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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: Commission File Number
December 1, 1995 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)
Registrant's telephone number including area code: (617) 828-0220
Securities registered pursuant to Section 12(b) of the Act: --------------
Name of each exchange on
Title of each class Which registered
------------------- ------------------------
Class A Common Stock, par value $1 American Stock Exchange
Class B Common Stock, par value $1 American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark 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 by check mark if disclosure of delinquent filers pursuant to
Item 504 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definite proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
The aggregate market value of the registrant's voting stock held by
non-affiliates of the registrant at January 29, 1996, was approximately
$3,047,000.
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
Documents incorporated by reference:
Portions of the registrant's definitive Proxy Statement to be dated on
or about March 22, 1996 (the "Proxy Statement") are incorporated by reference in
Part III of this Report. Other documents incorporated by reference in this
report are listed in the Index to Exhibits.
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PLYMOUTH RUBBER COMPANY, INC.
PART I
ITEM 1.
DESCRIPTION OF BUSINESS
Plymouth Rubber Company, Inc. (the "Company") manufactures and supplies rubber
and vinyl products to a broad range of markets, including the electrical supply
industry, utilities, automotive and other Original Equipment Manufacturers
("OEM's"). These products, which include electrical insulating tapes, automotive
harness tapes, and industrial tapes and films, are sold either through sales
personnel employed by the Company and/or through distributors and/or
commissioned sales representatives. In 1992 the Company sold its Rubber Bands
division.
The Company purchases raw materials from a variety of sources. Principal raw
materials include resins, plasticizers, synthetic and natural rubber, and
textiles. There are a number of alternate suppliers of materials. The primary
sources of natural rubber are domestic suppliers with operations in Southeast
Asia; in addition, textiles are acquired from suppliers in Canada and China.
While temporary shortages of raw materials may occur occasionally, these items
are currently readily available. However, their continuing availability and
price are subject to domestic and world market and political conditions, as well
as to the direct or indirect effect of United States government regulations. The
impact of any future raw material shortages on the Company as a whole cannot be
accurately predicted. Operations and products may at times be adversely affected
by legislation, shortages, or international or domestic events; however, at this
time, management is not aware of any legislation, shortage, or events which will
materially affect the Company's business.
The Company owns a number of patents and/or intellectual property rights on
products manufactured. Patents held and licenses granted do not materially
affect current operations and are not deemed of major importance to future
activities.
Because products are manufactured for inventory as well as to order for specific
customers, both the order backlog and the inventory turnover vary significantly
from market to market. Despite an increase in the backlog during the year, in
general, on a Company wide basis, the backlog is equivalent to approximately one
month's sales volume. The Company grants various payment terms in accord with
the standards dictated by the individual product markets; however, extended
payment terms generally are not granted regardless of the standard utilized in
the individual market with the exception of certain foreign markets.
The markets served by the Company are highly competitive. Competition is faced
from a number of domestic and foreign companies, some of which have larger sales
organizations and substantially greater resources than the Company. In general,
the Company regards itself as having an average competitive position in the
industry, although, based on available market information, it is believed that
the Company is a significant factor in, and has captured significant shares of
the markets for, friction, rubber and vinyl tape products. The Company relies
upon product design, product quality, price, and service to maintain its
competitive position in the markets served. Sales to the automotive industry are
approximately 46% of the Company's total net sales. Since 1988, the Company has
been the primary source of PVC (vinyl) harness tapes for the North American wire
harness operations of the Delphi Packard Electric Division ("Delphi") of General
Motors, and has also supplied part of Delphi's tape requirements for Europe and
South America. In 1995, the Company was awarded a new three-year "global"
contract as sole source of PVC (vinyl) harness tapes to Delphi. General Motors
accounted for approximately 36%, 34%, and 28% of the Company's net sales in
1995, 1994, and 1993, respectively. As General Motors constitutes approximately
one-third of the Company's sales, the loss of the account would have an
immediate material adverse effect on the Company. The Company is working to
diversify its automotive tapes business by adding new customers in the United
States and abroad, and by developing new tapes for harnessing, as well as other
products for other markets. The estimated number of competitors varies from
market to market.
The following table sets forth information with regard to competition in the
worldwide markets from which the Company derives its largest volume of sales:
ESTIMATED
NO. OF DOMINANT OR
MARKET COMPETITORS MAJOR COMPETITORS
------ ----------- -----------------
Electrical Tapes Numerous 3M
Automotive Tapes Numerous None
Industrial Tapes & Films Numerous None
The Company is subject to various Federal, state and local environmental
protection regulations. Compliance with these regulations in fiscal 1996 and
1997 is not expected to require expenditures in excess of established reserves
of approximately $800,000 as of December 1, 1995, and should therefore not have
a significant effect on continuing operations of the Company (See Legal
Proceedings and Note 13 of the Notes to Financial Statements).
The Company has no manufacturing operations in foreign countries; however,
products sold to foreign customers are either exported from the United States or
are shipped from inventories maintained in foreign countries. Export sales for
the Company were approximately 12% of total sales in 1995, 9 % in 1994, and 11%
in 1993.
The Company employs approximately 350 persons.
ITEM 2. PROPERTIES
Substantially all the manufacturing, administrative and principal sales
facilities are owned by the Company and are located in Canton, Massachusetts.
These facilities comprise approximately 500,000 square feet.
The Company rents space for its sales operations at various locations. These
rentals are not material in the aggregate. The Company believes that its
facilities are suitable and adequate for its current needs, and that its
facilities and technology are competitive with those of its principal foreign
and domestic competitors. For further information with respect to security
interests in the properties of the Company, see Note 3 of the Notes to Financial
Statements, herein.
ITEM 3. LEGAL PROCEEDINGS
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 and 1997. (See Footnote 13 of the Notes To Financial Statements).
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 with the EPA in this matter, since such
settlements would not have released the Company with respect to liability for
any future clean-up at the sites in question. No action has been filed by the
EPA against the Company. EPA 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. 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 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. (See Note 13 of the Notes
To Financial Statements).
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. 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 it has accrued a reasonable amount concerning same in the
accompanying financial statements as of December 1, 1995. (See Note 13 of the
Notes To Financial Statements). 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 has been formed; on or about June 20, 1995 and January 11, 1996, the
Company executed agreements and paid assessments of $3,000 and $6,000,
respectively, to become a participant in the Joint Defense Group of OSL/SRS
"transshipper" PRP's and in the Alternative Dispute Resolution Process. All 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
it has accrued a reasonable estimate of its ultimate liability for Phase I costs
in the accompanying financial statements as of December 1, 1995 (See Note 13 of
the Notes to Financial Statements). 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 requirements, the
Company notified the 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
in the accompanying financial statements.
The Company had brought a suit in the Superior Court of Norfolk County,
Massachusetts, on December 4, 1984, against Mallyclad Corporation, of Madison
Heights, Michigan, to recover damages of approximately $2,000,000, which the
Company alleged it sustained as a result of defective vinyl-clad metal sheeting
furnished by Mallyclad to the Company for use as flashing in the roofing systems
sold by the Company in its since discontinued roofing materials business. On or
about September 11, 1995, the Company and Mallyclad agreed to a settlement and
dismissal with prejudice in consideration for the payment of $825,000 by
Mallyclad.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the fiscal year covered by
this report to a vote of security holders, through the solicitation of proxies
or otherwise.
EXECUTIVE OFFICERS OF THE COMPANY
Age (at last Served
Name Position/Officer Birthday) Since
- ---- ---------------- ------------ ------
Maurice J. Hamilburg President and Chief
Executive Officer 49 1987
Fiore D. DiGiovine VP - Mfg. Development 68 1987
Alan I. Eisenberg VP - Sales & Marketing 45 1988 & 1986
Sheldon S. Leppo VP - Research & Development 61 1970
Duane E. Wheeler VP - Finance and Treasurer 63 1980 & 1988
Joel A. Kozol Clerk and Secretary 65 1980
Messrs. Maurice J. Hamilburg, Fiore D. DiGiovine, Sheldon S. Leppo, and Duane E.
Wheeler have held their present positions during each of the past five years.
Mr. Alan I. Eisenberg has served as Vice President of Marketing since 1986 and
was appointed Vice President Insulating Products Division in 1988, and Vice
President - Sales and Marketing in January, 1992.
Mr. Kozol, for more than five years, has been a partner in the law firm of
Friedman & Atherton, which firm serves as the Company's counsel.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
(a) PRICE RANGE OF COMMON STOCK
The following table sets forth the reported high and low prices for Plymouth
Class A and Class B common stock, which shares are listed and traded on the
American Stock Exchange.
Class A Class B Class A Class B
------- ------- ------- -------
High Low High Low High Low High Low
---- --- ---- --- ---- --- ---- ---
Quarter 1995 Quarter 1994
First . . . . 9 1/8 8 8 7/8 8 First . . . . 8 7/8 5 3/4 8 3/8 5 7/8
Second . . . 8 3/4 7 7/8 8 7/8 7 3/4 Second . . . 8 7 1/4 8 7 3/4
Third . . . . 8 5/8 7 1/8 8 11/16 7 1/16 Third . . . 9 1/4 7 3/8 9 1/4 7 1/4
Fourth . . . 12 8 9/16 12 1/8 8 3/4 Fourth . . . 10 1/2 8 1/4 10 5/8 8 5/8
(b) APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS
As of January 29, 1996, the approximate number of holders of each class
of equity securities of the Company was:
Title of Class Number of Holders
-------------- -----------------
Class A voting common stock $1.00 par value ............. 300
Class B non-voting common stock $1.00 par value ......... 250
(c) DIVIDENDS
The Company has not paid cash dividends on its common stock since its fiscal
year ended in 1970. Under the Company's loan agreements, it is prohibited from
paying any cash dividends with respect to its capital stock or purchasing or
redeeming any of its capital stock, so long as any obligation under the loan
agreements remain outstanding. In addition, a payment of dividends will depend,
among other factors, on earnings, capital requirements and the working capital
needs of the Company. At the present time, the Company intends to follow a
policy of retaining earnings in order to finance the development of its
business.
