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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 3, 1999 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: (781) 828-0220
Securities registered pursuant to Section 12(b) Name of each exchange on
of the Act: 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 registrants 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 25, 2000, was approximately
$2,025,000.
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 . . . . . 1,241,104
Documents incorporated by reference:
Portions of the registrant's definitive Proxy Statement to be dated on or
about March 28, 2000 (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. and its subsidiaries primarily operate through the
following two business segments: Plymouth Tapes and Brite-Line Technologies.
Management has determined these to be Plymouth Rubber Company's business
segments, based upon its process of reviewing and assessing Company performance,
and allocating resources. Plymouth Tapes manufactures plastic and rubber
products, including automotive, electrical, and industrial tapes. These products
are sold either through sales personnel employed by the Company and/or through
distributors and/or commissioned sales representatives. Brite-Line Technologies
manufactures and supplies rubber and plastic highway marking and safety
products, sold through sales personnel employed by the Company.
On October 4, 1996, the Company acquired certain assets of Brite-Line
Industries, Inc. Brite-Line Technologies, Inc. ("Brite-Line") produces and
markets rubber and plastic based highway marking tapes from its Denver, Colorado
facility. On January 3, 1997, Plymouth Rubber Europa, S.A., a wholly-owned
subsidiary of the Company, acquired 100% of the outstanding shares of Cintas
Adhesivas Nunez, S.A., a privately owned company located in Porrino, Spain.
Plymouth Rubber Europa, S.A. produces and markets vinyl and textile based tapes
from its facility in Porrino, Spain, as part of the Plymouth Tapes segment.
The Company purchases raw materials from a variety of industry 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 both domestic and
foreign suppliers. 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.
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. 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 accordance with the standards dictated by individual markets;
however, extended payment terms generally are not granted with the exception of
certain foreign markets where payment terms may consider local customs and
practices.
The markets served by the Company are highly competitive. Competition comprises
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 estimated number
of competitors varies from market to market. The Company relies upon product
design, product quality, price and service to maintain its competitive position
in the markets served and no single product accounts for a predominant amount of
the Company's total sales volume. 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 ("PED") of General Motors and
its successor corporation, Delphi Automotive Systems Corporation ("Delphi")
which was spun off from General Motors as of May 1999, and has also supplied
part of PED's and Delphi's tape requirements for Europe and South America. In
1995, the Company was awarded a three-year agreement, which was extended through
December, 1999, to supply PVC (vinyl) harness tapes to PED. In 2000, the Company
signed a new contract with Delphi to supply PVC and some textile tapes until
2005. Delphi accounted for approximately 32%, 29% and 33% of the Company's net
sales in 1999, 1998 and 1997, respectively. As Delphi constitutes a significant
percentage of the Company's sales, loss of the business would have a material
adverse effect on the Company. The Company is diversifying 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 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 15 3M
Automotive Tapes Numerous None
Industrial Tapes & Films Numerous None
Highway Marking Tapes 6 3M
The Company is subject to various Federal, state and local environmental
protection regulations. To date, compliance with these regulations has not had a
significant effect upon the capital expenditures, earnings or competitive
position of the continuing operations of the Company. Refer to Item 3. Legal
Proceedings and Note 12 of the Notes To Consolidated Financial Statements for a
discussion of environmental liabilities associated with past operations.
With the exception of Plymouth Rubber Europa, S.A., (see Note 3 of the Notes to
Consolidated Financial Statements) the Company has no manufacturing operations
in foreign countries; products sold to foreign customers are either exported
from the United States or shipped from inventories maintained in foreign
countries. Sales and purchases are largely performed in U.S. dollars. Certain
sales and purchases are performed in foreign currencies.
The Company employs approximately 475 people.
ITEM 2. PROPERTIES
Substantially all of the Company's manufacturing, administrative and principal
sales facilities are owned and are located in Canton, Massachusetts. These
facilities comprise approximately 500,000 square feet. Plymouth Rubber Europa,
S.A., owns an 11,000 square foot facility in Porrino, Spain, and Brite-Line
Technologies, Inc. leases a 50,000 square foot facility in Denver, Colorado.
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 2 of the Notes to
Consolidated Financial Statements, herein.
ITEM 3. LEGAL PROCEEDINGS
ENVIRONMENTAL
Claims under CERCLA
The Company has been named as a Potentially Responsible Party ("PRP") by the
United States Environmental Protection Agency ("EPA") in two ongoing claims
under the Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"). These CERCLA claims involve attempts by the EPA to recover the costs
associated with the cleanup of two Superfund Sites in Southington,
Connecticut--the Solvent Recovery Service of New England Superfund Site ("SRS
Site") and the Old Southington Landfill Superfund Site ("OSL Site"). SRS was an
independent and licensed solvent recycler/disposal company. The EPA asserts that
SRS, after receiving and processing various hazardous substances from PRPs,
shipped some resultant sludges and wastewater from the SRS Site to the OSL Site.
The Company received a PRP notification regarding the SRS Site in June, 1992.
The EPA originally attributed a 1.74% share of the aggregate waste volume at the
SRS Site to the Company. Remedial action is ongoing at the Site, and the Company
is a participant in the performing PRP group. Largely because of "orphaned
shares," the Company recently has been contributing approximately 2.05% toward
the performing PRP group's expenses. Based upon the investigations and remedial
actions conducted at the Site to date, including a phytoremediation study, it is
presently estimated that the total cost of the cleanup at the Site will range
from approximately $25 million to $50 million. In the accompanying consolidated
financial statements as of December 3, 1999, management has accrued $484,000 as
a reserve in this matter (which is net of approximately $242,000 in payments
made to date by the Company).
The Company received a PRP notification regarding the OSL Site in January, 1994.
In addition to numerous "SRS transshipper" PRPs (such as the Company), EPA has
named a number of other PRPs who allegedly shipped waste materials directly to
the OSL Site. Based on EPA's asserted volume of shipments to SRS, EPA originally
attributed 4.89% of the "SRS transshipper" PRPs' waste volume at the OSL Site to
the Company, which is a fraction of the undetermined total waste volume at the
Site. A Record of Decision ("ROD") was issued in September, 1994 for the first
phase of the cleanup and, in December, 1997, following mediation, the Company
contributed $140,180 (toward a total contribution by the "SRS transshipper" PRPs
of approximately $2.5 million) in full settlement of the first phase. At
present, neither the remedy for the second phase of the cleanup (groundwater)
nor the allocation of the costs thereof among the PRPs has been determined. It
has been estimated that the total costs of the second phase may range from $10
million to $50 million. Management has accrued $337,000 in the accompanying
consolidated financial statements as a reserve against the Company's potential
future liability in this matter.
Based on all available information as well as its prior experience, management
believes that its accruals in these two matters are reasonable. However, in each
case the reserved amount is subject to adjustment for future developments that
may arise from one or more of the following -- the long range nature of the
case, legislative changes, insurance coverage, the joint and several liability
provisions of CERCLA, the uncertainties associated with the ultimate groundwater
remedy selected, and the Company's ability to successfully negotiate an outcome
similar to its previous experience in these matters.
Claims under Massachusetts General Laws, Chapter 21E
While in the process of eliminating the use of underground storage tanks at the
Company's facility in Canton, Massachusetts, the Company arranged for the
testing of the areas adjacent to the tanks in question--a set of five tanks in
1994 and a set of three tanks in 1997. The tests indicated that some localized
soil contamination had occurred. The Company duly reported these findings
regarding each location to the Massachusetts Department of Environmental
Protection ("DEP") in 1994 and 1997 respectively, and DEP issued Notices of
Responsibility under Massachusetts General Laws Chapter 21E to the Company for
each location (RTN No. 3-11520 and RTN No. 3-15347, respectively). The Company
has retained an independent Licensed Site Professional ("LSP") to perform
assessment and remediation work at the two locations. With regard to the first
matter (involving the set of five tanks), the LSP has determined that the soil
contamination appears to be confined to a small area and does not pose an
environmental risk to surrounding property or community. With regard to the
second matter (involving the set of three tanks), a limited amount of solvent
has been found in the soil in the vicinity of the tanks; however, additional
sampling is required. It presently is estimated that the combined future costs
to complete the assessment and remediation actions at the two locations will
total approximately $249,000, and that amount has been accrued in the
accompanying financial statements.
In January, 1997 the Company received a Chapter 21E Notice of Responsibility
from DEP concerning two sites located in Dartmouth, Massachusetts (RTN No.
4-0234) and Freetown, Massachusetts (RTN No. 4-0086), respectively. According to
DEP, drums containing oil and/or hazardous materials were discovered at the two
sites in 1979, which led to some cleanup actions by the DEP. DEP contends that
an independent disposal firm allegedly hired by the Company and other PRP's, H &
M Drum Company, was responsible for disposing of drums at the two sites. To
date, the DEP has issued Notices of Responsibility to approximately one hundred
PRPs. A group of PRPs, including the Company, has retained an LSP to conduct
subsurface investigations at both sites. The LSP recently completed Limited
Subsurface Investigations at both sites. At the Freetown site, no reportable
contamination was found either in soil or groundwater, and the LSP has
recommended that DEP close the site out. At the Dartmouth site, no reportable
contamination was found in soil, while reportable, but lower than historical
levels of contaminants were found in groundwater. The LSP's investigation at the
Dartmouth site further indicates that there may be an upgradient off-site source
of contaminants that is impacting the site, and recommends further investigation
into that possibility. While the results of the Limited Subsurface
Investigations at these sites are relatively encouraging, until additional data
is gathered, it is not possible to reasonably estimate the costs of any further
investigation or cleanup that may be required at either or both sites, or the
Company's potential share of liability or responsibility therefor. Accordingly,
no reserve has been accrued in the accompanying financial statements with
respect to these two sites.
OTHER LITIGATION
The Company's subsidiary, Brite-Line Technologies, Inc., was both a defendant
and a counterclaim plaintiff in a patent infringement lawsuit initiated in 1998
in federal district court in Minnesota and settled in February, 2000. The suit
involved contrasting claims by Brite-Line and the plaintiff (a competitor of
Brite-Line in the highway marking tapes business), that the other party had
committed patent infringement with respect to its specialty retroreflective
pavement marking tapes containing raised wedges. The only Brite-Line products at
issue in the case have generated limited sales to date that have not been
material to the Company or to the Brite-Line subsidiary. After the completion of
discovery and prior to trial, both parties agreed to resolve the suit amicably.
Under the terms of the settlement, which required no payment of damages by
either party, the parties agreed to accept certain interpretations of the
plaintiff's patent claims and neither party admitted infringing the patent
rights of the other. Brite-Line agreed not to manufacture or sell any product
which conflicts with the plaintiff's patent claims and to discontinue its
counterclaim against the plaintiff. The Company's earnings, competitive position
and capital expenditures are not expected to be materially adversely affected by
the settlement.
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 Co - Chief Executive
Officer and Director 53 1987
Joseph D. Hamilburg Chairman and Co - Chief Executive
Officer and Director 51 1998
Fiore D. DiGiovine VP - Mfg. Development 72 1987
Alan I. Eisenberg VP - Sales & Marketing 49 1988 & 1986
Sheldon S. Leppo VP - Research & Development 65 1970
Joseph J. Berns VP - Finance and Treasurer 53 1997
Thomas L. McCarthy VP - Manufacturing 39 1999
David M. Kozol Clerk and Secretary 41 1998
Messrs. Maurice J. Hamilburg, Fiore D. DiGiovine, Sheldon S. Leppo and Alan I.
Eisenberg have held their present positions during each of the past five years.
Mr. Joseph J. Berns joined the Company in August, 1997. From 1987 to 1997, he
served as Vice President - Finance for Cooley Incorporated, a manufacturer of
coated fabrics.
Joseph D. Hamilburg joined the Company in April, 1998. From 1989 to 1998, he
served as President of J.D.H. Enterprises, Inc., an international consulting
company. Mr. Hamilburg has been a Director of the Company since 1974.
Mr. Thomas L. McCarthy joined the Company in June, 1999. From 1997 to 1999 he
served as Director of Operations of Madico, Inc. From 1992 to 1997 he served as
Vice President - Operations of Venture Tape Corporation.
Mr. Kozol, for more than five years, has been a practicing attorney in the law
firm of Friedman & Atherton, which 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 1999 Quarter 1998
First....... 6 5/8 6 6 3/8 5 3/4 First...... 6 1/2 5 5 1/8 4 1/8
Second...... 7 6 1/4 6 15/16 6 Second..... 7 1/4 5 9/16 7 1/4 4 11/16
Third....... 9 6 1/8 7 7/8 6 1/8 Third...... 8 1/8 6 3/8 7 3/16 6 1/16
Fourth...... 8 5/8 6 3/4 7 3/16 6 Fourth..... 7 6 6 5/8 5 7/8
(b) APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS
As of January 7, 2000, 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 ........ 230
Class B non-voting common stock $1.00 par value .... 280
The number of holders listed above does not include shareholders for whom shares
are held in a "nominee" or "street" name.
