of the CERCLA, (42 U.S.C. Section 9613), as a result of a settlement entered into on June 26, 1992 between Olin et al. and the United States, the State of New Hamphsire, and the Commonwealth of Massachusetts, (the "Governments") for reimbursement of the Governments' response costs in connection with the Cannons site. The Company intends to vigorously defend this matter; however, it is impossible to determine the Company's total liability or responsibility at this time. PLYMOUTH RUBBER COMPANY, INC. NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued) With respect to that certain EPA matter concerning the elimination of use of certain underground storage tanks located at the Company's manufacturing facility as to which the Company received a Notice of Responsibility from the Massachusetts Department of Environmental Protection ("DEP"), the Company has adjusted its estimate of the costs for such activity to not exceed the sum of Two Hundred and Fifty Thousand ($250,000) Dollars, which resulted in the recording of an increase to the reserves of $75,000 in the quarter ended June 2, 1995. Reference is made to certain other lawsuits arising in the normal course of business, including one breach of express and implied warranty suit claiming damages of up to approximately $600,000 dollars, described in Note 13 of the Notes to the Financial Statements contained in the Company's Annual Report on Form 10-K for its fiscal year ended December 2, 1994. On or about May 26, 1995 the aforementioned breach of express and implied warranty suit was settled and dismissed with prejudice, without the Company making any further payment. Item 2. Management's Discussion & Analysis of Financial Condition and Results of Operations. FIRST SIX MONTHS, 1995 COMPARED WITH FIRST SIX MONTHS, 1994 Despite continuing capacity constraints, net sales for the six months ending June 2, 1995, at $26,528,000, were up 8% from the prior year, which exceeded 1993 net sales by 3%. Significant sales increases were achieved for the Domestic Automotive, Electrical Contractor, and Export markets, offset in part by shortfalls in other markets. Sales to the Domestic Automotive and Export markets each increased 20% over the prior year's first six months, representing 46% and 11% of the period's sales. In addition to increasing sales in the first six months, the Company increased finished goods inventories by approximately $1,200,000, both to service current demand, and to support the new "global" contract with the Delphi Packard Electric Division of General Motors. The Packard portion of this inventory increase is to service Packard operations on a "just in time basis" in 15 countries in Europe, North Africa, and the Middle East. In response to the increased demand, the Company has both modified work schedules and accelerated its capital investment program. If current level of demand continues, the Company expects continued sales growth in the last six months of the year. Operating income at $1,897,000, was up 8% ($148,000) from the corresponding period of 1994 (which was down $440,000 from 1993), and reflects a 4% increase in gross profit (up $226,000), offset in part by a 2% increase in Selling, General and Administrative expenses (up $78,000). Despite favorable volume variances, gross margin decreased one point on the higher sales volume, due primarily to significantly higher raw material costs, only a part of which have been passed through in product pricing. In addition, reserves pertaining to the removal of certain storage tanks at the Canton facility were increased by $75,000. Selling expenses increased 14% over the first six months of the prior year, which increased 10% over 1993, reflecting higher advertising, freight, salaries and fringe benefits, and travel expenses of $70,000, $107,000, $84,000, and $43,000, respectively. General and administrative expenses, exclusive of a $250,000 recovery from an insurance settlement, decreased 1% from the prior year's first six months, on reduced incentive compensation and professional fees, offset in part by increased supplies and computer equipment rental. In addition, the prior year's period included charges approximating $275,000, inclusive of legal costs, for settlement of litigation arising from the Company's previously discontinued coated fabrics business, and included a partial recapture of a provision for doubtful accounts. Income before taxes at $1,640,000 is up 26% ($342,000) from the prior year's first six months, reflecting the 8% increase in operating income, noted above, and a $398,000 increase in other income, offset in part by a $204,000 increase in interest expense. Other income reflects a $395,000 favorable settlement of litigation related to the Company's previously discontinued Consumer Products Division. The increased interest expense is the result of increased loan volume and an increased rate of 258 basis points (as