ITEM 6. SELECTED FINANCIAL DATA (SEE NOTES 2, 3, 4, 13, AND 14 OF THE NOTES TO
FINANCIAL STATEMENTS)
SELECTED INCOME STATEMENT DATA:
Years Ended
-----------------------------------------------------------------------
1995 1994 1993 1992 1991
----------- ----------- ------------ ----------- -----------
Net Sales $53,293,000 $51,045,000 $47,794,000 $42,577,000 $40,067,000
Royalties -- -- $ 40,000 $ 121,000 $ 144,000
Income (loss) from continuing
operations $ 3,123,000 $ 1,930,000 $ 1,585,000 $ 1,352,000 $(2,011,000)
Per Share Data:
Income (loss) from continuing
operations (fully diluted) $ 1.47 $ .92 $ .78 $ .70 $ (1.15)
Weighted average shares outstanding 2,131,407 2,092,345 2,041,171 1,935,699 1,751,807
SELECTED BALANCE SHEET DATA:
Total Assets $31,482,000 $28,398,000 $24,245,000 $21,916,000 $23,615,000
Long Term Liabilities $10,060,000 $10,935,000 $13,716,000 $12,821,000 $13,935,000
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS 1995 COMPARED WITH 1994
Net sales increased for the fifth consecutive year as 1995 (52 week year) sales
at $53,293,000 were up 4% from 1994 (53 week year), which exceeded 1993 by 7%.
Significant sales increases were achieved for Domestic Automotive and Export
markets, a moderate increase in the electrical distributor market, offset by
shortfalls in other markets. Sales to the Domestic Automotive and Export markets
increased 14% and 35%, respectively, over the prior year, and now represent 46%
and 12% of the Company's sales. These results reflect continuing trends toward
more complex electrical systems and motor vehicles, and towards larger vehicles,
especially trucks and sports utility vehicles. In addition, General Motors
continues to expand its wire harness production for outside distribution. In
addition to increased sales, the Company increased finished goods inventories by
approximately $2 million, both to service current demand, and to support its
"global" contract with the Delphi Packard Electric Division of General Motors in
Europe, North Africa, and the Middle East. Although the average weekly sales
rate for the 1995 fourth quarter was 6% higher than the prior year's fourth
quarter rate, sales for the 13-week 1995 quarter decreased 1% from the 14-week
1994 fourth quarter, which itself increased 16% over the 1993 fourth quarter.
Operating income at $3,277,000 was up 6% from 1994 which itself was up 16% from
1993. It reflected no change in gross profit, and a 2% increase in Selling and
Administrative expenses (up $178,000). Gross margin decreased 1% 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. 1994 Operating income
included these unusual charges: (1) $325,000 to increase the provision for costs
related to product warranties associated with the Company's former roofing
materials business, (2) a $150,000 provision as a Potential Responsible Party
("PRP") under "Superfund" legislation, and (3) $125,000 to increase reserves
pertaining to the removal of certain underground tanks no longer in use (See
Note 13 of the Notes To Financial Statements). 1995 Operating income included a
$165,000 gain, net of reserves, from the settlement of an insurance claims. The
Company expects improvement in 1996 gross profit margins over 1995 margins,
reflecting lower raw material prices, anticipated cost reductions generated by
recent and planned capital expenditures, ongoing cost reduction programs and
increased volumes.
Selling expenses increased 12% over 1994, which increased 10% over 1993,
reflecting increases in advertising, freight, salaries and fringe benefits and
travel expenses of $225,000, $149,000, $132,000 and $36,000, respectively.
General and Administrative expenses, exclusive of a $250,000 recovery from an
insurance settlement, decreased 5% from the prior year, on reduced incentive
compensation and professional fees, offset in part by increases in supplies and
computer equipment rentals. In addition, the prior year included charges of
approximately $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 $3,165,000 is up 56% ($1,130,000) from the prior year,
reflecting the 6% increase in operating income noted above, and $1,214,000
increase in other income offset in part by a $271,000 increase in interest
expense. Other income reflects favorable settlements of $395,000 and $825,000
related to litigation related to the Company's previously discontinued Consumer
Products and Roofing Materials businesses, respectively. The increased interest
expense is the result of increased loan volume and an increased rate of
approximately 189 basis points (as a result of increases in the prime rate) on
monies borrowed on the Company's line of credit with its primary lender.
Net income at $3,123,000 is up $1,193,000 from the prior year, exclusive of the
$1,274,000 net benefit in 1994 from the cumulative effect of accounting changes
from the Company's simultaneous adoption of Financial Accounting Standards #109
(FAS 109 - Accounting for Income Taxes) and #106 ( FAS 106 - Employer Accounting
for Postretirement Benefits Other Than Pensions). The current year net income
includes a $1,431,000 recapture of the deferred tax valuation allowance,
resulting in a $42,000 tax provision. The prior year's net income includes a
$1,005,000 recapture of the deferred tax valuation allowance, resulting in a
$105,000 tax provision.
Although the aggregate gross deferred tax asset approximates $5.3 million, a
valuation allowance has been established to reflect the uncertainty of full
realization of the deferred tax asset (see Note 5 of the Notes To Financial
Statements). As of December 1, 1995, the valuation allowance was reduced by
$1,431,000 to $2,044,000, based on estimates of future taxable income through
fiscal 2000. 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 (See Note 10 of
Notes to Financial Statements).
In 1995, cash from operating activities was $2,569,000 as compared to $1,200,000
and $2,239,000 for 1994 and 1993, respectively, as proceeds from net income,
depreciation, and increased accounts payable exceeded the outflow used to expand
inventory ($2,111,000) and to discharge pension obligations. In accord with
Company's agreement with its primary lender, all cash receipts were applied
against the revolving loan which was adjusted daily. The $2,569,000 generated by
operating activities was used to finance $1,489,000 of net additions to plant
and equipment and to pay down term debt and capital leases ($1,180,000).
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 and 1997. (See Footnote 13 of the Notes To Financial Statements).
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 with the EPA in this matter, since such
settlements would not have released the Company with respect to liability for
any future clean-up at the sites in question. No action has been filed by the
EPA against the Company. EPA 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. 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 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. (See Note 13 of the Notes
To Financial Statements).
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. 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 estimate 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. (See Note 13 of the Notes To
Financial Statements). 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 has been formed; and on or about June 20, 1995 and January 11, 1996,
the Company executed agreements and paid assessments of $3,000 and $6,000,
respectively, to become a participant in the Joint Defense Group of OSL/SRS
"transshipper" PRP's and in the Alternative Dispute Resolution Process. All 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 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 accord with Massachusetts requirements, the Company
notified the 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.
The Company operates under United States Environmental Protection Agency ("EPA")
and Massachusetts Department of Environmental Protection ("DEP") permits for VOC
emissions, and in management's opinion, is in compliance with all Federal and
State environmental regulations. In early 1992, the Company made a corporate
commitment to the EPA's voluntary 33/50 Program to reduce toxic omissions and to
foster pollution prevention as the preferred approach to environmental
improvement. The Company intends to continue to make significant progress
towards its voluntary commitment through formulation and process modifications
and moderate capital expenditures. Beginning in late 1993 and continuing through
1995, major modifications were made to certain coating equipment to increase
capacity, reduce cost, and to incorporate improved emission control equipment.
As of December 1, 1995, as required by Financial Accounting Standards Board
Statement #87 ("FAS #87"), the Company revised the discount rate assumption
utilized in its annual remeasurement of its pension obligation from the prior
year's rate of 8.50% to 7.25%, in recognition of the decrease in long-term
interest rates during 1995. This lower rate assumption (reflects the rate of
return inherent in the price at which the pension obligation could currently be
settled with a third party) resulted in an increase to the pension liability of
approximately $1.4 million. Consistent with the requirements of FAS #87, an
incremental after-tax charge to equity was made in the amount of approximately
$324,000 (See Note 8 of the Notes To Financial Statements).
As of December 3, 1994, the Company adopted Financial Accounting Standards Board
Statement #112 (Employer's Accounting for Postemployment Benefits). The
Statement requires that postemployment benefits be recognized on an accrual
basis at the time employment ceases. The adoption of the Statement did not have
a significant impact on the Company's financial statements.
The Financial Accounting Standards Board issued Statement #107 (Disclosures
About Fair Value of Financial Instruments) in 1991. The Statement requires
companies to disclose the fair value of all financial instruments, if practical
to estimate, and, if not practical to estimate fair values, certain other
disclosures are required. The Company plans to adopt this Statement in 1996, and
does not anticipate any significant impact on its Financial Statements from this
adoption.
The Financial Accounting Standards Board issued Statement #119 (Disclosures
About Derivative Financial Instruments and Fair Value of Financial Instruments)
in 1994. The Company plans to adopt this Statement in 1996, and does not
anticipate any significant impact on its Financial Statements from this
adoption.
The Financial Accounting Standards Board issued Statement #121 (Accounting for
the Impairment of Long-Lived Assets and long-Lived Assets to be Disposed Of) in
1995. The Company expects to adopt this Statement 1997, and does not anticipate
any significant impact on its Financial Statements from this adoption.