(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 without a waiver
from its lender, so long as any obligation under the loan agreements remains
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
SELECTED INCOME STATEMENT DATA:
Years Ended
-----------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
Net Sales $77,653,000 $69,041,000 $67,136,000 $57,181,000 $53,293,000
Income from operations $ 3,122,000 $ 1,838,000 $ 1,266,000 $ 1,872,000 $ 1,966,000
Per Share Data:
Income from operations (diluted) $ 1.42 $ 0.84 $ 0.58 $ 0.84 $ 0.88
Weighted average shares outstanding 2,198,480 2,200,406 2,174,482 2,226,008 2,244,636
SELECTED BALANCE SHEET DATA:
Total Assets 54,915,000 50,701,000 44,064,000 34,750,000 31,482,000
Long Term Liabilities 15,880,000 16,919,000 15,858,000 11,439,000 10,060,000
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
1999 COMPARED WITH 1998
Sales increased for the ninth consecutive year, as 1999 sales at $77.7 million
were up 12.5% from 1998 levels. The major contributor was Plymouth Tapes, where
1999 sales of $68.0 million were up 12.0% from 1998. Increased capacity in the
Canton plant allowed the Company to meet increasing customer demand. Sales in
the automotive market were particularly strong, as 1999 sales increased 19.1%
from 1998 levels and accounted for most of the growth. Sales in all other
markets increased 1.2%, as increases in domestic markets were mostly offset by
weakness in markets outside the U.S. Brite-Line Technologies also contributed to
growth, as 1999 sales of $9.7 million were up 15.7% over 1998.
Gross margin increased to 27.3% from 25.5% last year. Plymouth Tapes' gross
margin increased to 26.7% from 25.6% last year. The major factor in the
improvement was higher production volume in the Canton operations to meet
increased sales demand and build inventories. This was partially offset by
higher raw material purchase prices and higher levels of manufacturing spending.
Brite-Line Technologies' gross margin increased to 31.5% from 25.0% last year,
due to better pricing and higher volume, partially offset by higher
manufacturing spending and raw material usage.
Selling, general and administrative expenses are incurred and recorded in both
Plymouth Tapes and Brite-Line Technologies. Certain of the selling, general and
administrative expenses recorded in Plymouth Tapes could be considered as
incurred for the benefit of Brite-Line, but are currently not allocated to that
segment. These expenses include certain management, accounting, personnel and
sales services, and a limited amount of travel, insurance, directors fees and
other expenses.
Selling, general and administrative expenses, as a percentage of sales,
increased to 20.0% from 18.8% last year. The major source of the increase was
Brite-Line Technologies, where selling, general and administrative expenses, as
a percentage of sales, increased to 32.5% from 20.2% last year. The major factor
was an increase in professional fees to $1,275,000 from $201,000 last year, to
cover the majority of the costs associated with a patent infringement lawsuit.
Salaries in Brite-Line Technologies also increased by approximately $165,000,
because of higher accrued bonuses and an additional sales resource. Offsetting
these increases, selling, general and administrative expenses, as a percentage
of sales, in Plymouth Tapes decreased slightly to 18.3% from 18.7% last year.
The major factors were improved bad debt cost and lower professional fees,
offset in part by higher freight and outside warehouse costs.
Operating income for 1999 also included an insurance settlement with one of the
Company's previous liability insurance carriers. Under the terms of the
agreement, the insurance carrier made a one-time payment of $1,750,000, in
exchange for a release of all past, present, and future environmental claims.
Interest expense increased to $2,045,000 from $1,871,000 last year. The increase
occurred largely in the first half of 1999, due to increased long-term
borrowings to finance capital investments, as well as higher balances on the
revolving line of credit, to finance operations and some capital improvements.
During the second half of 1999, interest expense was approximately level with
last year. Although the average second half borrowing balances for both
long-term debt and the revolving line of credit were higher in 1999 compared to
last year, the interest rates applied to the revolving line of credit and the
real estate portion of the long-term debt were lower in 1999 compared to last
year. The lower interest rates were a result of a new loan agreement with
Plymouth's primary lender, effective June 2, 1999.
As a result of the above factors, income before tax increased 96.5% to
$5,362,000 from $2,728,000 last year. Excluding the one-time insurance
settlement, income before tax increased 32.4%. The effective tax rate in 1999
increased to 41.8% from 32.6% last year. The major factor in the difference
occurred during 1998, which benefited from investment tax credits generated by
the more than $11 million of capital equipment placed in service during that
year. As a result, net income increased 69.9% to $3,122,000 from $1,838,000 last
year. Excluding the one-time insurance settlement, net income increased 14.4%,
based upon the 1999 effective tax rate.
Cash generated from operating activities was $4.3 million in 1999, as compared
to $1.9 million in 1998. The major factors contributing to cash from operating
activities include net income of $3.1 million, depreciation and amortization of
$2.5 million, and deferred income tax expense of $1.2 million, partially offset
by a $3.6 million increase in inventory. Inventory was increased to (1) better
respond to customer demand in Plymouth Tapes, (2) prepare for certain Canton
plant equipment installations during the first quarter of fiscal 2000, and (3)
to support higher levels of activity in Brite-Line Technologies. The operating
cash flow and cash provided through additional borrowings totaling $1.2 million
under the Company's revolving line of credit, $2.6 million under a capital
expenditure line of credit, and $0.2 million from sale/leaseback of equipment,
were used to finance capital expenditures of $5.3 million, pay off or reduce
term debt and capital leases of $2.8 million, and repurchase Plymouth Rubber
common stock in the amount of $0.2 million.
The U.S. dollar is the functional currency for the Company's U.S. operations.
For these operations, all gains and losses from currency transactions are
included in income currently. The Company operates a wholly-owned subsidiary in
Spain which accounted for approximately 7.7% of the Company's revenues in fiscal
1999. The functional currency of this subsidiary is the peseta. Changes in the
peseta exchange rate could affect the reporting of the subsidiary's earnings in
the Consolidated Statement of Operations. From time to time, the U.S. Company
enters into purchase or sales contracts in currencies other than the U.S.
dollar. The Company's practice is to hedge those transactions which are of
significant size.
1998 COMPARED WITH 1997
Sales increased for the eighth consecutive year, as 1998 sales at $69 million
were up 3% from 1997 levels. The major contributor was Brite-Line Technologies,
where 1998 sales increased by $3.6 million from 1997, reflecting increased
business from both new and existing customers. 1998 sales in Plymouth Tapes
(produced in Canton, Mass., and Porrino, Spain) decreased by $1.7 million and
3%, from 1997 primarily because of capacity constraints, product mix, and
because of reduced demand due to the General Motors strike.
Gross margin in 1998 increased to 25.5% from 23.8% in 1997. In Plymouth Tapes,
gross margin in 1998 improved to 25.5% from 23.5% in 1997. The primary factor
was lower product costs, resulting from lower purchase costs for resin and other
raw materials, and lower manufacturing spending, offset in part by higher
unfavorable volume variances. Gross margin in 1998 at Brite-Line Technologies
decreased to 25.0% from 26.4% in 1997, reflecting higher production costs and an
increase in inventory reserves, offset in part by favorable manufacturing
overhead absorption from higher production levels, and by favorable product mix.
Selling, general and administrative expenses in 1998, as a percentage of sales,
decreased to 18.8% from 19.1% in 1997. The major source of the decrease was
Brite-Line Technologies, where selling, general and administration expenses, as
a percentage of sales decreased to 20.2% from 30.2% in 1997. The major factor
was the ability of Brite-Line to have a large increase in sales of 75% without
adding substantially to the selling, general and administrative expenses, which
had a relatively small increase of 17%. Partially offsetting these decreases,
selling, general and administrative expenses, as percentage of sales in Plymouth
Tapes, increased to 18.7% from 18.3% in 1997. The major contributing factors
were higher accrued bonus, profit sharing, professional fees, and bad debt
expense.
Interest expense in 1998, as a percentage of sales, increased to 2.7% from 2.3%
in 1997. Higher interest expense resulted from an increase in current and
long-term debt to $14.4 million from $12.0 million in 1997, in order to finance
capital equipment purchases. In addition, the revolving line of credit increased
to $10.1 million at November 27, 1998, from $8.2 million in 1997, in order to
finance higher accounts receivable, resulting from a $1.2 million sales increase
in the fourth quarter of 1998 from the same period in 1997, some capital
equipment purchases, and a small increase in inventory.
As a result of the above factors, income before tax increased to $2.7 million in
1998 from $2.0 million in 1997. The effective tax rate in 1998 decreased to
32.6% from 36.1% in 1997, resulting from investment tax credits generated by the
more than $11 million of capital equipment placed in service during the year. As
a result, net income in 1998 increased 45% to $1.8 million from $1.3 million in
1997.
The Company generated $1.9 million of operating cash flow in 1998. This
operating cash flow, cash provided through additional borrowings totaling $1.9
million under the Company's line of credit, a refinancing of capital equipment
and a capital expenditure line of credit of $5.5 million, and the sale/leaseback
of plant assets of $0.9 million, were used to pay off or reduce term debt and
capital leases of $4.2 million and to finance capital expenditures of $6.0
million.
LIQUIDITY AND CAPITAL RESOURCES
During 1997, 1998, and 1999, Plymouth Rubber invested in a significant capital
expansion and improvement program, for a total amount of $18.9 million,
including a new calender and coating line, and associated equipment, which
substantially increased its production capacity. At the end of fiscal 1996 and
the beginning of 1997, the Company also invested in new subsidiaries (Brite-Line
Technologies, Inc., and Plymouth Rubber Europa, S.A.), which it considers to be
strategic opportunities. In connection with these investments and to support
sales growth of approximately $20.5 million or 36% from 1996 to 1999, the
Company has increased its debt from approximately $12.2 million in 1996 to
approximately $25.4 million in 1999. The Company was in compliance with all of
its financial covenants as of December 3, 1999. Based upon current projections,
the Company believes it will meet these covenants during 2000.
As of December 3, 1999, the Company had approximately $3.3 million of unused
borrowing capacity under its $18 million line of credit with its primary lender,
after consideration of collateral limitations and the letter of credit related
to a guarantee of 80 million pesetas (approximately $0.6 million) on a term loan
agreement with a Spanish bank syndicate.
In the opinion of management, anticipated cash flow from operations, unused
capacity under existing borrowing agreements, and additional funds generated
from a capital expenditure line of credit and/or the sale/leaseback of capital
equipment, will provide sufficient funds to meet expected needs during fiscal
2000, including necessary working capital expansion to support anticipated
revenue growth and investments in capital equipment, and to service its
indebtedness. Although management expects to be able to accomplish its plans,
there is no assurance that it will be able to do so. Failure to accomplish
theses plans could have an adverse impact on the Company's liquidity and
financial position.
ENVIRONMENTAL PROCEEDINGS
Claims under CERCLA
The Company has been named as a Potentially Responsible Party ("PRP") by the
United States Environmental Protection Agency ("EPA") in two ongoing claims
under the Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"). These CERCLA claims involve attempts by the EPA to recover the costs
associated with the cleanup of two Superfund Sites in Southington,
Connecticut--the Solvent Recovery Service of New England Superfund Site ("SRS
Site") and the Old Southington Landfill Superfund Site ("OSL Site"). SRS was an
independent and licensed solvent recycler/disposal company. The EPA asserts that
SRS, after receiving and processing various hazardous substances from PRPs,
shipped some resultant sludges and wastewater from the SRS Site to the OSL Site.
The Company received a PRP notification regarding the SRS Site in June, 1992.
The EPA originally attributed a 1.74% share of the aggregate waste volume at the
SRS Site to the Company. Remedial action is ongoing at the Site, and the Company
is a participant in the performing PRP group. Largely because of "orphaned
shares," the Company recently has been contributing approximately 2.05% toward
the performing PRP group's expenses. Based upon the investigations and remedial
actions conducted at the Site to date, including a phytoremediation study, it is
presently estimated that the total cost of the cleanup at the Site will range
from approximately $25 million to $50 million. In the accompanying consolidated
financial statements as of December 3, 1999, management has accrued $484,000 as
a reserve in this matter (which is net of approximately $242,000 in payments
made to date by the Company).
The Company received a PRP notification regarding the OSL Site in January, 1994.