a result of increases in the prime rate) on monies borrowed on the Company's line of credit and term loan with its primary lender. Net income, is up $342,000 (30%) from the first six months of the prior year, exclusive of the $1,274,000 net benefit from cumulative effect of the Company's simultaneous adoption of Financial Accounting Standards #109 (FAS 109 - Accounting for Income Taxes), and #106 (FAS 106 - Employers' Accounting for Postretirement Benefits Other than Pensions). Current year net income includes a $476,000 recapture of deferred tax valuation allowance, which resulted in an effective income tax rate of approximately 10%. The prior year's first six months tax rate approximated 13%. FIRST SIX MONTHS, 1995 COMPARED WITH FIRST SIX MONTHS, 1994 (Continued) The deferred tax valuation allowance was established at $3,475,000, as of December 2, 1994, based upon estimates of foreseeable future taxable income through fiscal 1997. The valuation allowance has been reduced by $476,000 to $2,999,000 as of June 2, 1995, based upon estimates of foreseeable future taxable income through the second quarter of fiscal 1998, and the incremental taxable income of $645,000 from the favorable litigation and insurance settlements outlined above. During the first two quarters, net cash generated from operating activities was $851,000, compared to $678,000 during the first six months of the prior year. Cash provided by net income, exclusive of deferred tax asset valuation allowance recapture ($996,000), depreciation ($569,000), and the increases in accrued expenses ($512,000), exceeded the cash used to increase inventory and accounts receivable ($1,427,000 and $98,000, respectively), and reduce product warranties ($73,000). In accordance with the Company's agreement with its primary lender, all cash receipts were applied against the revolving loan. The $851,000 generated from operating activities, the $294,000 increase in loans under the revolving line of credit, and a $223,000 sale and lease back of new production equipment, were used to finance capital investment ($709,000) and to pay down term debt, capital leases, and financed insurance obligations. In the remaining months of fiscal 1995, management intends to increase capital investment by an estimated additional $1,100,000 to continue to expand capacity, to improve quality and to lower costs with the long term goals of world-class quality and cost. As of June 2, 1995, the Company had approximately $600,000 in unused borrowing capacity, because of collateral limitations under its $9 million revolving line of credit. In the opinion of management, anticipated profits, as well as unused capacity under existing borrowing arrangements, will provide sufficient funds to meet the Company's needs during 1995, including working capital expansion to support sales growth and investment in improved technology and capital equipment. SECOND QUARTER, 1995 COMPARED WITH SECOND QUARTER, 1994 Despite continuing capacity constraints in the first half of the quarter, net sales at $13,948,000 were up 3% from the prior year's second quarter, which itself exceeded the 1993 second quarter by 7%. Significant sales increases were achieved in the Domestic Automotive and Export markets (up 17% and 30%, respectively), which were partially offset by shortfalls in the Original Equipment Manufacturers and Utility markets. Operating income at $1,159,000 was virtually unchanged from the prior year's second quarter and reflects a $200,000 decrease in gross profit, offset by a $212,000 reduction in Selling, General and Administrative expenses. Included is a $175,000 net gain from an insurance settlement and an increase in reserves for tank removal at the Company's Canton facility. The decreased gross profit reflects a margin reduction of two points on the higher sales due primarily to significantly increased raw material costs despite the Company's emphasis on cost reductions. In addition, tank removal reserves were increased $75,000 during the quarter as noted above. Selling expenses increased 15% over the prior year's second quarter, on increased advertising, freight, salaries and fringe benefits, and travel expenses - up $40,000, $50,000, $39,000, and $21,000, respectively. General and Administrative expenses, exclusive of the $250,000 favorable insurance settlement, decreased 14% from the prior year's second quarter, reflecting reduced incentive compensation and professional fees. Included in the prior year's second quarter were charges approximating $275,000, inclusive of legal costs, pertaining to a settlement of litigation arising from the Company's previously discontinued coated fabrics business, and a partial recapture of a provision for doubtful accounts. Income before taxes at $800,000 is down $114,000 from the prior year's second quarter, reflecting a flat operating income, significantly reduced by a 43% increase in interest