The Financial Accounting Standards Board issued Statement #123 (Accounting for
Stock-Based Compensation) in 1995. The Company has yet to determine the impact
of the Statement, but will continue to use APB 25 for financial statement
reporting with FAS 123 disclosures in 1997 when the Statement is effective for
the Company.
1994 COMPARED WITH 1993
Net sales increased for the fourth consecutive year as 1994 (53 week year) sales
at $51,045,000 were up 7% from the prior year (52 week year), which exceeded
1992 by 12%. Fourth quarter net sales were up 16% over the prior year's fourth
quarter.
Although some capacity constraints were eliminated in March, (when certain
equipment was returned to production following major modifications to increase
capacity, reduce costs, and incorporate improved emission control equipment),
effective capacity continued to be limited throughout most of the year due to a
materially altered production mix caused by significantly increased automotive
tape demand. Domestic automotive tape sales for the year increased approximately
30% over the prior year. In order to meet automotive demand with existing
capacity, sales to other markets were down from 1993, with the exception of
sales to the telephone industry and electrical contractors. In response to the
increased demand, the Company accelerated its capital investment and capacity
expansion program; capital expenditures approximated $2,150,000 in 1994 compared
to approximately $1,100,000 in each of the prior two years. In the 1994 third
quarter, the Company purchased new slitting equipment and relocated its slitting
and packaging operations to a more modern building in its Canton facility. The
cutting department relocation, in addition to increasing capacity, reduced both
direct labor and material handling costs. In addition, the Company began major
modifications to its adhesive, mixing and coating operations in December, 1994.
In January, 1995, the Company was awarded a new three-year "global" contract to
provide PVC (vinyl) harness tape to the Delphi Packard Electric Division of
General Motors Corporation. The new agreement is expected to add approximately
5% to the Company's overall annual sales by the end of fiscal 1996.
1994 Operating income of $3,090,000 included three unusual charges: (1) $325,000
to increase the provision for costs related to product warranties associated
with the Company's former roofing materials business, (2) a $150,000 provision
as a Potential Responsible Party ("PRP") under "Superfund" legislation for the
clean up of (a) Old Southington Landfill ("OSL Site") in Southington,
Connecticut (see Note 13 of the Notes To Financial Statements) and (b) the
Cannons Engineering Site in Bridgewater, Massachusetts, and (3) $125,000 to
increase reserves pertaining to the removal of certain underground tanks no
longer in use (see Note 13 of the Notes To Financial Statements). Exclusive of
the unusual charges above, and of similar unusual transactions in 1993,
($750,000 to increase warranty reserves and a $400,000 provision as a PRP under
"Superfund" legislation for the clean up of the Solvent Recovery Systems of New
England Site in Southington, Connecticut), Operating Income decreased 18%
($807,000) in 1994, as compared to a 25% increase ($910,000), in 1993 over 1992.
The decrease reflects a $778,000 (6%) reduction in gross profit, inclusive of
the $125,000 increased tank removal provision ($50,000 in 1993) and a 10%
increase in Selling expenses, offset in part by a 13% reduction in General &
Administrative expense. The 6% gross profit reduction from the prior year is
primarily attributable to the high automotive product mix, significantly
increased overtime, escalating raw material costs, increased equipment repairs,
and a reallocation of certain facility expenses from General & Administrative
expense in the prior year to manufacturing overhead, and to overhead spending
associated with the 1994 plant and equipment modification.
Selling expenses increased 10% over the prior year, reflecting increases in
advertising, commissions, freight, and salesmen's salaries and fringe benefits -
up $35,000, $32,000, $214,000, and $175,000, respectively. General and
Administrative expense decreased 13% from the prior year, due primarily to a
partial recapture of a provision for doubtful accounts, a reallocation
approximating $380,000 of unused facility and net carrying costs in the prior
year from G&A expense to manufacturing overhead, and a reduced environmental
charge ($400,000 in 1993, $150,000 in 1994), offset in part by charges
approximating $275,000, inclusive of legal costs, for the settlement of
litigation arising from the Company's previously discontinued coated fabrics
business. In addition, the prior year included an approximate $449,000 increase
in the provision for doubtful accounts. The reallocation of the net carrying
costs reflects the planned utilization for manufacturing space formerly set
aside for lease.
Income before taxes at $2,035,000 is down 24% from the prior year, which
benefited from a $553,000 before tax gain on the sale of a minority stock
position in Societe Plymouth Francaise. The reduced current year income before
taxes reflects, in addition to the 1993 stock sale gain, an 8% reduction in
operating income, offset in part by a 7% reduction in interest expense. The
interest reduction results from reduced interest rates of approximately 32 basis
points (100 basis points equals 1 percent) on money borrowed on the Company's
line of credit with its primary lender, and a 194 basis point rate reduction on
the Company's term debt, which was restructured in October, 1993, offset in part
by increased loan volume to finance the Company's capital investment and
capacity expansion program.
Net income at $3,204,000 is up 14% from the prior year's income of $2,818,000,
which included a $282,000 gain on the early extinguishment of term debt due
January 1, 1996, and a $951,000 income tax benefit from utilizing net operating
loss carryforwards. Included in the $3,204,000 1994 net income is (1) a
$1,274,000 benefit from the cumulative effect of accounting changes resulting
from the Company's simultaneous adoption of Financial Accounting Standards #109
(FAS 109 - Accounting for Income Taxes), and #106 (FAS 106 - Employer Accounting
for Postretirement Benefits Other Than Pensions) as of the beginning of fiscal
1994, and (2) a $1,005,000 recapture of the deferred tax valuation allowance
which was established at the adoption of FAS 109 and resulted in an effective
annual tax rate of approximately 5%.
The effect of the 1994 adoption of FAS 109 was to increase the deferred tax
asset from the one million dollars reported at the end of fiscal 1993 to $3.2
million at the beginning of fiscal 1994. The recording of the additional asset
increased the 1994 first quarter net income by approximately $2.2 million. At
December 2, 1994, the aggregate net deferred tax asset before consideration of a
valuation allowance approximated $6.1 million, reflecting (1) tax timing
differences primarily due to future deductions related to the Company's net
pension obligation of approximately $3.6 million, and (2) the $7.3 million of
tax basis federal net operating loss (NOL) carryforwards, which expire during
the period from 2002 to 2006.
Although the aggregate net deferred tax asset approximated $6.1 million, a
valuation allowance was established to reflect the uncertainty of full
realization of the deferred tax asset (see Note 5 of the Notes To Financial
Statements). As of December 2, 1994, the valuation allowance was reduced after
adoption by $1.0 million to $3,475,000, based on estimates of future taxable
income through fiscal 1997. The valuation allowance was established in
recognition of the difficulty inherent in estimating income at that date beyond
a three-year horizon.
The effect of the adoption of FAS 106, utilizing the immediate recognition
method related to the transition obligation, was to decrease the first quarter
and fiscal 1994 net income by $949,000, which was reported as a cumulative
accounting change. The Company's plan provides benefits only to age 65 for
disability retirees and employees who retire at age 62, and certain limited life
insurance benefits for retired employees. The annual Postretirement expense for
1994 was estimated at $91,000, inclusive of service and interest costs of
$30,000 and $61,000, respectively.
Working capital at December 2, 1994 at $1,076,000 was virtually unchanged (down
$41,000) from the beginning of the year despite capital investments of
$2,018,000 and a $1,058,000 reduction in debt on working capital generated by
the adoption of FAS #109 ($686,000) (See Note 5 to the Notes To Financial
Statements), depreciation ($1,092,000), net income and other sources.
In 1994, operating activities generated a net cash inflow of $1,200,000 as
compared to $2,239,000 and $1,167,000 for 1993 and 1992, respectively, as
proceeds from Net Income adjusted for Cumulative Accounting Changes
($1,930,000), Depreciation ($1,092,000), non-cash warranty and environmental
reserve increases of $325,000 and $150,000, respectively, reduced prepaid
expense and increased accrued expenses exceeded the outflow used to expand
inventory and accounts receivable (up $1,527,000 and $387,000, respectively),
and to discharge product warranties ($279,000) and pension obligations
($189,000). In accordance with the Company's agreement with its primary lender,
all cash receipts were applied against the revolving loan which was adjusted
daily. The $1,200,000 generated by operating activities, coupled with a
$2,162,000 increase in the utilization of the Company's revolving line of
credit, was used to finance the $2,018,000 net additions to plant and equipment
and to pay down term debt and capital leases totaling $1,331,000.
As of December 2, 1994, the Company received its first unqualified Report of
Independent Accountants since fiscal 1985. The Report had previously contained
an "uncertainty" paragraph, related to the adequacy of reserves for warranty
costs associated with the Company's discontinued roofing membranes business. As
over 95% of the warranties had expired as of that date, the remaining warranty
reserve ($1 million as of December 1994) appeared adequate.
As of December 2, 1994, as required by Financial Accounting Standards Board
Statement #87 ("FAS #87"), the Company revised the discount rate assumption
utilized in its annual remeasurement of its pension obligation from the 1993
year's rate of 6.75% to 8.50%, in recognition of the increase in long-term
interest rates during 1994. This higher rate assumption (reflects the rate of
return inherent in the price at which the pension obligation could currently be
settled with a third party) resulted in a decrease to the pension liability of
approximately $2.2 million. Consistent with the requirements of FAS #87, the
decreased liability was credited to equity, net of approximately $739,000 of
deferred taxes. (See Note 8 of the Notes To Financial Statements).
LIQUIDITY
On November 30, 1993, the Company amended its secured loan agreement of June 14,
1989, with the Massachusetts Thrift Institutions Fund For Economic Development
to extend the maturity date from June 1, 1994 to December 1, 1996. Under the
terms of the amended agreement, the Company is required to make monthly
principal payments of $19,381 plus accrued interest through to December 1, 1996.