In addition to numerous "SRS transshipper" PRPs (such as the Company), EPA has
named a number of other PRPs who allegedly shipped waste materials directly to
the OSL Site. Based on EPA's asserted volume of shipments to SRS, EPA originally
attributed 4.89% of the "SRS transshipper" PRPs' waste volume at the OSL Site to
the Company, which is a fraction of the undetermined total waste volume at the
Site. A Record of Decision ("ROD") was issued in September, 1994 for the first
phase of the cleanup and, in December, 1997, following mediation, the Company
contributed $140,180 (toward a total contribution by the "SRS transshipper" PRPs
of approximately $2.5 million) in full settlement of the first phase. At
present, neither the remedy for the second phase of the cleanup (groundwater)
nor the allocation of the costs thereof among the PRPs has been determined. It
has been estimated that the total costs of the second phase may range from $10
million to $50 million. Management has accrued $337,000 in the accompanying
consolidated financial statements as a reserve against the Company's potential
future liability in this matter.
Based on all available information as well as its prior experience, management
believes that its accruals in these two matters are reasonable. However, in each
case the reserved amount is subject to adjustment for future developments that
may arise from one or more of the following -- the long range nature of the
case, legislative changes, insurance coverage, the joint and several liability
provisions of CERCLA, the uncertainties associated with the ultimate groundwater
remedy selected, and the Company's ability to successfully negotiate an outcome
similar to its previous experience in these matters.
Claims under Massachusetts General Laws, Chapter 21E
While in the process of eliminating the use of underground storage tanks at the
Company's facility in Canton, Massachusetts, the Company arranged for the
testing of the areas adjacent to the tanks in question--a set of five tanks in
1994 and a set of three tanks in 1997. The tests indicated that some localized
soil contamination had occurred. The Company duly reported these findings
regarding each location to the Massachusetts Department of Environmental
Protection ("DEP") in 1994 and 1997 respectively, and DEP issued Notices of
Responsibility under Massachusetts General Laws Chapter 21E to the Company for
each location (RTN No. 3-11520 and RTN No. 3-15347, respectively). The Company
has retained an independent Licensed Site Professional ("LSP") to perform
assessment and remediation work at the two locations. With regard to the first
matter (involving the set of five tanks), the LSP has determined that the soil
contamination appears to be confined to a small area and does not pose an
environmental risk to surrounding property or community. With regard to the
second matter (involving the set of three tanks), a limited amount of solvent
has been found in the soil in the vicinity of the tanks; however, additional
sampling is required. It presently is estimated that the combined future costs
to complete the assessment and remediation actions at the two locations will
total approximately $249,000, and that amount has been accrued in the
accompanying financial statements.
In January, 1997 the Company received a Chapter 21E Notice of Responsibility
from DEP concerning two sites located in Dartmouth, Massachusetts (RTN No.
4-0234) and Freetown, Massachusetts (RTN No. 4-0086), respectively. According to
DEP, drums containing oil and/or hazardous materials were discovered at the two
sites in 1979, which led to some cleanup actions by the DEP. DEP contends that
an independent disposal firm allegedly hired by the Company and other PRPs, H &
M Drum Company, was responsible for disposing of drums at the two sites. To
date, the DEP has issued Notices of Responsibility to approximately 100 PRPs. A
group of PRPs, including the Company, has retained an LSP to conduct subsurface
investigations at both sites. The LSP recently completed Limited Subsurface
Investigations at both sites. At the Freetown site, no reportable contamination
was found either in soil or groundwater, and the LSP has recommended that DEP
close the site out. At the Dartmouth site, no reportable contamination was found
in soil, while reportable, but lower than historical levels of contaminants were
found in groundwater. The LSP's investigation at the Dartmouth site further
indicates that there may be an upgradient off-site source of contaminants that
is impacting the site, and recommends further investigation into that
possibility. While the results of the Limited Subsurface Investigations at these
sites are relatively encouraging, until additional data is gathered, it is not
possible to reasonably estimate the costs of any further investigation or
cleanup that may be required at either or both sites, or the Company's potential
share of liability or responsibility therefor. Accordingly, no reserve has been
accrued in the accompanying financial statements with respect to these two
sites.
OTHER LITIGATION
The Company's subsidiary, Brite-Line Technologies, Inc., was both a defendant
and a counterclaim plaintiff in a patent infringement lawsuit initiated in 1998
in federal district court in Minnesota and settled in February, 2000. The suit
involved contrasting claims by Brite-Line and the plaintiff (a competitor of
Brite-Line in the highway marking tapes business), that the other party had
committed patent infringement with respect to its specialty retroreflective
pavement marking tapes containing raised wedges. The only Brite-Line products at
issue in the case have generated limited sales to date that have not been
material to the Company or to the Brite-Line subsidiary. After the completion of
discovery and prior to trial, both parties agreed to resolve the suit amicably.
Under the terms of the settlement, which required no payment of damages by
either party, the parties agreed to accept certain interpretations of the
plaintiff's patent claims and neither party admitted infringing the patent
rights of the other. Brite-Line agreed not to manufacture or sell any product
which conflicts with the plaintiff's patent claims and to discontinue its
counterclaim against the plaintiff. The Company's earnings, competitive position
and capital expenditures are not expected to be materially adversely affected by
the settlement.
YEAR 2000
Computers, software and other equipment utilizing microprocessors that use only
two digits to identify a year in a data field may be unable to process
accurately certain date-based information at or after the year 2000. This is
commonly referred to as the "Year 2000 issue." The Company assembled a task
force to oversee the entire Year 2000 project, which included the Company's
domestic and foreign tape business and Brite-Line, for both information
technology ("IT") and non-IT systems. The Company believed that its greatest
potential risks were associated with its IT systems and non-IT systems embedded
in its operations and infrastructure. The task force identified five phases of
the Year 2000 compliance process for the Company's IT and non-IT systems. These
phases were 1) issue identification, 2) assessment, 3) development of
remediation plans, 4) implementation and testing and 5) contingency planning.
These five phases were completed.
With respect to IT systems, the Company's strategy was to upgrade its mission
critical main information systems hardware and software and other support
software, and to replace a group of manufacturing support software. Regarding
the upgrade of the main information systems hardware and software and other
support software, the implementation and testing phase was 100% complete as of
April, 1999. Regarding the replacement of a group of manufacturing support
software, the implementation and testing phase was 100% complete as of October
1999.
With respect to non-IT systems, the implementation phase was 100% complete as of
December 1999. Large and critical suppliers were selected for compliance
confirmation; responses were received and no critical problems were identified.
Separately, the Company actively sought information and assurances of a more
technical nature from certain vendors regarding the compliance status of
specific manufacturing and information processing equipment. In addition to
confirming compliance directly with suppliers and vendors, the Company performed
its own testing of certain purchased equipment and information processing
equipment for compliance. The Company monitored the status of Year 2000
compliance of its most significant customers through direct contact, written
confirmation, and by reviewing publicly available information.
The Company developed a contingency plan for both IT and non-IT systems, as
appropriate. The contingency plan included building additional inventories in
case of vendor supply or power interruptions, using alternate suppliers,
outsourcing to third parties, utilizing alternative software, and reverting to
manual processing of information.
Costs incurred to date for Year 2000 have totaled approximately $660,000 and
have been expensed as incurred. Costs included internal employee costs and costs
of external consultants, and were funded through operating cash flows. The
Company believes there was no material adverse impact of such costs on its
long-term results of operations, liquidity or financial position.
If the Company had not taken any of the remedial steps detailed above, Year 2000
issues would possibly have caused significant technological problems for the
Company, disrupting business, potentially resulting in increased costs and/or
loss of business. At this time, no technological problems have occurred.
The worst case scenario had the Company, its customers or suppliers been unable
to adequately resolve Year 2000 issues, would have included a temporary slowdown
or abrupt stoppage of operations at one or more of the Company's facilities due
to the failure of one or more critical processes or business systems. Such
failures could have resulted in interruptions in manufacturing, safety and/or
environmental systems; and/or a temporary inability to receive raw materials,
ship finished products and process orders and invoices. If such or similar
scenarios had occurred, they could, depending on their duration, have had a
material impact on the Company's results of operations and financial position.
Such theoretical consequences are of a kind and magnitude generally shared with
other manufacturing companies.
At this time, no significant Year 2000 disruptions have occurred. The Company
will continue to monitor its IT and non-IT systems for any possible Year 2000
issues.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
In June, 1998, the Financial Accounting Standards Board issued FAS 133
Accounting for Derivative Instruments and Hedging Activities. FAS 133 will
require the Company to record derivative instruments, such as foreign currency
hedges, on the Consolidated Balance Sheet as assets or liabilities, measured at
fair value. Currently, the Company treats such instruments as off-balance-sheet
items. Gains or losses resulting from changes in the values of those derivatives
would be accounted for depending on the specific use of each derivative
instrument and whether it qualifies for hedge accounting treatment as stated in
the standard. In June, 1999, the Financial Accounting Standards Board issued FAS
137 - Accounting for Derivative and Similar Financial Instruments and for
Hedging Activities Deferral of the Effective Date of FAS 133. FAS 137 changed
the effective date for implementation of FAS 133. FAS 133 will be effective for
the Company on December 2, 2000, the beginning of fiscal year 2001. The Company
currently does not expect the impact of adopting FAS 133 to be material.
SAFE HARBOR STATEMENT
Certain statements in this report, in the Company's press releases and in oral
statements made by or with the approval of an authorized executive officer of
the Company may constitute "forward-looking statements" as that term is defined
under the Private Securities Litigation Reform Act of 1995. These may include
statements projecting, forecasting or estimating Company performance and
industry trends. The achievement of the projections, forecasts or estimate is
subject to certain risks and uncertainties. Actual results may differ materially
from those projected, forecasted or estimated. The applicable risks and
uncertainties include general economic and industry conditions that affect all
international businesses, as well as matters that are specific to the Company
and the markets it serves. General risks that may impact the achievement of such
forecast include: compliance with new laws and regulations, significant raw
material price fluctuations, changes in interest rates, currency exchange rate
fluctuations, limits on the repatriation of funds and political uncertainty.
Specific risks to the Company include: risk of recession in the economies in
which its products are sold, the concentration of a substantial percentage of
the Company's sales with a few major automotive customers, and competition in
pricing.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At December 3, 1999, the carrying value of Company's debt totaled $25.3 million
which approximated its fair value. This debt includes amounts at both fixed and
variable interest rates. For fixed rate debt, interest rate changes affect the
fair market value but do not impact earnings or cash flows. Conversely, for
floating rate debt, interest rate changes generally do not affect the fair
market value but do impact earnings and cash flows, assuming other factors are
held constant.
At December 3, 1999, the Company had fixed rate debt of $10.2 million and
variable rate debt of $15.1 million. Holding other variables constant (such as
foreign exchange rates and debt levels) a one percentage point decrease in
interest rates would increase the unrealized fair market value of fixed rate
debt by approximately $200,000. The earnings and cash flows impact for the next
year resulting from a one percentage point increase in interest rates would be
approximately $150,000, holding other variables constant.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by this item are set
forth on pages 15 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 3, 1999.
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
3, 1999.
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
3, 1999.
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
3, 1999.
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 44 - 46.
(B) None
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 /s/ JOSEPH J. BERNS
--------------------------------------
Joseph J. Berns
Vice President - Finance and Treasurer
Date: February 28, 2000
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 28, 2000.
President and Co-Chief Executive Officer
/s/ MAURICE J. HAMILBURG and Director
- --------------------------------
Maurice J. Hamilburg
Chairman and Co-Chief Executive Officer
/s/ JOSEPH D. HAMILBURG and Director
- --------------------------------
Joseph D. Hamilburg
/s/ C. GERALD GOLDSMITH Director
- --------------------------------
C. Gerald Goldsmith
/s/ JANE H. GUY Director
- --------------------------------
Jane H. Guy
/s/ MELVIN L. KEATING Director
- --------------------------------
Melvin L. Keating
/s/ SUMNER KAUFMAN Director
- --------------------------------
Sumner Kaufman
/s/ JAMES M. OATES Director
- --------------------------------
James M. Oates
/s/ EDWARD PENDERGAST Director
- --------------------------------
Edward Pendergast
/s/ DUANE E. WHEELER Director
- --------------------------------
Duane E. Wheeler
Vice President - Finance and Treasurer
(Principal Financial Officer and
/s/ JOSEPH J. BERNS Principal Accounting Officer)
- --------------------------------
Joseph J. Berns
PLYMOUTH RUBBER COMPANY, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
PAGE
Report of Independent Accountants ................................... 16
Consolidated Balance Sheet at December 3, 1999 and
November 27, 1998 ................................................. 17 - 18
Consolidated Statement of Operations and Retained Earnings
(Deficit) for each of the three years in the period ended
December 3, 1999 .................................................. 19
Consolidated Statement of Comprehensive Income for each of the
three years in the period ended December 3, 1999 .................. 20
Consolidated Statement of Cash Flows for each of the three years
in the period ended December 3, 1999 .............................. 21 - 22
Notes to Consolidated Financial Statements .......................... 23 - 42
Reserves (Schedule II) .............................................. 43
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 accompanying consolidated balance sheets and the related
consolidated statements of operations and retained earnings, of comprehensive
income and of cash flows present fairly, in all material respects, the financial
position of Plymouth Rubber Company, Inc. and its subsidiaries at December 3,
1999 and November 27, 1998, and the results of their operations and their cash
flows for each of the three years in the period ended December 3, 1999 in
conformity with accounting principles generally accepted in the United States.