expense and a $20,000 reduction in other income. The increased interest expense is the result of increased loan volume and an increased rate of 250 basis points (as a result of increases in the prime rate) on monies borrowed on the Company's line of credit and term loan with its primary lender. Net Income at $724,000 is down 20% from the prior year's second quarter, reflecting the reduced income before taxes and a higher tax rate. The current year's net income includes a $238,000 recapture of deferred tax valuation allowance, which resulted in an effective income tax rate of approximately 10%, as compared with the prior year's second quarter, which benefited from a 2% rate generated by a $350,000 benefit from the recapture of deferred tax valuation allowance. PART II. OTHER INFORMATION Item 1. Legal Proceedings Reference is made to the information contained in Item 3 of the Company's Annual Report on Form 10-K for its fiscal year ended December 2, 1994, and in Note 13 of the Notes to Financial Statements, contained in said Annual Report. Reference is made to those certain claims asserted by the United States Environmental Protection Agency ("EPA") and the information contained in Item 3 of the Company's Annual Report on Form 10-K for its fiscal year ended December 2, 1994, and in Note 13 of the Notes To Financial Statements contained in said Annual Report and as further described in Item 1 of the Company's Quarterly Report for the quarter ended March 3, 1995 and in Note 2 to the Financial Statements contained in said Quarterly Report. With respect to the claim asserted by the EPA identified as the Solvent Recovery Service of New England ("SRS") site, on or about June 19, 1995, the Company received an "Invitation to Perform a Remedial Investigation/Feasibility Study,", ("RI/FS")," and Non-Time Critical Removal Action", ("NTCRA"), from the EPA in which the EPA invites all PRP's to perform or finance a RI/FS and a NTCRA. In addition, the EPA stated its intention to negotiate exclusively with the SRS site PRP Group, to issue a draft administrative order and statement of work regarding the RI/FS and NTCRA within thirty (30) days of the letter, and to require responses thereto within thirty (30) days and to continue negotiation with the PRP Group for an additional forty-five (45) days. The Company is currently evaluating its position with regard to this matter. With respect to the claim asserted by the EPA identified as the Old Southington Landfill, ("OSL") site, on or about June 20, 1995, the Company executed agreements and paid a $3,000 assessment to become a participant in the Joint Defense Group of OSL/SRS "transshipper" PRPs and in the Alternative Dispute Resolution Process. With respect to the claims asserted by the EPA and a certain settling PRP and identified as the Cannons Engineering Corporation ("Cannons") site, the Company received notification that a lawsuit was filed against it on June 23, 1995 in the United States District Court for the District of Massachusetts by Olin Hunt Specialty Products, Inc., ("Olin"). Olin seeks to recover contribution under Section 113 of the CERCLA, (42 U.S.C. Section 9613), as a result of a settlement entered into on June 26, 1992 between Olin et al. and the United States, the State of New Hamphsire, and the Commonwealth of Massachusetts, (the "Governments") for reimbursement of the Governments' response costs in connection with the Cannons site. The Company intends to vigorously defend this matter; however, it is impossible to determine the Company's total liability or responsibility at this time. With respect to that certain EPA matter concerning the elimination of use of certain underground storage tanks located at the Company's manufacturing facility as to which the Company received a Notice of Responsibility from the Massachusetts Department of Environmental Protection ("DEP"), the Company has adjusted its estimate of the costs for such activity to not exceed the sum of Two Hundred and Fifty Thousand (250,000) Dollars. PART II OTHER INFORMATION (Continued) Item 2. Changes in Securities None Item 3. Defaults upon Senior Securities Not Applicable Item 4. Submission of Matters to a Vote of Security Holders The Company's Annual Meeting was held on April 20, 1995. The following members were elected to the Company's Board of Directors to hold office for the ensuing three year term: Nominee In Favor Withheld Susan Y. Friedman 758,265 163 Joseph D. Hamilburg 758,265 163 The results on the voting of the following additional items were as follows: The ratification of Plymouth Rubber Company, Inc. 1995 Non-Employee Director Stock Option Plan: In Favor Opposed Abstain No Vote 501,081 37,756 453 219,138 The ratification of Plymouth Rubber Company, Inc. 1995 Employee Incentive Stock Option Plan: In Favor Against Abstain No Vote 502,009 36,556 725 219,138 The ratification of the appointment of Price Waterhouse as