On December 29, 1995, the Company entered into an additional term loan agreement
with a third lender, which provided a $3.6 million term loan (See Note 14 of the
Notes to Financial Statements). The term loan is payable in monthly installments
of $75,094, including interest, with the final payment due December 29, 2000.
The loan is secured by certain equipment of the Company.
The Company's line of credit and term loan agreement, subsequent to the December
29, 1995 equipment refinancing, with its primary lender provides for a $1.5
million term loan and a revolving line of credit of $9 million. The term loan is
payable in monthly installments of $60,000, with the balance due October 1,
1996. The term loan and the revolving line of credit are secured by the
Company's accounts receivable, inventory, real property, plant and other
personal property.
As of December 29, 1995, because of collateral limitations, the Company had
approximately $2,300,000 of unused borrowing capacity under the $9 million
revolving line of credit. During the year, the Company's average amount
outstanding under the revolving line of credit was $6,452,000, and its maximum
amount outstanding was $7,155,000. In the opinion of management, anticipated
profits, as well as unused capacity under existing borrowing arrangements, will
provide sufficient funds to meet expected needs during 1996, including working
capital expansion to support sales growth, and investment in improved technology
and capital equipment. The Company is evaluating several financing proposals and
expects to complete the refinancing of its line of credit and term loan
agreement with its primary lender prior to the October 1, 1996 expiration.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by this item are set
forth on pages 16 to 42 herein.
ITEM 9. DISAGREEMENT ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
To the extent not included in Part I hereof, the information required by this
item is hereby incorporated by reference from the Company's definitive proxy
statement pursuant to Regulation 14A, which proxy statement involves the
election of Directors and is expected to be filed with the Commission within 120
days after the close of the fiscal year ended December 1, 1995.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is hereby incorporated by reference from
the Company's definitive proxy statement pursuant to Regulation 14A, which proxy
statement involves the election of Directors and is expected to be filed with
the Commission within 120 days after the close of the fiscal year ended December
1, 1995.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is hereby incorporated by reference from
the Company's definitive proxy statement pursuant to Regulation 14A, which proxy
statement involves the election of Directors and is expected to be filed with
the Commission within 120 days after the close of the fiscal year ended December
1, 1995.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is hereby incorporated by reference from
the Company's definitive proxy statement pursuant to Regulation 14A, which proxy
statement involves the election of Directors and is expected to be filed with
the Commission within 120 days after the close of the fiscal year ended December
1, 1995.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(A)1. Financial statements filed as part of this report are listed in the index
appearing on page 15.
(A)2. Financial statement schedules required as part of this report are listed
in the index appearing on page 15.
(A)3. Exhibits required as part of this report are listed in the index
appearing on pages 43 through 45.
(B) Reports on Form 8-K. During the quarter ended December 1, 1995, the
Registrant filed a current report on Form 8-K dated September 11,1995, reporting
that a settlement was reached in its suit against Mallyclad Corporation before
trial. The settlement required Mallyclad to pay $825,000, in exchange for full
and complete mutual release.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934 the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
PLYMOUTH RUBBER COMPANY, INC.
(Registrant)
By DUANE E. WHEELER
---------------------------
Duane E. Wheeler,
Vice President - Finance
and Treasurer
Date: February 16, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities on February 16, 1996.
President and Director
MAURICE J. HAMILBURG (Principal Executive Officer)
- ---------------------------------------
Maurice J. Hamilburg
JOSEPH D. HAMILBURG Director
- ---------------------------------------
Joseph D. Hamilburg
SUSAN Y. FRIEDMAN Director
- ---------------------------------------
Susan Y. Friedman
JANE H. GUY Director
- ---------------------------------------
Jane H. Guy
MELVIN L. KEATING Director
- ---------------------------------------
Melvin L. Keating
Vice President - Finance and
Treasurer (Principal Financial
Officer and Principal
DUANE E. WHEELER Accounting Officer
- ---------------------------------------
Duane E. Wheeler
PLYMOUTH RUBBER COMPANY, INC.
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
PAGE
----
Report of Independent Accountants................................. 16
Balance Sheet at December 1, 1995, and December 2, 1994........... 17 - 18
Statement of Operations and Retained Earnings for each of the
three years in the period ended December 1, 1995................ 19 - 20
Statement of Cash Flows for each of the three years in the
period ended December 1, 1995................................... 21 - 22
Notes to Financial Statements..................................... 23 - 41
Reserves (Schedule VIII) ......................................... 42
The financial statement schedules should be read in conjunction with the
financial statements. Schedules not included with this financial data have been
omitted because they are not applicable or the required information is shown in
the financial statements or notes thereto.
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
PLYMOUTH RUBBER COMPANY, INC.
In our opinion, the financial statements listed in the accompanying index
appearing on page 15 present fairly, in all material respects, the financial
position of Plymouth Rubber Company, Inc. at December 1, 1995 and December 2,
1994, and the results of its operations and its cash flows for each of the three
years in the period ended December 1, 1995, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 2 of the financial statements, effective November 27, 1993,
the Company changed its method of accounting for income taxes and postretirement
health benefits.
PRICE WATERHOUSE LLP
Boston, Massachusetts
February 1, 1996
PLYMOUTH RUBBER COMPANY, INC.
BALANCE SHEET
ASSETS
December 1, December 2,
1995 1994
----------- -----------
CURRENT ASSETS:
Accounts receivable, less allowance for doubtful
accounts of $174,000 and $540,000 in 1995 and
1994, respectively................................ $ 6,441,000 $ 6,515,000
Inventories:
Raw materials..................................... 2,474,000 2,102,000
Work in process................................... 2,270,000 2,468,000
Finished goods.................................... 5,589,000 3,652,000
----------- -----------
10,333,000 8,222,000
----------- -----------
Prepaid expenses and other current assets .......... 2,857,000 2,083,000
----------- -----------
Total current assets.............................. 19,631,000 16,820,000
----------- -----------
PLANT ASSETS:
Land................................................ 121,000 121,000
Buildings........................................... 5,346,000 5,525,000
Machinery and equipment............................. 20,755,000 21,064,000
Construction in progress............................ 739,000 813,000
----------- -----------
26,961,000 27,523,000
Less: Accumulated depreciation...................... 18,901,000 20,124,000
----------- -----------
8,060,000 7,399,000
----------- -----------
OTHER ASSETS........................................... 3,791,000 4,179,000
----------- -----------
$31,482,000 $28,398,000
=========== ===========
The notes are an integral part of these financial statements.
PLYMOUTH RUBBER COMPANY, INC.
BALANCE SHEET -- (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
December 1, December 2,
1995 1994
----------- -----------
CURRENT LIABILITIES:
Revolving line of credit..................................... $ 4,331,000 $ 5,979,000
Trade accounts payable....................................... 5,497,000 4,344,000
Accrued expenses............................................. 3,976,000 3,649,000
Current portion of long-term obligation...................... 2,392,000 1,156,000
Current portion product warranties........................... 580,000 616,000
----------- -----------
Total current liabilities.................................. 16,776,000 15,744,000
----------- -----------
LONG-TERM LIABILITIES:
Borrowings................................................... 3,143,000 3,752,000
Pension obligation .......................................... 4,880,000 4,894,000
Product warranties........................................... 294,000 384,000
Other ....................................................... 1,743,000 1,905,000
----------- -----------
Total long-term liabilities................................ 10,060,000 10,935,000
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 13)
STOCKHOLDERS' EQUITY:
Preferred stock $10 par value, authorized 500,000
shares; no shares issued and outstanding ................... -- --
Class A voting common stock, $1 par value, authorized
1,500,000 shares; issued and outstanding 810,586
shares in 1995 and 1994.................................... 810,000 810,000
Class B non-voting common stock $1 par value,
authorized 3,500,000 shares; issued and
outstanding 1,054,201 shares in 1995 and 814,267
shares in 1994 ............................................. 1,054,000 814,000
Paid-in capital.............................................. 8,303,000 6,987,000
Retained earnings (deficit).................................. (4,577,000) (6,234,000)
Pension liability adjustment, net of tax .................... (716,000) (392,000)
Deferred compensation........................................ (228,000) (266,000)
----------- -----------
4,646,000 1,719,000
----------- -----------
31,482,000 $28,398,000
=========== ===========
The notes are an integral part of these financial statements.
PLYMOUTH RUBBER COMPANY, INC.
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
Year Ended
--------------------------------------------------
December 1, December 2, November 26,
1995 1994 1993
---------- ----------- ------------
Revenues:
Net sales................................... $ 53,293,000 $ 51,045,000 $ 47,794,000
Royalties................................... -- -- 40,000
------------ ------------ -------------
53,293,000 51,045,000 47,834,000
------------ ------------ -------------
Costs and Expenses:
Cost of products sold ...................... 40,621,000 38,407,000 34,378,000
Selling, general and administrative ........ 9,395,000 9,223,000 9,359,000
Product warranties.......................... -- 325,000 750,000
------------ ------------ -------------
50,016,000 47,955,000 44,487,000
------------ ------------ -------------
Operating income............................... 3,277,000 3,090,000 3,347,000
Interest expense............................... (1,401,000) (1,130,000) (1,211,000)
Other income, net.............................. 1,289,000 75,000 533,000
------------- ------------ -------------
Income before income taxes..................... 3,165,000 2,035,000 2,669,000
Provision for taxes on income.................. (42,000) (105,000) (1,084,000)
------------- ----------- --------------
Income before extraordinary items and
cumulative effect of changes in accounting
principle .................................... 3,123,000 1,930,000 1,585,000
Extraordinary item - gain on extinguishment
of debt, net of taxes....................... -- -- 282,000
Extraordinary item - income tax benefit from
utilizing net operating loss carryforwards.... -- -- 951,000
Cumulative effect of changes in accounting
principles, net ............................. -- 1,274,000 --
------------- ------------- -------------
Net income..................................... 3,123,000 3,204,000 2,818,000
Retained earnings (deficit) at beginning
of year..................................... (6,234,000) (9,438,000) (12,256,000)
Less 10% stock dividend ....................... (1,466,000) -- --
------------ ------------ -------------
Retained earnings (deficit) at end of year..... $ (4,577,000) $ (6,234,000) $ ( 9,438,000)
============ ============ =============
The notes are an integral part of these financial statements
PLYMOUTH RUBBER COMPANY, INC.