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
auditing standards generally accepted in the United States, 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.
PricewaterhouseCoopers LLP
Boston, Massachusetts
January 28, 2000, except as to
Note 13, which is as of
February 14, 2000
PLYMOUTH RUBBER COMPANY, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
December 3, November 27,
1999 1998
----------- -----------
Cash ................................... $ -- $ 54,000
Accounts receivable, less allowance for
doubtful accounts of $369,000 and
$544,000 at December 3, 1999 and
November 27, 1998, respectively ...... 12,050,000 12,533,000
Inventories:
Raw materials .................... 4,481,000 3,800,000
Work in process .................. 2,332,000 1,968,000
Finished goods ................... 7,661,000 5,202,000
----------- -----------
14,474,000 10,970,000
----------- -----------
Deferred tax assets, net ............... 1,580,000 1,542,000
Prepaid expenses and other current
assets ............................... 913,000 908,000
----------- -----------
Total current assets ............... 29,017,000 26,007,000
----------- -----------
PLANT ASSETS:
Land ................................. 554,000 618,000
Buildings ............................ 5,969,000 5,995,000
Machinery and equipment .............. 34,804,000 32,201,000
Construction in progress ............. 2,544,000 570,000
----------- -----------
43,871,000 39,384,000
Less: Accumulated depreciation ...... (19,678,000) (17,821,000)
----------- -----------
Total plant assets, net ............ 24,193,000 21,563,000
----------- -----------
OTHER ASSETS:
Deferred tax assets, net ............. 678,000 1,882,000
Other long-term assets ............... 1,027,000 1,249,000
----------- -----------
Total other assets ................. 1,705,000 3,131,000
----------- -----------
$54,915,000 $50,701,000
=========== ===========
The accompanying Notes to Consolidated Financial Statements
are an integral part of these Financial Statements.
PLYMOUTH RUBBER COMPANY, INC.
CONSOLIDATED BALANCE SHEET -- (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
December 3, November 27,
1999 1998
---------------- ----------------
CURRENT LIABILITIES:
Revolving line of credit ............. $11,233,000 $10,117,000
Trade accounts payable ............... 6,827,000 6,090,000
Accrued expenses ..................... 4,378,000 4,220,000
Current portion of long-term borrowings 3,260,000 2,834,000
----------- -----------
Total current liabilities ......... 25,698,000 23,261,000
----------- -----------
LONG-TERM LIABILITIES:
Borrowings ........................... 10,796,000 11,527,000
Pension obligation ................... 2,546,000 2,849,000
Other ................................ 2,538,000 2,543,000
----------- -----------
Total long-term liabilities ....... 15,880,000 16,919,000
----------- -----------
COMMITMENTS AND CONTINGENCIES
(Notes 2 and 12)
STOCKHOLDERS' EQUITY:
Preferred stock $10 par value,
authorized 500,000 shares; no
shares issued and outstanding .......... -- --
Class A voting common stock, $1 par
value, 1,500,000 shares authorized,
810,586 shares issued and outstanding
at December 3, 1999 and November 27,
1998 ................................. 810,000 810,000
Class B non-voting common stock, $1 par
value, 3,500,000 shares authorized,
1,280,304 shares issued and outstanding
at December 3, 1999 and 1,275,014
shares issued and outstanding at
November 27, 1998 .................... 1,280,000 1,275,000
Paid-in capital ...................... 9,083,000 9,077,000
Retained earnings (deficit) .......... 2,678,000 (444,000)
Accumulated other comprehensive loss . (179,000) (69,000)
Deferred compensation ................ (76,000) (114,000)
----------- -----------
13,596,000 10,535,000
Less: Treasury stock at cost (39,200 and
2,100 shares at December 3, 1999 and
November 27, 1998) ................... (259,000) (14,000)
----------- -----------
13,337,000 10,521,000
----------- -----------
$54,915,000 $50,701,000
=========== ===========
The accompanying Notes to Consolidated Financial Statements
are an integral part of these Financial Statements.
PLYMOUTH RUBBER COMPANY, INC.
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
Year Ended
-------------------------------------------------
December 3, November 27, November 28,
1999 1998 1997
----------- ----------- -----------
Revenues:
Net sales ............................................. $77,653,000 $69,041,000 $67,136,000
----------- ----------- -----------
Costs and Expenses:
Cost of products sold ................................. 56,471,000 51,433,000 51,191,000
Selling, general and administrative ................... 15,551,000 13,010,000 12,854,000
Insurance Settlement .................................. (1,750,000) -- --
----------- ----------- -----------
70,272,000 64,443,000 64,045,000
----------- ----------- -----------
Operating income ........................................ 7,381,000 4,598,000 3,091,000
Interest expense ........................................ (2,045,000) (1,871,000) (1,513,000)
Foreign currency exchange loss .......................... (77,000) (69,000) (214,000)
Other income, net ....................................... 103,000 70,000 618,000
----------- ----------- -----------
Income before income taxes .............................. 5,362,000 2,728,000 1,982,000
Provision for income taxes .............................. 2,240,000 890,000 716,000
----------- ----------- -----------
Net income .............................................. 3,122,000 1,838,000 1,266,000
Retained earnings (deficit) at beginning of year ........ (444,000) (2,282,000) (3,548,000)
----------- ----------- -----------
Retained earnings (deficit) at end of year .............. $ 2,678,000 $ (444,000) $(2,282,000)
=========== =========== ===========
PER SHARE DATA:
BASIC EARNINGS PER SHARE:
Net income ........................................... $ 1.51 $ 0.89 $ 0.62
=========== =========== ===========
Weighted average number of shares outstanding ........ 2,068,509 2,073,270 2,031,994
=========== =========== ===========
DILUTED EARNINGS PER SHARE:
Net income ........................................... $ 1.42 $ 0.84 $ 0.58
=========== =========== ===========
Weighted average number of shares outstanding ........ 2,198,480 2,200,406 2,174,482
=========== =========== ===========
The accompanying Notes to Consolidated Financial Statements
are an integral part of these Financial Statements.
PLYMOUTH RUBBER COMPANY, INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Year Ended
-------------------------------------------------
December 3, November 27, November 28,
1999 1998 1997
----------- ----------- -----------
Net Income .............................................. $ 3,122,000 $ 1,838,000 $ 1,266,000
----------- ----------- -----------
Other comprehensive income, net of tax:
Foreign currency translation adjustments ............. (110,000) 22,000 (91,000)
Minimum pension liability adjustment ................. -- 145,000 17,000
----------- ----------- -----------
Other comprehensive income .............................. (110,000) 167,000 (74,000)
----------- ----------- -----------
Comprehensive income .................................... $ 3,012,000 $ 2,005,000 $ 1,192,000
=========== =========== ===========
The accompanying Notes to Consolidated Financial Statements
are an integral part of these Financial Statements.
PLYMOUTH RUBBER COMPANY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended
-------------------------------------------------
December 3, November 27, November 28,
1999 1998 1997
----------- ----------- -----------
CASH FLOWS RELATING TO OPERATING
ACTIVITIES:
Net Income ............................................ $ 3,122,000 $ 1,838,000 $ 1,266,000
Adjustments to reconcile net income to net cash
Provided by operating activities:
Depreciation and amortization ....................... 2,494,000 1,956,000 1,439,000
Deferred income tax expense ......................... 1,184,000 511,000 593,000
Provision for environmental reserves ................ -- -- 202,000
Amortization of deferred compensation ............... 38,000 38,000 38,000
Gain on sale of land ................................ -- -- (539,000)
Changes in assets and liabilities:
Accounts receivable ................................. 268,000 (2,457,000) (1,478,000)
Inventory ........................................... (3,600,000) (501,000) 1,111,000
Prepaid expenses .................................... (7,000) (35,000) (125,000)
Other assets ........................................ 25,000 4,000 (94,000)
Accounts payable .................................... 829,000 40,000 672,000
Accrued expenses .................................... 220,000 906,000 (501,000)
Other liabilities ................................... (5,000) (78,000) 404,000
Pension obligation .................................. (303,000) (320,000) (900,000)
----------- ----------- -----------
Net cash provided by operating activities ............... 4,265,000 1,902,000 2,088,000
----------- ----------- -----------
CASH FLOWS RELATING TO INVESTING
ACTIVITIES:
Capital expenditures .................................. (5,256,000) (6,044,000) (7,615,000)
Sale/leaseback of plant assets ........................ 151,000 964,000 919,000
Proceeds from sale of land ............................ -- -- 539,000
Acquisition of Cintas Adhesivas
Nunez, S.A., less cash acquired of $90,000 .......... -- -- (2,154,000)
Acquisition of certain assets of Brite-Line
Industries, Inc ..................................... -- -- (497,000)
----------- ----------- -----------
Net cash used in investing activities ................... (5,105,000) (5,080,000) (8,808,000)
----------- ----------- -----------
The accompanying Notes to Consolidated Financial Statements
are an integral part of these Financial Statements.
PLYMOUTH RUBBER COMPANY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS -- (CONTINUED)
Year Ended
-------------------------------------------------
December 3, November 27, November 28,
1999 1998 1997
----------- ----------- -----------
CASH FLOWS RELATING TO FINANCING
ACTIVITIES:
Net increase in revolving line of credit .............. $ 1,202,000 $ 1,878,000 $ 2,814,000
Proceeds from term debt ............................... 2,618,000 5,499,000 5,771,000
Payments of term debt ................................. (2,154,000) (3,762,000) (1,654,000)
Payments on capital leases ............................ (673,000) (405,000) (223,000)
Payments on treasury stock purchase ................... (245,000) (14,000) --
Proceeds from exercises of options .................... 11,000 51,000 23,000
----------- ----------- -----------
Net cash provided by (used in) financing activities ..... 759,000 3,247,000 6,731,000
----------- ----------- -----------
Effect of exchange rate changes on cash ................. 27,000 (27,000) 1,000
----------- ----------- -----------
Net change in cash ...................................... (54,000) 42,000 12,000
Cash at the beginning of the period ..................... 54,000 12,000 --
----------- ----------- -----------
Cash at the end of the period ........................... $ -- $ 54,000 $ 12,000
=========== =========== ===========
Supplemental Disclosure of Cash Flow Information
Cash paid for interest .................................. $ 2,082,000 $ 1,883,000 $ 1,632,000
=========== =========== ===========
Cash paid for income taxes .............................. $ 831,000 $ 159,000 $ 171,000
=========== =========== ===========
The accompanying Notes to Consolidated Financial Statements
are an integral part of these Financial Statements.
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. THE COMPANY -- Plymouth Rubber Company, Inc. and its subsidiaries primarily
operate through the following two business segments: Plymouth Tapes and
Brite-Line Technologies. Management has determined these to be Plymouth
Rubber Company's business segments, based upon its process to review and
assess Company performance, and to allocate resources. Plymouth Tapes
manufactures plastic and rubber products, including automotive, electrical,
and industrial tapes. Brite-Line Technologies manufactures and supplies
rubber and plastic highway marking and safety products.
B. PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements include
the accounts of Plymouth Rubber Company, Inc. and its wholly-owned
subsidiaries, Brite-Line Technologies, Inc. and Plymouth Rubber Europa, S.A.
Significant intercompany accounts and transactions have been eliminated in
consolidation.
C. INVENTORIES -- Inventories are valued at the lower of cost, determined
principally on the first-in, first-out method, or market.
D. REVENUE RECOGNITION -- The Company recognizes revenues at the point of
passage of title, which is generally at the time of shipment.
E. 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.
The Company wrote off approximately $.3 million and approximately $2.1
million of fully depreciated and disposed of plant assets in 1999 and 1998,
respectively.
F. ENVIRONMENTAL MATTERS -- Environmental expenditures that relate to current
operations or 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 (see Note 12).
G. 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. The cost of postretirement health
benefits is accrued during the employees' active service period in
accordance with FAS 106, Employers' Accounting for Postretirement Benefits
Other than Pensions.
H. INCOME TAXES -- The Company reports income taxes using the asset and
liability approach, which 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
bases of the Company's assets and liabilities (see Note 4).