independent auditors of the Company for the next fiscal year: In Favor Opposed Abstain No Vote 757,840 75 513 0 Item 5. Other Information Not Applicable Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: See Index To Exhibits (b) Not Applicable SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized. Plymouth Rubber Company, Inc. (Registrant) D. E. Wheeler D. E. Wheeler Vice President - Finance Date: July 13, 1995 PLYMOUTH RUBBER COMPANY, INC. INDEX TO EXHIBITS (a) Exhibits: Exhibit No. Description (2) Not Applicable. (4)(i) Promissory Note between Plymouth Rubber Company, Inc., and Mortgage Investors Corporation dated November 10, 1987 -- incorporated by reference to Exhibit (4)(i) of the Company's Annual Report on Form 10-K for the year ended November 28, 1992. (4)(ii) Mortgage and Security Agreement between Plymouth Rubber Company, Inc., and Mortgage Investors Corporation dated November 10, 1987 -- incorporated by reference to Exhibit (4)(ii) of the Company's Annual Report on Form 10-K for the year ended November 28, 1992. (4)(iii) Promissory Note between Plymouth Rubber Company, Inc., and Thrift Institution Fund for Economic Development dated June 14, 1989 -- incorporated by reference to Exhibit (4)(iv) to report on Form 10-Q for the quarter ended May 27, 1994. (4)(iv) Loan and Security Agreement between Plymouth Rubber Company, Inc. and Thrift Institution Fund for Economic Development dated June 14, 1989 -- incorporated by reference to Exhibit (4)(iv) to report on Form 10-Q for the quarter ended May 27, 1994. (4)(v) Mortgage Note between Plymouth Rubber Company, Inc. and the Board of Education of Charles County, Maryland, dated November 1, 1991 -- incorporated by reference to Exhibit (2)(xiii) to Report on Form 10-Q for the Quarter Ended May 30, 1992. (4)(vi) Amendment to Promissory Note and Security Documents between Plymouth Rubber Company, Inc. and SL Mortgage Company, Limited Partnership, assignee to Mortgage Investors Corporation, dated April 6, 1992 -- incorporated by reference to Exhibit (4)(xv) of the Company's Annual Report on Form 10-K for the Year Ended November 28, 1992. (4)(vii) Second Amendment to Promissory Note and Security Documents between Plymouth Rubber Company, Inc. and SL Mortgage Company, Limited Partnership, assignee to Mortgage Investors Corporation, dated February 9, 1993 -- incorporated by reference to the Report on Form 8-K with cover page dated February 9, 1993. (4)(viii) Promissory Note between Plymouth Rubber Company, Inc. and Foothill Capital Corporation dated October 1, 1993 -- incorporated by reference to Exhibit (2)(i) to the Report on Form 8-K with cover page dated October 1, 1993. (4)(ix) Loan and Security Agreement between Plymouth Rubber Company, Inc. and Foothill Capital Corporation dated October 1, 1993 -- incorporated by reference to Exhibit (2)(ii) to the Report on Form 8-K with cover page dated October 1, 1993. PLYMOUTH RUBBER COMPANY, INC. INDEX TO EXHIBITS (Continued) (a) Exhibits: Exhibit No. Description (4)(x) Amendment to Promissory Note between Plymouth Rubber Company, Inc. and Thrift Institutions Fund For Economic Development dated November 30, 1993 -- incorporated by reference to Exhibit (4)(x) to Report on 10-K for the year ended November 26, 1993. (10)(i) 1982 Employee Incentive Stock Option Plan -- incorporated by reference to Exhibit (10)(i) of the Company's Annual Report on Form 10-K for the year ended November 26, 1993. (10)(ii) General Form of Deferred Compensation Agreement entered into between the Company and certain officers -- incorporated by reference to Exhibit (10)(ii) of the Company's Annual Report on Form 10-K for the year ended November 26, 1993. (10)(iii) Option Agreement between Plymouth Rubber Company, Inc. and SL Mortgage Company, Limited Partnership -- incorporated by reference to Exhibit (10)(iii) of the Company's Annual Report on Form 10-K for the year ended November 28, 1992. (10)(iv) 1992 Employee Incentive Stock Option Plan -- Incorporated by reference to Exhibit (10)(iv) of the Company's Annual Report on Form 10-K for the year ended November 26, 1993. (10)(v) 1995 Non-Employee Director Stock Option Plan -- Incorporated by reference to Exhibit (4.3) of the Company's Registration Statement on Form S-8 dated May 4, 1995. (10)(vi) 1995 Employee Incentive Stock Option Plan -- Incorporated by reference to Exhibit (4.4) of the Company's Registration Statement on Form S-8 dated May 4, 1995. (11) Not applicable. (15) Not applicable. (18) Not applicable. (19) Not applicable. (22) Not applicable. (23) Not applicable. (24) Not applicable. (27) Financial data schedule six months ended June 2, 1995. EX-27 2
5 0000079225 PLYMOUTH RUBBER COMPANY, INC. 1000 6-MOS DEC-01-1995 JUN-02-1995 0 0 7140 527 9649 18170 28232 20693 29871 16070 0 1864 0 0 1436 29871 26528 26528 20190 20190 0 1 693 1640 168 1472 0 0 0 1472 .70 .70
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