STATEMENT OF OPERATIONS AND RETAINED EARNINGS -- (CONTINUED)
December 1, December 2, November 26,
1995 1994 1993
---------- ---------- ------------
PER SHARE DATA:
PRIMARY EARNINGS PER SHARE:
Income before extraordinary items ............ $ 1.48 $ .93 $ .78
Extraordinary items ........................... -- -- .60
Cumulative effect of changes in accounting
principle .................................... -- .61 --
------------- -------------- -------------
Net Income..................................... $ 1.48 $ 1.54 $ 1.38
============= ============== =============
Weighted average number of shares outstanding.. 2,105,918 2,083,063 2,039,226
============= ============== =============
FULLY DILUTED EARNINGS PER SHARE:
Income before extraordinary items.............. $ 1.47 $ .92 $ .78
Extraordinary items............................ -- -- .60
Cumulative effect of changes in accounting
principle .................................... -- .61 --
------------- -------------- --------------
Net Income..................................... $ 1.47 $ 1.53 $ 1.38
============= ============== ==============
Weighted average number of shares outstanding.. 2,131,407 2,092,345 2,041,171
============= ============== ==============
The notes are an integral part of these financial statements.
PLYMOUTH RUBBER COMPANY, INC.
STATEMENT OF CASH FLOWS
Year Ended
---------------------------------------------------
December 1, December 2, November 26,
1995 1994 1993
------------ ------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income................................... $ 3,123,000 $ 3,204,000 $ 2,818,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.............. 1,051,000 1,092,000 975,000
Cumulative effect of changes in accounting
principle................................. -- (1,274,000) --
Deferred income tax (benefit) provision.... (454,000) (133,000) (298,000)
Gain on sale of minority interest.......... -- -- (553,000)
Provision for doubtful accounts............ 4,000 (35,000) 449,000
Provision for product warranty costs....... -- 325,000 750,000
Provision for environmental reserves....... 100,000 150,000 400,000
Amortization of deferred compensation...... 38,000 38,000 13,000
Changes in assets and liabilities:
Accounts receivable........................ 70,000 (387,000) (1,090,000)
Inventory.................................. (2,111,000) (1,527,000) (493,000)
Prepaid expenses........................... 105,000 257,000 (203,000)
Other assets............................... 181,000 (71,000) (68,000)
Accounts payable........................... 1,152,000 (137,000) 653,000
Accrued expenses........................... 115,000 387,000 317,000
Product warranties......................... (126,000) (279,000) (1,507,000)
Other liabilities.......................... (113,000) (221,000) (227,000)
Pension obligation......................... (566,000) (189,000) 303,000
----------- ------------ -----------
Net cash provided by operating activities .. 2,569,000 1,200,000 2,239,000
----------- ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ........................ (1,712,000) (2,150,000) (1,181,000)
Sale/leaseback of plant assets............... 223,000 132,000 --
Proceeds from sale of minority interest...... -- -- 561,000
------------ ------------ -----------
Net cash provided by (used in) investing
activities ................................... (1,489,000) (2,018,000) (620,000)
------------ ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in revolving line
of credit.................................. 69,000 2,162,000 (834,000)
Proceeds from term debt..................... -- -- 5,186,000
Payments of term debt....................... (1,022,000) (1,058,000) (5,848,000)
Payments on capital leases.................. (160,000) (273,000) (197,000)
Proceeds from insurance financing........... 191,000 276,000 386,000
Payments on insurance financing............. (249,000) (291,000) (313,000)
Proceeds from issuance of common stock ..... 91,000 2,000 1,000
----------- ------------ -----------
Net cash provided by (used in) financing
activities................................. (1,080,000) 818,000 (1,619,000)
----------- ------------ -----------
Net change in cash............................ -- -- --
Cash at the beginning of the period........... -- -- --
----------- ------------ -----------
Cash at the end of the period................. $ -- $ -- $ --
=========== ============ ===========
The notes are an integral part of these financial statements.
PLYMOUTH RUBBER COMPANY, INC.
STATEMENT OF CASH FLOWS -- (CONTINUED)
Year Ended
----------------------------------------------------
December 1, December 2, November 26,
1995 1994 1993
------------- --------------- ------------
Supplemental Disclosure of Cash Flow Information
Cash paid for interest ....................... $1,410,000 $ 1,190,000 $1,207,000
========== =========== ==========
Cash paid for income taxes.................... $ 169,000 $ 269,000 $ 567,000
========== =========== ==========
Supplemental Disclosure of Non-Cash Activities
Non-Cash Transactions:
Increase/(decrease) in additional minimum
pension liability offset by intangible
asset........................................ $ 279,000 $(2,272,000) $2,376,000
========== =========== ==========
Increase/(decrease) in deferred tax asset
related to FAS 87 equity charge.............. $ 217,000 $ (739,000) $1,000,000
========== =========== ==========
Increase/(decrease) in equity adjustment
related to FAS 87 minimum pension liability.. $ 324,000 $(1,271,000) $ 1,663,000
========== ============ ===========
Assets acquired under capital lease
obligations.................................. $ -- $ -- $ 13,000
========== ============ ===========
Deferred compensation on stock option grant
offset by credit to paid-in capital......... $ -- $ -- $ 317,000
========== ============ ===========
Write off of fully depreciated and disposed
of plant assets:
- Gross cost ............................. $ 2,274,000 $ 2,211,000 $ --
=========== ============ ===========
- Accumulated depreciation ................ $ 2,274,000 $ 2,211,000 $ --
=========== ============ ===========
The notes are an integral part of these financial statements.
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. THE COMPANY -- Plymouth Rubber Company, Inc. manufactures and supplies
rubber and vinyl products to a broad range of markets, including the electrical
supply industry, electric utilities, automotive and other Original Equipment
Manufacturing.
B. INVENTORIES -- Inventories are valued at the lower of cost, principally
on the first-in, first-out method, or market.
C. PLANT ASSETS -- Plant assets are stated at cost. Additions, renewals and
betterments of plant assets, unless of relatively minor amounts, are
capitalized. Maintenance and repairs are charged to expense as incurred.
Depreciation and amortization are provided on the straight-line method based
upon the estimated useful lives of 15-45 years for buildings and 3-14 years for
machinery and equipment. The cost and related accumulated depreciation of fully
depreciated and disposed of assets are removed from the accounts.
D. ENVIRONMENTAL MATTERS -- Environmental expenditures that relate to
current operations are expensed or capitalized as appropriate. Expenditures
which relate to an existing condition caused by past operations are expensed.
Liabilities are recorded without regard to possible recoveries from third
parties, including insurers, when environmental assessments and/or remediation
efforts are probable and the costs can be reasonably estimated.
E. RETIREMENT PLANS -- The Company provides certain pension and health
benefits to retired employees. Pension costs are accounted for in accordance
with Financial Accounting Standards Board Statement (FAS) #87 (Employers
Accounting for Pensions). Unrecognized pension gains and losses are amortized on
a straight line basis over ten years (See Note 8). Effective November 27, 1993,
the Company adopted FAS #106 (Employers Accounting for Postretirement Benefits
Other than Pensions), which requires the cost of Postretirement health benefits
to be accrued during the employees' active service period (See Note 8).
F. INCOME TAXES -- Effective November 27, 1993, the Company adopted FAS
#109 (Accounting For Income Taxes). The adoption of FAS #109 changed the
Company's method of accounting for income taxes from the deferred method under
APB#11, which deferred the tax effects of timing differences between financial
reporting and taxable income, to an asset and liability approach. The asset and
liability approach requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of temporary differences
between the financial statement carrying amounts and the tax basis of the
Company's assets and liabilities (See Note 5).
G. EARNINGS PER SHARE -- All per share calculations are computed based on
the weighted average number of common shares outstanding during the year,
adjusted for the impact of the Company's stock option plans and outstanding
stock warrants (see Note 9).
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
H. FOURTH QUARTER CHARGES -- During the fourth quarter of 1994 and 1993,
the Company recorded charges of $325,000 and $750,000, respectively, as a result
of changes in estimates related to its product warranty reserves (see Note 13).
In addition, during the fourth quarter of 1995, 1994 and 1993, the Company
recorded charges of $100,000, $150,000 and $400,000, respectively, for
environmental liabilities arising from past operations.
NOTE 2 -- ACCOUNTING CHANGES
During the first quarter of 1994, the Company changed its method of accounting
for income taxes and Postretirement health benefits to conform with the of two
accounting standards issued by the Financial Accounting Standards Board. The net
effect of these changes, as of the adoption date of November 27, 1993, has been
recognized as the cumulative effect of changes in accounting principles in the
accompanying Statement of Operations for the year ended December 2, 1994 as
follows:
Accounting for income taxes (See Note 5) $2,223,000
Accounting for Postretirement health benefits
(See Note 8) (949,000)
----------
Net benefit $1,274,000
NOTE 3 -- BORROWING ARRANGEMENTS
On December 29, 1995, the Company refinanced a portion of its term debt with a
new lender (See Note 14).