I. EARNINGS PER SHARE - In accordance with Statement of Financial Accounting
Standards No. 128, Earnings per Share (FAS 128), basic earnings per share is
computed by dividing income available to common shareholders by the
weighted-average common shares outstanding during the period. Diluted
earnings per share is computed by giving effect to all dilutive potential
common shares that were outstanding during the period.
J. FAIR VALUE OF FINANCIAL INSTRUMENTS -- The carrying amounts reported in the
accompanying consolidated balance sheets for accounts receivable, and
accounts payable approximate fair values because of the immediate or
short-term maturities of these financial instruments. The carrying amount of
the Company's fixed rate long-term debt also approximates fair value based
on current rates for similar debt.
K. USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the consolidated financial statements and the reported amounts of
revenues and expenses during the period. Actual results could differ from
those estimates.
L. STOCK-BASED EMPLOYEE COMPENSATION PLANS -- Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation (FAS 123), became
effective for fiscal years beginning after December 15, 1995. As permitted
under FAS 123, the Company has continued accounting for its stock-based
compensation plans using the intrinsic value method prescribed by Accounting
Principals Board Opinion No. 25, Accounting for Stock Issued to Employees
(APB 25) (See Note 8).
M. FOREIGN CURRENCIES -- The U.S. dollar is the functional currency for the
Company's Brite-Line and U.S. tape operations. For these operations, all
gains and losses from foreign currency transactions are included in income
currently. The Company operates a wholly-owned tape subsidiary in Spain
which accounted for approximately 7.7% of the Company's revenues in fiscal
1999. The functional currency of this subsidiary is the peseta. The balance
sheet is translated at year end exchange rates and the income statement at
weighted average exchange rates. Changes in the peseta exchange rate could
affect the reporting of the subsidiary's earnings in the Consolidated
Statement of Operations. From time to time, the U.S. Company enters into
purchase or sales contracts in currencies other than the U.S. dollar. The
Company's practice is to hedge those transactions which are of significant
size.
N. RECLASSIFICATIONS -- Certain reclassifications of prior year balances have
been made to conform to the current presentation.
O. ACCOUNTING FOR DERIVATIVES -- In June, 1998, the Financial Accounting
Standards Board issued FAS 133 - Accounting for Derivative and Similar
Financial Instruments and for Hedging Activities. FAS 133 will require the
Company to record derivative instruments, such as foreign currency hedges,
on the Consolidated Balance Sheet as assets or liabilities, measured at fair
value. Currently, the Company treats such instruments as off-balance-sheet
items. Gains or losses resulting from changes in the values of those
derivatives would be accounted for depending on the specific use of each
derivative instrument and whether it qualifies for hedge accounting
treatment as stated in the standard. In June, 1999, the Financial Accounting
Standards Board issued FAS 137 - Accounting for Derivative and Similar
Financial Instruments and for Hedging Activities - Deferral of the Effective
Date of FAS 133. FAS 137 changed the effective date for implementation of
FAS 133. FAS 133 will be effective for the Company on December 2, 2000, the
beginning of fiscal year 2001. The Company currently does not expect the
impact of adopting FAS 133 to be material.
NOTE 2 -- BORROWING ARRANGEMENTS AND FINANCING COMMITMENTS
In April, 1998, the Company refinanced one of its term loans with an existing
lender, in the amount of $3,710,000. The proceeds from the refinancing were
primarily used to pay down $1,418,000 of the revolving line of credit and
$2,257,000 of term debt. The loan is secured by a first interest in certain
equipment.
On November 12, 1998, the Company entered into a new loan agreement in the
amount of $1,339,000 with an equipment lender to finance the acquisition of
certain equipment. The new loan is secured by a first interest in the equipment.
On February 19, 1999 the Company amended its revolving line of credit and real
estate term loan agreement with its primary lender. The loan amendment increases
the maximum borrowing amount from $15 million to $18 million, increases the real
estate term loan from $1.25 million to $3.0 million, and lowers the borrowing
rate from prime plus 1/4% to prime. In addition, the Company has the option to
convert part or all of its loan balances at variable rates to 30, 60, 90 or 180
day contracts at a fixed rate of LIBOR plus 2%. The amendment became effective
June 3, 1999 (except for the real estate loan increase which became effective
February 26, 1999) and extends the agreement by three years to June 2, 2002. The
term loan calls for monthly interest only payments through June, 1999, and
interest plus monthly principal payments of $50,000, beginning July, 1999.
On June 30, 1999, the Company entered into a new loan agreement in the amount of
$868,000 with an equipment lender to finance the acquisition of certain
equipment. The new loan is secured by a first interest in the equipment.
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- BORROWING ARRANGEMENTS AND FINANCING COMMITMENTS -- (CONTINUED)
The revolving line of credit and term debt of the Company consisted of the
following as of:
December 3, November 27,
1999 1998
----------- ----------
Short-term borrowings under a revolving line of
credit, secured by a first interest in
accounts receivable, inventory, certain
equipment and certain other personal property
with interest charged at prime. At December 3,
1999, the Company had approximately $3,300,000
in unused borrowing availability on its revolving
line of credit. The interest rate at December 3,
1999 was 8.50% .................................... $10,585,000 $ 9,519,000
Short-term borrowings with three Spanish Banks
with interest rates ranging from 3.72% to 4.95% at
December 3, 1999. Principal amount 107,682,000
pesetas (approximately $648,000) at December 3,
1999 .............................................. 648,000 598,000
----------- -----------
$11,233,000 $10,117,000
=========== ===========
Term debt, in the original principal amount of
$3,000,000, due June 2002, secured by a first
interest in real property. Monthly principal
payments of $50,000 plus interest at prime are
required. The interest rate at December 3, 1999
was 8.50% ......................................... $ 2,750,000 $ 1,350,000
Term debt, in the original principal amount of
$1,339,000, due November 2003, secured by a first
interest in certain equipment. Monthly payments of
$26,578 including interest at 7.1% ................ 1,108,000 1,339,000
Term debt, in the original principal amount of
$3,710,000, due April 2003, secured by a first
interest in certain equipment. Monthly payments
of $75,296 including interest at 8.04% ............ 2,690,000 3,402,000
Term debt, in the original principal amount of
$868,000, due June 2004, secured by a first
interest in certain equipment. Monthly payments
of $17,757 including interest at 8.39% ............ 808,000 --
Term debt, in the original principal amount of
$4,050,000, due May 2008, secured by a first
interest in certain equipment. Monthly payments
of $69,680 including interest at 8.54%. In June
2003, the remaining debt will be amortized over
five years, giving a monthly payment of $20,644,
including interest until May 2008 ................. 3,222,000 3,800,000
Term debt, in the original principal amount of
$450,000, due June 2008, secured by a first
interest in certain equipment. Monthly payments
of $8,045 including interest at 7.75%. In July
2003, the remaining debt will be amortized with
monthly payments of $2,256 including interest
until June 2008 ................................... 386,000 450,000
Term debt, in the original principal amount of
250,000,000 pesetas (approximately $1,721,000),
due April 2007, secured by a first interest in
real property. Semi-annual principal payments of
12,500,000 pesetas (approximately $86,000), with
interest paid quarterly at the one year Madrid
inter-bank market rate (MIBOR) plus 1.25%,
adjusted quarterly. The interest rate at December
3, 1999 was 5% .................................... 1,129,000 1,468,000
Term debt, in the principal amount of 37,500,000
pesetas (approximately $298,000 at November 27,
1998) plus interest at 8.0%, payable in three
annual installments of 12,500,000 pesetas
(approximately $86,000), plus accrued interest,
beginning December 31, 1999 ....................... 278,000 298,000
Capital lease obligations (see Note 10) ........... 1,685,000 2,254,000
----------- -----------
14,056,000 14,361,000
Less current portion .............................. 3,260,000 2,834,000
----------- -----------
$10,796,000 $11,527,000
=========== ===========
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- BORROWING ARRANGEMENTS AND FINANCING COMMITMENTS -- (CONTINUED)
The Company's revolving credit loan and long term debt agreements 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, fixed charge and EBITDA coverage
ratios and minimum working capital levels. In addition, for certain short-term
borrowings, the agreements contain certain subjective provisions which would
result in an event of default if the bank would deem itself "insecure" for any
reason. The short-term borrowings are also payable on demand. The Company was in
compliance with all of its financial covenants as of December 3, 1999.
Maturities of long-term obligations in the next five years are: 2000 -
$3,262,000; 2001 - $3,039,000; 2002 - $4,287,000; 2003 - $1,790,000; 2004 -
$466,000; and thereafter - $1,212,000.
NOTE 3 -- ACQUISITIONS
On January 3, 1997, Plymouth Rubber Europa, S.A., a newly-formed, wholly-owned
subsidiary of the Company, acquired 100 percent of the outstanding shares of
Cintas Adhesivas Nunez, S.A., a privately owned company, located in Porrino,
Spain, for approximately 366,500,000 pesetas (approximately $2,900,000).
309,500,000 pesetas (approximately $2,449,000) were paid at closing, with funds
borrowed under the Company's existing line of credit. An additional 37,500,000
pesetas (approximately $298,000) will be payable in three annual installments,
plus interest, beginning December 31, 1999. An additional 19,462,000 pesetas
(approximately $154,000) was paid in April, 1997, reflecting the change in the
acquired company's equity from February 29, 1996 through December 31, 1996.
Plymouth Rubber Europa, S.A., refinanced a 250,000,000 pesetas (approximately
$1,721,000) loan through a Spanish bank in April, 1997, and repaid 219,500,000
pesetas (approximately $1,510,000) to the Company which, in turn, reduced its
borrowings made on the existing line of credit. Plymouth Rubber Europa, S.A.,
produces and markets vinyl and cloth-based insulating tapes from the facility in
Porrino, Spain.
The acquisition was recorded on the acquiring company's balance sheet as a
purchase valued at an estimated $2,900,000 plus acquisition costs of $200,000.
Cintas Adhesivas Nunez S.A. operates as a wholly-owned subsidiary of Plymouth
Rubber Europa, S.A. The purchase price was allocated to assets acquired and
liabilities assumed based upon their respective fair market values at the date
of acquisition. The excess of purchase price over assets acquired and
liabilities assumed was approximately $1,020,000, and is being amortized on a
straight line basis over ten years.
The aggregate purchase price was allocated as follows:
Working capital ........................... $ 320,000
Plant assets .............................. 1,660,000
Goodwill .................................. 1,020,000
Other ..................................... 100,000
-----------
$ 3,100,000
===========
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- INCOME TAXES
Income from operations before income taxes consist of the following:
Year Ended
-------------------------------------------------
December 3, November 27, November 28,
1999 1998 1997
----------- ----------- -----------
U.S. .................................................... $ 5,173,000 $ 2,536,000 $ 1,908,000
Foreign ................................................. 189,000 192,000 74,000
----------- ----------- -----------
Total ................................................... $ 5,362,000 $ 2,728,000 $ 1,982,000
=========== =========== ===========
The provision (benefit) for income taxes consists of the following:
Year Ended
-------------------------------------------------
December 3, November 27, November 28,
1999 1998 1997
----------- ----------- -----------
Current:
Federal ............................................... $ 749,000 $ 113,000 $ 23,000
State ................................................. 236,000 193,000 70,000
Foreign ............................................... 71,000 73,000 30,000
----------- ----------- -----------
1,056,000 379,000 123,000
----------- ----------- -----------
Deferred:
Federal ............................................... $ 970,000 $ 668,000 $ 560,000
State ................................................. 214,000 (157,000) 33,000
----------- ----------- -----------
1,184,000 511,000 593,000
----------- ----------- -----------
Total ................................................... $ 2,240,000 $ 890,000 $ 716,000
=========== =========== ===========
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- INCOME TAXES -- (CONTINUED)
The components of the net deferred tax asset are as follows:
December 3, November 27,
1999 1998
----------- -----------
Deferred tax asset:
Pension obligations .................... $ 1,180,000 $ 1,358,000
State investment tax credit (ITC)
carryforwards ........................ 217,000 240,000
Environmental reserves ................. 449,000 493,000
Inventory reserves ..................... 426,000 376,000
Postretirement benefits ................ 410,000 415,000
Other reserves ......................... 1,041,000 885,000
----------- -----------
Total gross deferred tax assets ........ 3,723,000 3,767,000
Valuation allowance .................... (80,000) (80,000)
----------- -----------
3,643,000 3,687,000
Deferred tax liability:
Plant assets ........................... (1,385,000) (263,000)
----------- -----------
Net deferred tax asset ........... $ 2,258,000 $ 3,424,000
=========== ===========
The valuation allowance for deferred tax assets was reduced in 1998 by $13,000.