In October, 1993, the Company renegotiated and restructured a significant
portion of its existing debt with two of its lenders, which resulted in an
expansion of its overall credit facility and the consolidation of its new
revolver and term loan facility with one lender. The principal terms of the
facility included an expansion of the Company's revolving line of credit with
its primary short term lender from $8 million to a maximum borrowing amount of
$9 million, with a reduction in interest from prime plus 3.5% to prime plus 2%,
and a new term loan facility in the amount of $5 million. The new term debt
facility was used to pay off $4.8 million of term debt due January 1, 1996, at a
prepayment discount of $468,000, and the balance of the Company's $750,000 term
debt due December 15, 1993. In connection with the above, the Company recorded
an extraordinary gain on extinguishment of debt of $282,000, net of $186,000 in
related income taxes, in the accompanying Statement of Operations and Retained
Earnings. Earnings per share on the extraordinary gain was $.14.
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- BORROWING ARRANGEMENTS (CONTINUED)
A summary of the Company's revolving line of credit and term debt
consists of the following:
Dec. 1, Dec. 2,
1995 1994
-------- --------
Short-term Borrowings under a $9,000,000
revolving line of credit, secured by a
first interest in accounts receivable,
inventory, and other personal property
with interest charged at prime plus
2.0%. At December 29, 1995, the Company
had approximately $2,300,000 in unused
borrowing availability on its revolving
line of credit. The interest rate at
December 1, 1995 was 10.75% (See Note 14).... $4,331,000 $5,979,000
========== ==========
Term debt, in the original principal
amount of $5,000,000, due October 1,
1996, secured by a first interest in
real property and a third security
interest in accounts receivable,
inventory, equipment, and other
personal property. Monthly principal
payments are $60,000 plus interest at
prime plus 2.0%. The interest rate at
December 1, 1995 was 10.75% (See Note 14) .. $3,440,000 $4,160,000
Term debt, in the original principal
amount of $1,250,000, secured by a
second interest in real property,
accounts receivable, inventory,
equipment and other personal property.
Monthly principal payments are $19,381
plus interest at the lender's base rate
(subject to annual adjustment) from
December 1, 1993 through November 1,
1996, with remaining principal balance
plus accrued interest due December 1,
1996. The interest rate at December 1,
1995 was 9.91% ............................. 213,000 465,000
Term debt, in the original principal
amount of $280,000 secured by a third
interest in real property. Monthly
payments of $5,000 including interest
at 8% through October 1, 1997 ............ 99,000 149,000
Short-term borrowings under a revolving
line of credit expected to be
refinanced with long term debt (See
Note 14 ) .................................. 1,717,000 --
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- BORROWING ARRANGEMENTS (CONTINUED)
Dec. 1, Dec. 2,
1995 1994
---------- ---------
Capital Lease Obligations
(see Note 11) 304,000 241,000
---------- ----------
5,773,000 5,015,000
Less Current Portion 2,392,000 1,156,000
---------- ----------
$3,381,000 $3,859,000
========== ==========
At December 1, 1995 and December 2, 1994, $238,000 and $107,000,
respectively of long term capital lease obligation are included in Other long
term liabilities in the accompanying Balance Sheet.
The Company's revolving credit loan and long term debt instruments contain
various covenants which, among other things, prohibit cash dividends without the
consent of the lender and specify that the Company meet certain financial
requirements, including certain net worth and working capital levels. In
addition, this agreement contains certain subjective provisions which would
result in an event of default if there were a "material impairment" of the
prospect of repayment of the debt or of the value, or priority of the lender's
security interests in the collateral.
Maturities of long-term obligations, taking into consideration the terms of
the partial debt refinancing completed in December 1995 (see Note 14) in the
next five years are: 1996 - $2,392,000; 1997 - $777,000; 1998 - $862,000; 1999 -
$936,000; and 2000 - $806,000.
NOTE 4 - SALE OF INVESTMENT
In July, 1993, the Company sold substantially all of its minority interest
in Societe Plymouth Francaise for $561,000 and recorded a pre-tax gain of
$553,000, which is included in Other Income in the accompanying Statement of
Operations. The proceeds, net of foreign taxes of $28,000, were used to pay down
the Company's loan under its revolving line of credit.
NOTE 5 - INCOME TAXES
Effective November 27, 1993, the Company adopted the provisions of
Statement of Financial Accounting Standards #109, "Accounting for Income Taxes"
("FAS 109"). The adoption of FAS 109 as of November 27, 1993 increased net
income by $2.2 million ($1.07 per share). Prior years' financial statements have
not been restated to reflect the provisions of FAS 109. The 1993 tax provision
has been determined in accordance with Accounting Principles Board (APB) Opinion
#11.
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 - INCOME TAXES (CONTINUED)
The provision (benefit) for income taxes consists of the following:
Year Ended
------------------------------------
Dec. 1, Dec. 2, Nov. 26,
1995 1994 1993
------- ------- -------
Current:
Federal ........................ $ 53,000 $ 56,000 $1,197,000
State .......................... 443,000 182,000 343,000
Foreign ........................ -- -- 28,000
-------- --------- ----------
496,000 238,000 1,568,000
-------- --------- ----------
Deferred:
Federal ........................ (362,000) (4,000) (235,000)
State .......................... (92,000) (129,000) (63,000)
-------- --------- ----------
(454,000) (133,000) (298,000)
-------- --------- ----------
Total ............................. $ 42,000 $ 105,000 $1,270,000
======== ========= ==========
The significant components of the deferred income tax benefit attributable
to income from continuing operations are as follows:
Year Ended
---------------------
Dec. 1, Dec. 2,
1995 1994
------- -------
Deferred tax expense (exclusive of the
valuation allowance component listed below) .... $ 977,000 $ 872,000
Decrease in beginning-of-the-year balance
of the valuation allowance ..................... (1,431,000) (1,005,000)
---------- -----------
Total $ (454,000) $ (133,000)
========== ===========
For the year ended November 26, 1993 the deferred income tax benefit
results from differences in the recognition of expenses for income tax and
financial reporting purposes. The primary sources of deferred income tax benefit
were environmental reserves, warranties, depreciation and bad debt expense.
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 - INCOME TAXES (CONTINUED)
The components of the net deferred tax asset are as follows:
Dec. 1, Dec. 2,
1995 1994
------ -------
Deferred tax asset:
Federal Net Operating Loss (NOL)
Carryforwards ............................... $1,599,000 $2,487,000
Pension obligations .......................... 1,650,000 1,524,000
Federal Investment Tax Credit (ITC)
Carryforwards ............................... 575,000 586,000
Postretirement benefits ...................... 410,000 410,000
All Other .................................... 1,427,000 1,534,000
---------- ----------
Total gross deferred tax assets ........... 5,661,000 6,541,000
Valuation allowance ....................... (2,044,000) (3,475,000)
---------- ----------
3,617,000 3,066,000
Deferred tax liability:
Plant assets ................................. (352,000) (472,000)
---------- ----------
Net deferred tax asset .................... $3,265,000 $2,594,000
========== ==========
The current portion of the net deferred tax asset ($1,563,000) is included
in Prepaid Expenses and Other Current Assets (see Note 6), while the net
non-current portion ($1,702,000) is included in Other Assets in the accompanying
Balance Sheet. The valuation allowance for deferred tax assets was reduced in
1995 by $1,431,000, and in 1994, after initial adoption, by $1,005,000. The
valuation allowance at December 1, 1995 has been determined based on
management's estimate of future taxable income for 1996 through 2000. Beyond
this five year horizon, management believes it is not possible to reasonably
forecast results particularly due the uncertainty created by the Company's
dependency on the Automotive Industry in general, and its significant customer
in particular (See Note 10).
The Company has NOL's of approximately $4,702,000 at December 1, 1995.
These carryforwards, along with their expiration dates are as follows:
Year of
Expiration Amount
---------- ------
2002 $1,383,000
2003 2,423,000
2004 77,000
2005 502,000
2006 317,000
----------
$4,702,000
==========
In addition, the Company has ITC carryforwards of $575,000, which expire
during the period 1996 through 2001. If certain substantial changes in the
Company's ownership should occur, there would be an annual limitation on the
amount of NOL carryforwards which could be utilized, and restrictions on the
utilization of ITC carryforwards.
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 - INCOME TAXES (CONTINUED)
A reconciliation of the statutory federal income tax rate and the effective
income tax rate for the years ended December 2, 1994, November 26, 1993, and
November 28, 1992, is as follows:
Year Ended
------------------------------
Dec. 1, Dec. 2, Nov. 26,
1995 1994 1993
------- ------- -------
Statutory rate ...................... 34.0% 34.0% 34.0%
State income taxes, net of
U.S. income tax benefit ............ 9.4 4.4 5.9
Valuation allowance reduction ....... (45.2) (49.4) --
Return to provision adjustments
impacting deferred tax asset ....... -- 13.6 --
Other ............................... 3.1 2.6 .6
---- ---- ---
1.3% 5.2% 40.5%
==== ==== ====
NOTE 6 - PREPAID EXPENSES AND OTHER CURRENT ASSETS
The Company's prepaid expenses and other current assets consist of the
following:
December 1, December 2,
1995 1994
----------- -----------
Certificate of deposit....................... $ 600,000 $ 600,000
Other prepaid expenses and current assets.... 694,000 797,000
Deferred tax asset, net of valuation
allowance................................... 1,563,000 686,000
---------- ---------
$2,857,000 $2,083,000
========== ==========
The Company maintains a certificate of deposit in the amount of $600,000
which is restricted as to use and secures a standby letter of credit issued by a
bank.
NOTE 7 - ACCRUED EXPENSES
The Company's accrued expenses consist of the following:
December 1, December 2,
1995 1994
----------- -----------
Accrued payroll and related benefits............ $1,250,000 $1,241,000
Accrued pension contributions ................. 1,228,000 1,240,000
Other.......................................... 1,498,000 1,168,000
---------- ----------
$3,976,000 $3,649,000
========== ==========
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 - RETIREMENT PLANS
The Company has a non-contributory, defined benefit pension plan and a
contributory, defined contribution profit sharing trust, covering substantially
all employees. The Company's defined benefit pension plan provides benefits for
stated amounts for each year of service. The Company's defined contribution
profit sharing trust allocates Company contributions based upon a combination of
annual pay and employee elective deferral of pay. The Company's funding policy
for the pension plan is to make contributions at least equal to the minimum
required by the applicable regulations. The Company may make a discretionary
contribution to the profit sharing trust. During 1995, 1994 and 1993, the
Company accrued $250,000, $240,000, and $200,000 of profit sharing expense,
respectively.
Net periodic pension costs for the pension plans for the years ended
December 1, 1995, December 2 , 1994, and November 26, 1993 are as follows:
Year Ended
--------------------------------------
Dec. 1, Dec. 2, Nov. 26,
1995 1994 1993
-------- ------- --------
Service cost-benefits earned
during the period ................ $ 109,000 $ 144,000 $ 98,000
Interest on projected benefit
obligation ....................... 1,019,000 956,000 1,023,000
Actual return on assets ......... (1,494,000) (143,000) (429,000)
Net amortization and deferral ..... 1,273,000 128,000 5,000
----------- ---------- ----------
Net periodic pension costs...... $ 907,000 $1,085,000 $ 697,000
=========== ========== ==========
Assumptions used in determining net
periodic cost:
Discount rate....................... 8.50% 6.75% 8.75%
Long term rate of return on assets . 9.00% 9.00% 11.00%
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 - RETIREMENT PLANS (CONTINUED)
The following table details the plans' funding status and the amounts
recognized in the accompanying financial statements, utilizing a discount rate
of 7.25% and 8.50% at December 1, 1995 and December 2, 1994, respectively:
Dec. 1, Dec. 2,
1995 1994
-------- -------
Vested benefits................................... $13,601,000 $12,182,000
Nonvested benefits .............................. 242,000 241,000
----------- -----------
Projected benefit obligation...................... 13,843,000 12,423,000
Plan assets at fair value . ..................... 7,735,000 6,289,000
----------- -----------
Projected benefit obligation in excess
of plan assets.................................. 6,108,000 6,134,000
Unrecognized net actuarial losses................. (1,194,000) (653,000)
Unrecognized net obligation at transition......... (1,833,000) (2,095,000)
Adjustment required to recognize minimum
liability . .................................... 3,027,000 2,748,000
----------- -----------
Accrued pension costs . ................. $ 6,108,000 $ 6,134,000
=========== ===========
The following table details the plan assets held at fair market value as of
December 1, 1995 and December 2, 1994:
Dec. 1, Dec. 2,
Assets 1995 1994
------ --------- --------
Common Stock ..................................... $ 5,890,000 $ 4,533,000
Bonds ............................................ 1,619,000 1,688,000
Cash ............................................ 226,000 68,000
----------- -----------
$ 7,735,000 $ 6,289,000
=========== ===========
The Company, in accordance with FAS #87, had an adjusted minimum pension
liability of $2,748,000 at December 2, 1994, which represented the excess of
minimum accumulated net benefit obligation over previously recorded pension
liabilities. Such amount has been adjusted to $3,027,000 to reflect current
valuations utilizing a decreased discount rate of 7.25%. Also, as provided for
in FAS #87, an intangible asset of $1,833,000 and a charge to stockholders'
equity of $716,000, net of $478,000 of deferred taxes, are recorded in Other
Assets and Stockholders' Equity, respectively, in the accompanying Balance
Sheet.
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 - RETIREMENT PLANS (CONTINUED)
In addition to pension benefits, the Company provides health insurance
benefits to disability retirees and employees who elect early retirement after
age 62, on a shared-cost basis. This coverage ceases when the employee reaches
age 65 and becomes eligible for Medicare. In addition, the Company provides
certain limited life insurance for retired employees. As of November 27, 1993,
the Company adopted the provisions of Statement of Financial Accounting
Standards #106, "Employers' Accounting for Postretirement Benefits Other than
Pensions" (FAS 106), which requires that the cost of these benefits be accrued
during the employees' active service period. The Company elected to immediately
recognize the Accumulated Postretirement Benefit Obligation ("APBO") of $949,000
($.46 per share). The cost of providing these benefits was previously recognized
when paid and approximated $93,000 per year. The Company continues to fund
benefits costs on a pay-as-you-go basis.
The components of net Postretirement expense are as follows:
Year Ended
-----------------------
Dec. 1, Dec. 2,
1995 1994
-------- -------
Service Cost .......................... $ 21,000 $ 30,000
Interest cost ......................... 60,000 61,000
Amortization of gains or losses ....... (10,000) --
-------- --------
Net Postretirement benefit expense .......$ 71,000 $ 91,000
======== ========
The status of the Company's unfunded postretirement benefit obligation,
which is included in Other Liabilities in the accompanying Balance Sheet, is as
follows:
Dec. 1, Dec. 2,
1995 1994
-------- -------
Retirees ............................. $ 353,000 $486,000
Fully eligible active plan
participants ........................ 20,000 29,000
Other active plan participants ....... 457,000 340,000
--------- --------
Accumulated postretirement
benefit obligation .................. 830,000 855,000
Unrecognized gain .................... 148,000 122,000
--------- -------
Accrued postretirement benefit costs . $ 978,000 $977,000
========= ========
In determining the APBO, the weighed average discount rate was assumed to
be 7.25%. The assumed health care cost trend was 9.3% in 1995, declining
gradually to 8.0% in 1997 and to 6.0% in 2005. A one percent increase in the
assumed health care cost trend rate would increase the service and interest cost
components of net Postretirement benefit expense for 1995 by approximately
$6,000, as well as increase the APBO at December 1, 1995 by approximately
$35,000.
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 - COMMON STOCK AND EARNINGS PER SHARE
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 have been charged for $1,466,000 based on a 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. Stock option
and earnings per share information have been adjusted to reflect the stock
dividend.
At December 1, 1995 and December 2, 1994, 15,828 shares of the Company's
Class B non-voting common stock were reserved for issuance to employees at a
purchase price of not less than $1.00 per share under the Company's Executive
Incentive Stock Purchase Plan. Shares issued under the plan are restricted as to
disposition by the employees, with such restrictions lapsing over periods
ranging from five to nine years from date of issuance. If the participant's
employment is terminated during the restricted period, his shares are required
to be offered to the Company for repurchase at the original purchase price.
Repurchased shares totaled 3,720 at December 1, 1995 and December 2, 1994.
During 1993, 120 shares were repurchased and no shares issued. During 1995 and
1994 no shares were repurchased or issued. At December 1, 1995 and December 2,
1994, 30,452 shares were outstanding.
On January 28, 1982, the Company established an incentive stock option plan
entitled "1982 Employee Incentive Stock Option Plan" (the "1982 Plan"). The 1982
Plan authorizes the granting of options to key employees and officers to
purchase an aggregate of 200,000 shares of the Company's Class B Common Stock.
The exercise price of options granted under the 1982 Plan may be no less than
the fair market value of the shares subject thereto on the date of grant.
Although the Board of Directors or Committee administering the 1982 Plan may
authorize variations, options under the 1982 Plan will generally be exercisable
in annual one-third increments, beginning one year from the date of grant, with
an additional one-third becoming exercisable at the end of each of the years
thereafter. The options are exercisable for five years from the date becoming
exercisable. In 1995, 1994, and 1993, 29,250, 1,200, and 700 shares were
exercised at $1.75 per share, respectively. At December 1, 1995 and December 2,
1994, 101,310 and 133,210 options, respectively, exercisable at $1.59, were
outstanding. The period for granting options under this plan has expired.
The Company established on June 29, 1992, an incentive stock option plan
entitled the "1992 Employee Stock Option Plan" (the "1992 Plan"). The 1992 Plan
authorizes the granting of options to key employees and officers to purchase an
aggregate of 225,000 shares of the Company's Class B Common Stock. The exercise
price of the options granted under the 1992 Plan may be no less than the fair
market value of the shares subject thereto on the date of grant. Although the
Board of Directors or Committee administering the 1992 Plan may authorize
variations, options under the 1992 Plan will generally be exercisable in annual
one-fourth increments, beginning one year from the date of grant, with an
additional one-fourth becoming exercisable at the end of each of the years
thereafter. The options are exercisable for ten years from the date of grant. In
1994, options for 40,000 shares were granted. At December 1, 1995 and December
2, 1994, 243,650 options were outstanding with exercise prices ranging from
$2.27 to $6.25. In addition, 90,617 and 53,078 options were exercisable, at
December 1, 1995 and December 2, 1994, respectively.
Of the total options issued and outstanding under the 1992 Plan, 93,500
were issued with variations from the standard form. These options were
originally only exercisable for five years from the date of grant and could not
become exercisable unless the closing price of the Company's Class B common
stock on the American Stock Exchange had been no less than $10.91 on each of at
least twenty days in any consecutive sixty day period during the twelve months
immediately preceding the date of the exercise and unless the average daily
closing price of the Common Stock during the sixty day period immediately prior
to the date of exercise was not less than $10.91 (the "price hurdle").