The remaining valuation allowance is maintained against state investment tax
credits which will expire in 2001 and are not expected to be utilized.
A reconciliation of the statutory federal income tax rate and the effective
income tax rate for income from continuing operations for the years ended
December 3, 1999, November 27, 1998, and November 28, 1997, is as follows:
Year Ended
-------------------------------------------------
December 3, November 27, November 28,
1999 1998 1997
----------- ----------- -----------
Tax computed at statutory rate .......................... $ 1,822,000 $ 933,000 $ 674,000
State income taxes, net of U.S. Income tax benefit ...... 297,000 134,000 97,000
State investment tax credit ............................. -- (158,000) --
Valuation allowance reduction, net ...................... -- (13,000) --
Rate differential attributable to foreign operations .... 7,000 2,000 4,000
Other ................................................... 114,000 (8,000) (59,000)
----------- ----------- -----------
$ 2,240,000 $ 890,000 $ 716,000
=========== =========== ===========
Effective income tax rate ............................... 41.8% 32.6% 36.1%
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 -- ACCRUED EXPENSES
The Company's accrued expenses consist of the following:
December 3, November 27,
1999 1998
----------- -----------
Accrued payroll and related benefits ... $ 2,029,000 $ 1,945,000
Accrued pension contributions .......... 265,000 385,000
Other .................................. 2,084,000 1,890,000
----------- -----------
$ 4,378,000 $ 4,220,000
=========== ===========
NOTE 6 -- RETIREMENT AND OTHER BENEFIT 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 through fiscal 1996 after which time
benefits have been frozen. 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's defined contribution profit sharing trust allocates
Company contributions based upon a combination of annual pay and employee
elective deferral of pay. The Company may make a discretionary contribution to
the profit sharing trust. During 1999, 1998 and 1997, the Company accrued
$400,000, $306,000, and $242,000 of profit sharing expense, respectively.
The following table provides reconciliation of changes in benefit obligations
and fair value of plan assets. In addition, this table provides the plan's
funded status and the amounts recognized in the consolidated balance sheet for
the Company's defined benefit pension plan.
December 3, November 27,
1999 1998
----------- -----------
RECONCILIATION OF BENEFIT OBLIGATION:
Benefit obligation at beginning of year $13,933,000 $14,099,000
Interest cost ........................ 812,000 880,000
Benefit payments ..................... (1,204,000) (1,200,000)
Actuarial (gain) loss ................ (1,487,000) 116,000
Transfer from Profit Sharing Plan .... 25,000 38,000
----------- -----------
Benefit obligation at end of year .... $12,079,000 $13,933,000
=========== ===========
RECONCILIATION OF FAIR VALUE OF PLAN
ASSETS:
Fair value at beginning of year ...... $10,722,000 $10,304,000
Actual return on plan assets ......... 1,156,000 1,289,000
Employer contributions ............... 376,000 291,000
Benefit payments ..................... (1,204,000) (1,200,000)
Transfer from Profit Sharing Plan .... 25,000 38,000
----------- -----------
Fair value at end of year ............ $11,075,000 $10,722,000
=========== ===========
FUNDED STATUS:
Funded status ........................ $ 1,003,000 $ 3,211,000
Unrecognized gain .................... 1,807,000 23,000
----------- -----------
Accrued pension costs ................ $ 2,810,000 $ 3,234,000
=========== ===========
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- RETIREMENT AND OTHER BENEFIT PLANS -- (CONTINUED)
December 3, November 27,
1999 1998
----------- -----------
AMOUNTS RECOGNIZED IN THE CONSOLIDATED
BALANCE SHEET:
Accrued pension obligation ........... $ 2,810,000 $ 3,234,000
----------- -----------
Net amount recognized ................ $ 2,810,000 $ 3,234,000
=========== ===========
Net periodic pension costs for the pension plan for the years ended December 3,
1999, November 27, 1998, and November 28, 1997 are as follows:
Year Ended
-----------------------------------------
December 3, November 27, November 28,
1999 1998 1997
----------- ----------- -----------
Service cost ...................... $ -- $ -- $ --
Interest cost ..................... 812,000 880,000 948,000
Expected return on assets ......... (823,000) (889,000) (816,000)
Amortization of net gain .......... (36,000) (19,000) 12,000
--------- --------- ---------
Net periodic pension costs .... $ (47,000) $ (28,000) $ 144,000
========= ========= =========
Key weighted-average assumptions used in the measurement of the Company's
defined benefit pension obligation:
1999 1998 1997
----------- ----------- -----------
Discount rate ..................... 7.25% 6.75% 7.25%
Long term rate of return on assets 8.00% 9.00% 9.00%
In addition to pension benefits, the Company provides health insurance benefits
to retirees disabled on the job 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. In accordance with FAS
106, Employers' Accounting for Postretirement Benefits Other than Pensions, the
cost of these benefits is accrued during the employees' active service period.
The following table provides a reconciliation of changes in benefit obligations.
In addition, this table provides the plan's funded status and the amounts
recognized in the consolidated balance sheet for the Company's postretirement
benefits.
December 3, November 27,
1999 1998
----------- -----------
RECONCILIATION OF BENEFIT OBLIGATION:
Benefit obligation at beginning of year $ 725,000 $ 794,000
Service .............................. 28,000 35,000
Interest cost ........................ 49,000 47,000
Benefit payments ..................... (93,000) (88,000)
Actuarial (gain) loss ................ -- (63,000)
----------- -----------
Benefit obligation at end of year .... $ 709,000 $ 725,000
=========== ===========
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- RETIREMENT AND OTHER BENEFIT PLANS -- (CONTINUED)
December 3, November 27,
1999 1998
----------- -----------
RECONCILIATION OF FAIR VALUE OF PLAN
ASSETS:
Fair value at beginning of year ...... $ -- $ --
Employer contributions ............... 78,000 87,000
Benefit payments ..................... (78,000) (87,000)
----------- -----------
Fair value at end of year ............ $ -- $ --
=========== ===========
FUNDED STATUS:
Funded status ........................ $ 709,000 $ 788,000
Unrecognized gain .................... 266,000 192,000
----------- -----------
Accrued postretirement benefit cost .. $ 975,000 $ 980,000
=========== ===========
AMOUNTS RECOGNIZED IN THE CONSOLIDATED
BALANCE SHEET:
Accrued benefit obligation ........... $ 975,000 $ 980,000
----------- -----------
Net amount recognized ................ $ 975,000 $ 980,000
=========== ===========
Key weighted-average assumptions used in the measurement of the Company's
postretirement benefit obligation :
1999 1998 1997
--------- --------- ---------
Discount rate ..................... 7.25% 6.75% 7.25%
The components of net postretirement expense are as follows:
Year Ended
-----------------------------------------
December 3, November 27, November 28,
1999 1998 1997
----------- ----------- -----------
Service cost ...................... $ 33,000 $ 33,000 $ 27,000
Interest cost ..................... 46,000 48,000 52,000
Amortization of gain or loss ...... (6,000) (8,000) (9,000)
--------- --------- ---------
$ 73,000 $ 73,000 $ 70,000
========= ========= =========
Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plans. A one percent change in the assumed health
care cost trend rates would have the following effects:
1-Percentage- 1-Percentage-
Point Point
Increase Decrease
------------- -------------
Effect on total of service and interest
cost components ...................... $ 7,000 $ (6,000)
Effect on postretirement benefit obligation 43,000 (36,000)
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- COMMON STOCK AND EARNINGS PER SHARE
The Company has authorized a class of preferred stock. To date no shares have been issued.
Common stock activity was as follows:
Shares Common Stock
------------------- ------------------------- Paid in Treasury
Class A Class B Class A Class B Capital Stock
------- -------- ---------- ---------- ---------- ----------
Balance at November 29, 1996 . 810,586 1,192,003 $ 810,000 $1,192,000 $9,086,000 $ --
Issuance of Class B common
stock under stock option
plans ...................... 60,564 60,000 57,000 --
Shares exchanged in connection
with exercise under stock
option plans ............... (18,233) (18,000) (76,000) --
------- --------- ---------- ---------- ---------- ----------
Balance at November 28, 1997 . 810,586 1,234,334 $ 810,000 $1,234,000 $9,067,000 $ --
Purchase of treasury shares .. (14,000)
Issuance of Class B
common stock under stock option
plans ...................... 53,251 53,000 58,000 --
Shares exchanged in
connection with
exercise under stock
option plans ................. (12,571) (12,000) (48,000) --
------- --------- ---------- ---------- ---------- ----------
Balance at November 27, 1998 . 810,586 1,275,014 $ 810,000 $1,275,000 $9,077,000 $ (14,000)
Purchase of treasury shares .. (245,000)
Issuance of Class B common
stock under stock option
plans ...................... 5,290 5,000 6,000
------- --------- ---------- ---------- ---------- ----------
Balance at December 3, 1999 .. 810,586 1,280,304 $ 810,000 $1,280,000 $9,083,000 $ (259,000)
======= ========= ========== ========== ========== ==========
Treasury stock includes 39,200 and 2,100 shares of Class B Common Stock at December 3, 1999 and November 27,
1998, respectively.
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- COMMON STOCK AND EARNINGS PER SHARE -- (CONTINUED)
The following table reflects the factors used in computing earnings per share
and the effect on income and the weighted average number of shares of dilutive
potential common stock.
Year Ended December 3, 1999
-----------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
--------- ----------- ---------
BASIS EPS
Income available to common
stockholders .................. $3,122,000 2,068,509 $ 1.51
=========
Effect of dilutive security
options (A) ................... -- 129,971
--------- ---------
DILUTED EPS
Income available to common
stockholders and assumed
conversions ................... $3,122,000 2,198,480 $ 1.42
========== ========= =========
Year Ended November 27, 1998
-----------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
--------- ----------- ---------
BASIS EPS
Income available to common
stockholders .................. $1,838,000 2,073,270 $ .89
=========
Effect of dilutive security
options (A) ................... -- 127,136
--------- ---------
DILUTED EPS
Income available to common
stockholders and assumed
conversions ................... $1,838,000 2,200,406 $ .84
========== ========= =========
Year Ended November 28, 1997
-----------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
--------- ----------- ---------
BASIS EPS
Income available to common
stockholders .................. $1,266,000 2,031,994 $ .62
=========
Effect of dilutive security
options (A) ................... -- 142,488
--------- ---------
DILUTED EPS
Income available to common
stockholders and assumed
conversions ................... $1,266,000 2,174,482 $ .58
========== ========= =========
(A) Options for 195,619, 195,842, and 137,493 shares of common stock were
outstanding at December 3, 1999, November 27, 1998 and November 28,
1997, respectively, but were not included in computing diluted earnings
per share in each of the respective periods because their effects were
anti-dilutive.
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- STOCK OPTION AND STOCK PURCHASE PLANS
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. As
of December 3, 1999 all options under this plan have been granted.
Of the total options issued and outstanding under the 1992 Plan, 98,175 (with
exercise prices ranging from $2.17 to $2.38) 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 be exercised unless the closing price of
the Company's Class B common stock on the American Stock Exchange had been no
less than $10.39 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 $10.39
(the "price hurdle").
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 is being 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 a 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 300,000 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. At December 3, 1999 there were 157,742 options
available for grant under this plan.
The 1995 Director Plan authorizes the granting of options only to non-employee
directors to purchase an aggregate of 210,000 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 to each
current non-employee director of options to purchase 15,000 shares 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
Director Plan may authorize variations, options under the 1995 Director Plan
will generally be exercised 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. As of December 3, 1999 there were 54,075 options
available for grant this plan.
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- STOCK OPTION AND STOCK PURCHASE PLANS -- (CONTINUED)
A summary of the Company's stock option plans as of December 3, 1999, November
27, 1998, and November 28, 1997, and the changes during the years ending on
those dates are presented below:
Weighted
Average
Number of Exercise
Shares Price
----------- ----------
Outstanding at November 29, 1996 .................. 402,474 $ 3.72
Options granted ................................... 40,000 5.16
Options exercised ................................. (60,564) 1.95
Options expired ................................... (2,417) 1.52
-------- -----------
Outstanding at November 28, 1997 .................. 379,493 $ 4.17
Options granted ................................... 169,375 6.04
Options exercised ................................. (53,251) 2.08
Options expired ................................... (10,988) 3.81
-------- -----------
Outstanding at November 27, 1998 .................. 484,629 $ 4.87
Options granted ................................... 29,325 7.14
Options exercised ................................. (5,290) 2.17
Options expired ................................... (15,000) 4.75
-------- -----------
Outstanding at December 3, 1999 ................... 493,664 $ 5.04
======== ===========
Weighted
Average
Number of Exercise
Shares Price
----------- ----------
Exercisable at November 28, 1997 .................. 218,228 $ 4.54
Exercisable at November 27, 1998 .................. 189,405 $ 5.06
Exercisable at December 3, 1999 ................... 242,815 $ 5.37
The following table summarizes information about all stock options outstanding
at December 3, 1999:
Outstanding Options Options Exercisable
----------------------------------- ------------------------
Weighted
Average
Remaining Weighted Weighted
Range of Contractual Average Average
Exercise Number Life Exercise Number Exercise
Prices Outstanding (Years) Price Exercisable Price
--------- ----------- ---------- ---------- ---------- ------------
$2.17 - 2.38 152,369 3 $2.25 54,194 $ 2.16
4.25 - 4.63 76,800 9 4.55 28,100 4.52
5.95 - 6.81 197,170 7 6.55 145,520 6.53
7.13 - 7.49 67,325 6 7.50 15,001 7.37
------- -------
493,664 242,815
======= =======
The options outstanding at December 3, 1999 expire at various times in 2002
through 2009.
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- STOCK OPTION AND STOCK PURCHASE PLANS -- (CONTINUED)
In accordance with Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation (FAS 123), the fair value of options
granted was estimated on the date of grant using the Black-Scholes option
pricing model. Had compensation expense for the Company's stock option plans
been determined based on the fair value at the grant dates for awards under
these plans consistent with the provisions of FAS 123, the Company's net income
and income per share would have been decreased to the pro forma amounts
indicated below:
Year Ended
----------------------------------------------
December 3, November 27, November 28,
1999 1998 1997
---------- ----------- -----------
Net Income, as reported .... $3,122,000 $1,838,000 $1,266,000
Net Income, pro forma....... 3,005,000 1,745,000 1,232,000
Basic EPS, as reported ..... 1.51 0.89 0.62
Basic EPS, pro forma ....... 1.45 0.84 0.61
Diluted EPS, as reported ... 1.42 0.84 0.58
Diluted EPS, pro forma ..... $ 1.37 $ 0.79 $ 0.57
The weighted average fair value of the options granted during the fiscal years
1999, 1998 and 1997 were $4.88, $3.05, and $2.77 per option, respectively.
The fair value of options at the date of grant was estimated using the
Black-Scholes model with the following weighted average assumptions:
1999 1998 1997
---------- ----------- -----------
Expected life (years) .......... 10 $ 7.6 10
Expected stock price volatility 50% 35% 26%
Risk-free interest rate..... 6.07% 5.40% 6.50%
During the initial phase-in period of FAS 123, pro forma disclosures may not be
representative of the effects on reported net income and earnings per share for
future years because the FAS 123 method of accounting has not been applied to
options granted prior to January 1, 1995.
At December 3, 1999 and November 27, 1998, 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 the date of issuance. If the participant's
employment is terminated during the restricted period, his or her shares are
required to be offered to the Company for repurchase at the original purchase
price. Repurchased shares totaled 3,720 at December 3, 1999 and November 27,
1998. During 1999 and 1998 no shares were repurchased or issued. At December 3,
1999 and November 27, 1998, 30,452 shares were outstanding.
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 - SEGMENT INFORMATION
Plymouth Rubber Company, Inc. and its subsidiaries primarily operate through the
following two business segments: Plymouth Tapes and Brite-Line Technologies.
Management has determined these to be Plymouth Rubber Company's business
segments, based upon its process of reviewing and assessing Company performance,
and allocating resources. Plymouth Tapes manufactures plastic and rubber
products, including automotive, electrical, and industrial tapes. Brite-Line
Technologies manufactures and supplies rubber and plastic highway marking and
safety products.
The reporting segments utilize the accounting policies as described in the
summary of significant accounting policies in the Company's consolidated
financial statements. Management evaluates the performance of its segments and
allocates resources to them primarily based upon sales and operating income.
Intersegment sales are at cost and are eliminated in consolidation. In addition,
certain of the selling, general and administrative expenses recorded in Plymouth
Tapes could be considered as incurred for the benefit of Brite-Line, but are
currently not allocated to that segment. These expenses include certain
management, accounting, personnel and sales services, and a limited amount of
travel, insurance, directors fees and other expenses.
The table below presents information related to Plymouth Rubber's business
segments information for each of the past three years.
Year Ended
----------------------------------------------
December 3, November 27, November 28,
1999 1998 1997
---------- ----------- -----------
Segment sales to unaffiliated
customers:
Plymouth Tapes ................ $67,951,000 $60,653,000 $62,349,000
Brite-Line Technologies ....... 9,702,000 8,388,000 4,787,000
----------- ----------- -----------
Consolidated net sales ........ $77,653,000 $69,041,000 $67,136,000
=========== =========== ===========
Segment income:
Plymouth Tapes ................ $ 5,724,000 $ 4,190,000 $ 3,272,000
Brite-Line Technologies ....... (93,000) 408,000 (181,000)
----------- ----------- -----------
Segment income ................ 5,631,000 4,598,000 3,091,000
Insurance settlement .......... 1,750,000 -- --
----------- ----------- -----------
Consolidated operating
income ...................... 7,381,000 4,598,000 3,091,000
Interest expense .............. (2,045,000) (1,871,000) (1,513,000)
Foreign currency exchange
loss ........................ (77,000) (69,000) (214,000)
Other income, net ............. 103,000 70,000 618,000
----------- ----------- -----------
Consolidated income before tax $ 5,362,000 $ 2,728,000 $ 1,982,000
=========== =========== ===========
Depreciation and amortization:
Plymouth Tapes ................ $ 2,452,000 $ 1,914,000 $ 1,403,000
Brite-Line Technologies ....... 42,000 42,000 36,000
----------- ----------- -----------
Total depreciation and
amortization ................ $ 2,494,000 $ 1,956,000 $ 1,439,000
=========== =========== ===========
Assets:
Plymouth Tapes ................ $50,455,000 $46,840,000 $40,877,000
Brite-Line Technologies ....... 4,460,000 3,861,000 3,187,000
----------- ----------- -----------
Total assets .................. $54,915,000 $50,701,000 $44,064,000
=========== =========== ===========
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 - SEGMENT INFORMATION-- (CONTINUED)
Year Ended
----------------------------------------------
December 3, November 27, November 28,
1999 1998 1997
---------- ----------- -----------
Geographic information:
Net sales to unaffiliated
customers:
United States ................. $65,448,000 $55,915,000 $53,153,000
Spain and Portugal ............ 5,418,000 5,320,000 4,396,000
Other ......................... 6,787,000 7,806,000 9,587,000
----------- ----------- -----------
Consolidated net sales ........ $77,653,000 $69,041,000 $67,136,000
=========== =========== ===========
Long-lived assets:
United States ................. $22,630,000 $19,858,000 $15,712,000
Spain ......................... 1,563,000 1,705,000 1,629,000
----------- ----------- -----------
Total long-lived assets ....... $24,193,000 $21,563,000 $17,341,000
=========== =========== ===========
The Company has one customer, whose operations are primarily in the automotive
industry, which accounted for 32%, 29% and 33% of net sales in 1999, 1998, and
1997, respectively.
NOTE 10 -- LEASES
Included in Plant Assets in the accompanying Consolidated Balance Sheet is
leased property under capital leases as follows:
December 3, November 27,
1999 1998
----------- -----------
Machinery and equipment ................ $ 3,715,000 $ 3,668,000
Less accumulated amortization .......... 1,499,000 1,144,000
----------- -----------
$ 2,216,000 $ 2,524,000
=========== ===========
The Company entered into agreements for the sale and leaseback of certain
machinery and equipment in the aggregate amount of $151,000 and $946,000 in 1999
and 1998, respectively. The leases are for periods of 5 years, at the end of
which the Company has buy out options. The leases have been accounted for in
accordance with Statement of Financial Accounting Statements No. 13, Accounting
for Leases. 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 3, 1999:
2000.............................. $ 607,000
2001.............................. 546,000
2002.............................. 475,000
2003.............................. 229,000
2004.............................. --
-----------
Total minimum lease payments...... 1,857,000
Less: Amount representing interest 172,000
-----------
$ 1,685,000
===========
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10 -- LEASES-- (CONTINUED)
Minimum annual rentals under noncancelable operating leases (which are
principally for equipment) are as follows:
2000.............................. $ 265,000
2001.............................. 264,000
2002.............................. 193,000
2003.............................. --
2004.............................. --
Total rental expense for 1999, 1998 and 1997 was $1,156,000, $994,000, and
$1,231,000, respectively. Included in the total rental expense in each year are
the warehousing costs incurred at various locations. The cost of keeping
inventory at these warehouses is primarily determined on a usage basis.
NOTE 11 -- TRANSACTIONS WITH RELATED PARTIES
The Company has a consulting agreement with a Director of the Company, to
provide the Company with various consulting services. During 1999, 1998 and
1997, consulting fees of $61,100, $51,700, and $36,400, respectively, were paid
pursuant to this agreement. In addition, the Company has a consulting agreement
with Kadeca Consulting Corporation, whose president is a Director of the
Company. During 1999 consulting fees under this agreement were $11,400.
Previously, the Company had a consulting agreement with a third Director of the
Company, to provide the Company with various consulting services. During 1998
and 1997 consulting fees under this agreement were $55,200 and $115,000,
respectively.
NOTE 12 -- COMMITMENTS AND CONTINGENCIES
ENVIRONMENTAL
Claims under CERCLA
The Company has been named as a Potentially Responsible Party ("PRP") by the
United States Environmental Protection Agency ("EPA") in two ongoing claims
under the Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"). These CERCLA claims involve attempts by the EPA to recover the costs
associated with the cleanup of two Superfund Sites in Southington,
Connecticut--the Solvent Recovery Service of New England Superfund Site ("SRS
Site") and the Old Southington Landfill Superfund Site ("OSL Site"). SRS was an
independent and licensed solvent recycler/disposal company. The EPA asserts that
SRS, after receiving and processing various hazardous substances from PRPs,
shipped some resultant sludges and wastewater from the SRS Site to the OSL Site.
The Company received a PRP notification regarding the SRS Site in June, 1992.
The EPA originally attributed a 1.74% share of the aggregate waste volume at the
SRS Site to the Company. Remedial action is ongoing at the Site, and the Company
is a participant in the performing PRP group. Largely because of "orphaned
shares," the Company recently has been contributing approximately 2.05% toward
the performing PRP group's expenses. Based upon the investigations and remedial
actions conducted at the Site to date, including a phytoremediation study, it is
presently estimated that the total cost of the cleanup at the Site will range
from approximately $25 million to $50 million. In the accompanying consolidated
financial statements as of December 3, 1999, management has accrued $484,000 as
a reserve in this matter (which is net of approximately $242,000 in payments
made to date by the Company).
The Company received a PRP notification regarding the OSL Site in January, 1994.
In addition to numerous "SRS transshipper" PRPs (such as the Company), EPA has
named a number of other PRPs who allegedly shipped waste materials directly to
the OSL Site. Based on EPA's asserted volume of shipments to SRS, EPA originally
attributed 4.89% of the "SRS transshipper" PRPs' waste volume at the OSL Site to
the Company, which is a fraction of the undetermined total waste volume at the
Site. A Record of Decision ("ROD") was issued in September, 1994 for the first
phase of the cleanup and, in December, 1997, following mediation, the Company
contributed $140,180 (toward a total contribution by the "SRS transshipper" PRPs
of approximately $2.5 million) in full settlement of the first phase. At
present, neither the remedy for the second phase of the cleanup (groundwater)
nor the allocation of the costs thereof among the PRP's has been determined. It
has been estimated that the total costs of the second phase may range from $10
million to $50 million. Management has accrued $337,000 in the accompanying
consolidated financial statements as a reserve against the Company's potential
future liability in this matter.
Based on all available information as well as its prior experience, management
believes that its accruals in these two matters are reasonable. However, in each
case the reserved amount is subject to adjustment for future developments that
may arise from one or more of the following -- the long range nature of the
case, legislative changes, insurance coverage, the joint and several liability
provisions of CERCLA, the uncertainties associated with the ultimate groundwater
remedy selected, and the Company's ability to successfully negotiate an outcome
similar to its previous experience in these matters.