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 - COMMON STOCK AND EARNINGS PER SHARE (CONTINUED)
During August 1993, modifications to certain terms were made to alter the
exercise provisions and the period of exercisability. The revised terms provide
for exercisability, in any event, after the tenth anniversary of grant. In
addition, the new terms provide for accelerated exercisability should the "price
hurdle" be attained. In conjunction with the above modifications, the Company
recorded deferred compensation of $317,000, with an offsetting increase to
Paid-in Capital, representing the difference between the fair market value at
the date of modification over the original option's exercise price. The deferred
compensation will be amortized against operations over the remaining time period
covering exercisability of the options.
On February 1, 1995, the Company established an incentive stock option plan
entitled the "1995 Employee Incentive Stock Option Plan" (the "1995 Employee
Plan") and an non-incentive stock option plan entitled the "1995 Non-employee
Directors Stock Option Plan" (the "1995 Director Plan").
The 1995 Employee Plan authorizes the granting of options to key employees
and officers to purchase an aggregate of 150,000 shares of the Company's Class B
Common Stock. The exercise price of the options granted under the 1995 Employee
Plan may be no less than fair market value of the shares subject thereto on the
date of grant. Although the Board of Directors or Committee administering the
1995 Employee Plan may authorize variations, options under the 1995 Employee
Plan will generally be exercised in annual one-fourth increments, beginning one
year from the date of grant, with an additional one-fourth becoming exercisable
at the end of each of the years thereafter. The options are exercisable for ten
years from the date of grant. In 1995, no options were granted.
The 1995 Director Plan authorizes the granting of options only to
non-employee directors to purchase an aggregate of 120,000 shares of the
Company's Class B Common Stock. The exercise price of the options granted under
the 1995 Director Plan may be no less than fair market value of the shares
subject thereto on the date of grant. The 1995 Director Plan provided for
automatic grant of an option to purchase 15,000 shares of Class B Common Stock
to each current non-employee director upon approval by the stockholders and to
any new non-employee director upon their appointment or election. Although the
Board of Directors or Committee administering the 1995 Employee Plan may
authorize variations, options under the 1995 Employee Plan will generally be
exercisable in annual one-third increments, beginning one year from the date of
grant, with an additional one-third becoming exercisable at the end of each of
the years thereafter. The options are exercisable for ten years from the date of
grant. In 1995, 60,500 options were granted at an exercise price of $8.07 per
share.
On April 21,1994, the Company increased the authorized number of shares of
Class B non-voting common stock from 1,500,000 to 3,500,000 shares.
The Company has authorized a class of preferred stock. To date no shares
have been issued.
In 1988, the Company granted a lender warrants to purchase 45,632 shares of
its Class B non-voting common stock at an exercise price of $1.00 per share.
During 1995, these warrants were exercised.
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The per share data on the Statement of Operations were determined as follows:
Common and Common Equivalent Shares (Primary Basis):
Dec. 1, Dec. 2, Nov. 26,
1995 1994 1993
------ ------ --------
Average shares outstanding.......... 1,843,481 1,786,568 1,785,981
Adjustment thereto(1)............... 262,437 296,495 253,245
--------- --------- ---------
Weighted average shares
outstanding........................ 2,105,918 2,083,063 2,039,226
========= ========= =========
Common and Common Equivalent Shares (Fully Diluted Basis):
Dec. 1, Dec. 2, Nov. 26,
1995 1994 1993
------ ------ -------
Average shares outstanding.......... 1,843,481 1,786,568 1,785,981
Adjustment thereto(2)............... 287,926 305,777 255,190
--------- --------- ---------
Weighted average shares outstanding. 2,131,407 2,092,345 2,041,171
========= ========= =========
(1) Adjustment for options and warrants under the treasury stock method using
the average market value during the period.
(2) Same as (1) except using the market value at the end of the period, if
greater than the average market value during the period.
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10 - SIGNIFICANT CUSTOMER AND EXPORT SALES
The Company has one customer, whose operations are primarily in the
automotive industry, which accounted for 36%, 34% and 28% of net sales in 1995,
1994, and 1993, respectively. At December 1, 1995, accounts receivable included
approximately $2,222,000 due from this customer.
No manufacturing operations are conducted in foreign countries; however,
products are exported to foreign customers, primarily in Europe, from the United
States. Export sales were approximately 12%, 9%, and 11% of net sales in 1995,
1994, and 1993, respectively.
NOTE 11 - LEASES
Included with Plant Assets in the accompanying Balance Sheet is leased
property under capital leases as follows:
Dec. 1, Dec. 2,
1995 1994
------ ------
Machinery & Equipment ............. $1,339,000 $1,116,000
Less Accumulated Amortization ..... 938,000 762,000
---------- ----------
$ 401,000 $ 354,000
========== ==========
Amortization of the property under capital leases is included in
depreciation expense.
The following is a schedule by year of future minimum lease payments under
capital leases at December 1, 1995:
1996 ................................................ $ 97,000
1997................................................. 94,000
1998................................................. 94,000
1999................................................. 82,000
2000................................................. 15,000
-------
Total Minimum Lease Payments ........................ 382,000
Less: Amount representing interest .................. 78,000
--------
$304,000
Minimum annual rentals under noncancelable operating leases (which are
principally for equipment) are as follows:
1996................................................. $283,000
1997................................................. 242,000
1998................................................. 176,000
1999................................................. 40,000
2000 ................................................ --
Total rental expense for 1995, 1994 and 1993 was $611,100, $430,000, and
$449,000, respectively.
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12 - TRANSACTIONS WITH RELATED PARTIES
The Company has a consulting agreement with a Director of the Company,
under which he provides the Company with various consulting services. During
1995, 1994 and 1993, consulting fees of $111,000, $106,000, and $108,000,
respectively, were paid pursuant to this agreement.
NOTE 13 - COMMITMENTS AND CONTINGENCIES
LITIGATION
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 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 that is reflected as Other income, net within the
Statement of Operations and Retained Earnings.
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 13 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
LITIGATION (CONTINUED)
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. That suit, which
included a breach of contract and warranty claim against both a second
defendant, (the direct seller of the product) and the Company, alleged 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. On or about May 26, 1995, the aforementioned breach
of express and implied warranty suit was settled and dismissed with prejudice.
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.
OTHER
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 and 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. The Company had rejected offers of approximately $40,000 and
approximately $24,000 to settle with the EPA in this matter, since such
settlements would not have released the Company with respect to liability for
any future clean-up at the sites in question. No action has been filed by the
EPA against the Company. EPA 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. 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 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.
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 13 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
OTHER (CONTINUED)
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. 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
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 13 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
OTHER (CONTINUED)
Phase of the clean-up, estimated to cost approximately $16 million dollars. A
PRP Group has been formed; and on or about June 20, 1995 and January 11, 1996,
the Company executed agreements and paid assessments of $3,000 and $6,000,
respectively, to become a participant in the Joint Defense Group of OSL/SRS
"transshipper" PRP's and in the Alternative Dispute Resolution Process. All 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 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
requirements, the Company notified the 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.
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 14 - SUBSEQUENT EVENT
On December 29, 1995, the Company refinanced a portion of its existing term
debt with a new lender. The new term debt, in the principal amount of
$3,657,000, is secured by certain equipment. Monthly payments will be required
of $75,094 including interest at 8.53%. The proceeds from the refinancing were
used to pay down $1,717,000 and $1,940,000 of the revolving line of credit and
term debt, respectively, with the Company's primary lender. Accordingly, the
financial statements have been adjusted to reclassify short term debt of
$1,717,000 and $1,380,000, net of approximately $560,000 of the new debt's
current portion, to long term.
SCHEDULE VIII
PLYMOUTH RUBBER COMPANY, INC.
ACCOUNTS RECEIVABLE
RESERVES
Uncollectible
Balance at Provision accounts charged Balance
Beginning Charged (Credited) to reserve, net at End
of Period to Income of recoveries of Period
--------- ----------------- ---------------- ---------
Deducted from assets:
Allowance for doubtful accounts
Year ended December 1, 1995 ............ $540,000 $ 4,000 $(370,000) $ 174,000
Year ended December 2, 1994............... 621,000 (35,000) (46,000) 540,000
Year ended November 26, 1993............. 307,000 449,000 (135,000) 621,000
PLYMOUTH RUBBER COMPANY, INC.
INDEX TO EXHIBITS
Exhibit
No. Description
- ------ -----------
(2) Not Applicable.
(3)(i) Restated Articles of Organization -- incorporated by reference to
Exhibit 3(I) of the Company's Annual Report on Form 10-K for the
year ended December 2, 1994.
(3)(ii) By Laws, as amended -- incorporated by reference to Exhibit (3)(ii)
of the Company's Annual Report on Form 10-K for the year ended
November 26, 1993.
(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)(iii) 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.
PLYMOUTH RUBBER COMPANY, INC.
INDEX TO EXHIBITS
(CONTINUED)
Exhibit
No. Description
- -------- -----------
(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.
(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.
(9)(i) Voting Trust Agreement, as amended, relating to certain shares of
Company's common stock -- incorporated by reference to Exhibit (9)
of the Company's Annual Report on Form 10-K for the year ended
November 26, 1993.
(9)(ii) Voting Trust Amendment Number 6.
(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 Operation 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.
(12) Not applicable.
PLYMOUTH RUBBER COMPANY, INC.
INDEX TO EXHIBITS
(CONTINUED)
Exhibit
No. Description
- ------- -----------
(13) Not applicable.
(16) Not applicable.
(18) Not applicable.
(21) Not applicable.
(22) Not applicable.
(23) Consent of Independent Accountants
(24) Not applicable.
(27) Financial data schedule year ended December 1, 1995.
(28) Not applicable.
(29) Not applicable.