Claims under Massachusetts General Laws, Chapter 21E
While in the process of eliminating the use of underground storage tanks at the
Company's facility in Canton, Massachusetts, the Company arranged for the
testing of the areas adjacent to the tanks in question--a set of five tanks in
1994 and a set of three tanks in 1997. The tests indicated that some localized
soil contamination had occurred. The Company duly reported these findings
regarding each location to the Massachusetts Department of Environmental
Protection ("DEP") in 1994 and 1997 respectively, and DEP issued Notices of
Responsibility under Massachusetts General Laws Chapter 21E to the Company for
each location (RTN No. 3-11520 and RTN No. 3-15347, respectively). The Company
has retained an independent Licensed Site Professional ("LSP") to perform
assessment and remediation work at the two locations. With regard to the first
matter (involving the set of five tanks), the LSP has determined that the soil
contamination appears to be confined to a small area and does not pose an
environmental risk to surrounding property or community. With regard to the
second matter (involving the set of three tanks), a limited amount of solvent
has been found in the soil in the vicinity of the tanks; however, additional
sampling is required. It presently is estimated that the combined future costs
to complete the assessment and remediation actions at the two locations will
total approximately $249,000, and that amount has been accrued in the
accompanying financial statements.
In January, 1997 the Company received a Chapter 21E Notice of Responsibility
from DEP concerning two sites located in Dartmouth, Massachusetts (RTN No.
4-0234) and Freetown, Massachusetts (RTN No. 4-0086), respectively. According to
DEP, drums containing oil and/or hazardous materials were discovered at the two
sites in 1979, which led to some cleanup actions by the DEP. DEP contends that
an independent disposal firm allegedly hired by the Company and other PRPs, H &
M Drum Company, was responsible for disposing of drums at the two sites. To
date, the DEP has issued Notices of Responsibility to approximately 100 PRPs. A
group of PRPs, including the Company,has retained an LSP to conduct subsurface
investigations at both sites. The LSP recently completed Limited Subsurface
Investigations at both sites. At the Freetown site, no reportable contamination
was found either in soil or groundwater, and the LSP has recommended that DEP
close the site out. At the Dartmouth site, no reportable contamination was found
in soil, while reportable, but lower than historical levels of contaminants were
found in groundwater. The LSP's investigation at the Dartmouth site further
indicates that there may be an upgradient off-site source of contaminants that
is impacting the site, and recommends further investigation into that
possibility. While the results of the Limited Subsurface Investigations at these
sites are relatively encouraging, until additional data is gathered, it is not
possible to reasonably estimate the costs of any further investigation or
cleanup that may be required at either or both sites, or the Company's potential
share of liability or responsibility therefor. Accordingly, no reserve has been
accrued in the accompanying financial statements with respect to these two
sites.
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 13 - SUBSEQUENT EVENT
The Company's subsidiary, Brite-Line Technologies, Inc., was both a defendant
and a counterclaim plaintiff in a patent infringement lawsuit initiated in 1998
in federal district court in Minnesota and settled in February, 2000. The suit
involved contrasting claims by Brite-Line and the plaintiff (a competitor of
Brite-Line in the highway marking tapes business), that the other party had
committed patent infringement with respect to its specialty retroreflective
pavement marking tapes containing raised wedges. The only Brite-Line products at
issue in the case have generated limited sales to date that have not been
material to the Company or to the Brite-Line subsidiary. After the completion of
discovery and prior to trial, both parties agreed to resolve the suit amicably.
Under the terms of the settlement, which required no payment of damages by
either party, the parties agreed to accept certain interpretations of the
plaintiff's patent claims and neither party admitted infringing the patent
rights of the other. Brite-Line agreed not to manufacture or sell any product
which conflicts with the plaintiff's patent claims and to discontinue its
counterclaim against the plaintiff.
NOTE 14 -- UNAUDITED QUARTERLY FINANCIAL DATA
The following table presents the quarterly information for fiscal 1999 and 1998.
Quarter Ended
--------------------------------------------------------------
February 26 May 28 August 27 December 3
----------- ----------- ----------- -----------
1999 (a)
Net sales .................. $16,406,000 $21,505,000 $18,685,000 $21,057,000
Gross profit ............... 4,355,000 5,999,000 5,170,000 5,658,000
Net income ................. 359,000 1,843,000 307,000 613,000
Earnings per share
Basic .................... $ .17 $ 0.89 $ 0.15 $ 0.30
Diluted .................. $ .16 $ 0.84 $ 0.14 $ 0.28
February 27 May 29 August 28 November 27
----------- ----------- ----------- -----------
1998 (b)
Net sales .................. $14,464,000 $18,510,000 $17,087,000 $18,980,000
Gross profit ............... 2,756,000 5,607,000 4,228,000 5,017,000
Net income ................. (423,000) 1,080,000 386,000 795,000
Earnings per share
Basic .................... $ (0.21) $ 0.52 $ 0.19 $ 0.38
Diluted .................. $ (0.21) $ 0.49 $ 0.17 $ 0.36
(a) Sales for the first and third quarters of 1999 in Plymouth Tapes were reduced due to
normal seasonal fluctuations. In addition, sales for the first quarter of 1999 for
Brite-Line Technologies were reduced due to the highly seasonal nature if the highway
market segment. Net income for the second quarter of 1999 was increased due to income
from an insurance settlement.
(b) Sales and net income for the first quarter of 1998 were reduced due to the highly
seasonal nature of Brite-Line Technologies. Sales and net income for the third quarter of
1998 were reduced in Plymouth Tapes due to the General Motors strike
SCHEDULE II
PLYMOUTH RUBBER COMPANY, INC.
ACCOUNTS RECEIVABLE
RESERVES
Accounts
Balance at Provision Charged to Balance
Beginning Allowances Charged Reserve, net at End
of Period Acquired to Income of recoveries of Period
--------- -------- --------- ------------- ---------
Allowance for doubtful accounts
Year ended December 3, 1999 ... $ 544,000 $ -- $ (114,000) $ (61,000) $ 369,000
Year ended November 27, 1998 ... $ 314,000 $ -- $ 180,000 $ 50,000 $ 544,000
Year ended November 28, 1997 ... $ 195,000 $ 81,000 $ 63,000 $ (25,000) $ 314,000
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 General
Electric Capital Corporation dated December 29, 1995 -- incorporated
by reference to Exhibit (4)(viii) to the report on Form 10-Q for the
Quarter ended March 1, 1996.
(4)(ii) Master Security Agreement between Plymouth Rubber Company, Inc. and
General Electric Capital Corporation dated December 29, 1995 --
incorporated by reference to Exhibit (4)(viii) to the report on Form
10-Q for the quarter ended March 1, 1996.
(4)(iii) Demand Note between Plymouth Rubber Company, Inc. and LaSalle
National Bank dated June 6, 1996 -- incorporated by reference to
Exhibit (2)(i) to the report on Form 8-K with cover page dated June
6, 1996.
(4)(iv) Loan and Security Agreement between Plymouth Rubber Company, Inc. and
LaSalle National Bank dated June 6, 1996 -- incorporated by reference
to Exhibit (2)(ii) to the report on Form 8-K with cover page dated
June 6, 1996.
(4)(v) Amendment to Master Security Agreement between Plymouth Rubber
Company, Inc. and General Electric Capital Corporation dated February
19, 1997 -- incorporated by reference to Exhibit (4)(xi) to the
report on Form 10-Q for the quarter ended February 25, 1997.
(4)(vi) Master Security Agreement between Plymouth Rubber Company, Inc. and
General Electric Capital Corporation dated January 29, 1997 --
incorporated by reference to Exhibit (4)(xii) to the Company's report
on Form 10-Q for the quarter ended February 25, 1997.
(4)(vii) Demand Note between Brite-Line Technologies, Inc. and LaSalle
National Bank dated February 28, 1997 -- incorporated by reference to
Exhibit (4)(xiii) to the Company's report on Form 10-Q for the
quarter ended May 30, 1997.
(4)(viii) Loan and Security Agreement between Brite-Line Technologies, Inc. and
LaSalle National Bank dated February 25, 1997 -- incorporated by
reference to Exhibit (4)(xiv) to the Company's report on Form 10-Q
for the quarter ended May 30, 1997.
(4)(ix) Continuing Unconditional Guaranty between Brite-Line Technologies,
Inc. LaSalle National Bank dated February 25, 1997 -- incorporated by
reference to Exhibit (4)(xv) to the Company's report on Form 10-Q for
the quarter ended May 30, 1997.
(4)(x) Amendment to Loan and Security Agreement between Plymouth Rubber
Company, Inc. and LaSalle National Bank dated May 7, 1997 --
incorporated by reference to Exhibit (4)(xvi) to the Company's report
on Form 10-Q for the quarter ended May 30, 1997.
PLYMOUTH RUBBER COMPANY, INC.
INDEX TO EXHIBITS
(CONTINUED)
Exhibit
No. Description
- ------- -----------
(4)(xi) Continuing Unconditional Guaranty between Plymouth Rubber Company,
Inc. and LaSalle National Bank dated March 20, 1997 -- incorporated
by reference to Exhibit (4)(xvii) to the Company's report on Form
10-Q or the quarter ended May 30, 1997.
(4)(xii) Public Deed which contains the loan guaranteed by mortgage and
granted between Plymouth Rubber Europa, S.A. and Caja de Ahorros
Municipal de Vigo, Banco de Bilbao, and Vizcaya y Banco de Comercio
dated April 11, 1997 -- incorporated by reference to Exhibit
(4)(xviii) to the Company's report on Form 10-Q for the quarter ended
May 30, 1997.
(4)(xiii) Corporate Guaranty between Plymouth Rubber Company, Inc. and Caja de
Ahorros Municipal de Vigo, Banco de Bilbao, and Vizcaya y Banco de
Comercio dated April 11, 1997 -- incorporated by reference to Exhibit
(4)(xix) to the Company's report on Form 10-Q for the quarter ended
May 30, 1997.
(4)(xiv) Promissory Note between Plymouth Rubber Company, Inc. and General
Electric Capital Corporation dated December 3, 1997
(4)(xv) Promissory Note between Plymouth Rubber Company, Inc. and General
Electric Capital Corporation dated April 13, 1998
(4)(xvi) Promissory Note between Plymouth Rubber Company, Inc. and General
Electric Capital Corporation dated November 12, 1998
(4)(xvii) Promissory Note between Plymouth Rubber Company, Inc. and General
Electric Capital Corporation dated November 25, 1998
(4)(xviii) Amendments to Loan and Security Agreement between Plymouth Rubber
Company, Inc., and LaSalle National Bank dated July 15, 1998 and
February 18, 1999 - incorporated by reference to Exhibit (4)(xviii)
to the Company's Quarterly Report on Form 10-Q for the quarter ended
February 26, 1999.
(4)(xix) Amendment to Loan and Security Agreement between Brite-Line
Technologies, Inc., and LaSalle National Bank dated February 18, 1999
- incorporated by reference to Exhibit (4)(xix) to the Company's
Quarterly Report on Form 10-Q for the quarter ended February 26,
1999.
(4)(xx) Promissory Note between Plymouth Rubber Company, Inc. and General
Electric Capital Corporation dated June 29, 1999 - incorporated by
reference to Exhibit (4)(xx) to the Company's Quarterly Report on
Form 10-Q for the quarter ended August 27, 1999.
(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 -- incorporated by reference to
Exhibit 9(ii) of the Company's Annual Report on Form 10-K for the
year ended December 2, 1994.
(10)(i) 1982 Employee Incentive Stock Option Plan -- incorporated by
reference to Exhibit (10)(i) of the Company's Annual Report on Form
10-K for the year ended November 26, 1993.
(10)(ii) General Form of Deferred Compensation Agreement entered into between
the Company and certain officers -- incorporated by reference to
Exhibit (10)(ii) of the Company's Annual Report on Form 10-K for the
year ended November 26, 1993.
(10)(iii) 1992 Employee Incentive Stock Option Plan -- incorporated by
reference to Exhibit (10)(iv) of the Company's Annual Report on Form
10-K for the year ended November 26, 1993.
(10)(iv) 1995 Non-Employee Director Stock Option Plan -- incorporated by
reference to Exhibit (4.3) of the Company's Registration Statement on
Form S-8 dated May 4, 1995.
(10)(v) 1995 Employee Incentive Stock Option Plan -- incorporated by
reference to Exhibit (4.4) of the Company's Registration Statement on
Form S-8 dated May 4, 1995.
(10)(vi) Sales contract entered into between the Company and Kleinewefers
Kunststoffanlagen GmbH -- incorporated by reference to Exhibit
(10)(vi) of the Company's report on Form 10-Q for the quarter ended
February 28, 1997.
(11) Not Applicable.
(12) Not Applicable.
(13) Not Applicable.
(15) Not Applicable
(16) Not Applicable.
(18) Not Applicable.
(19) Not Applicable
(21) Brite-Line Technologies, Inc. (incorporated in Massachusetts) and
Plymouth Rubber Europa, S.A. (organized under the laws of Spain).
(22) Not Applicable.
(23) Consent of Independent Accountants.
(23) Not Applicable.
(24) Not Applicable.
(27) Financial data schedule for the year ended December 3, 1999.
(28) Not applicable.
(29) Not applicable.