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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: Commission File Number
December 1, 2000 1-5197
---------------- ------
PLYMOUTH RUBBER COMPANY, INC.
(Exact name of registrant as specified in its charter)
Massachusetts 04-1733970
---------------------------- ----------------
(State or other jurisdiction (I.R.S. Employer
of 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
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Securities registered pursuant to
Section 12(b) of the Act: Name of each exchange on
Title of each class Which registered
- ---------------------------------- -------------------------
Class A Common Stock, par value $1 American Stock Exchange
Class B Common Stock, par value $1 American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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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 29, 2001, was approximately
$2,365,000.
- -----------
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
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Class B common stock, par value $1 . . . . . 1,226,304
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Documents incorporated by reference:
Portions of the registrant's definitive Proxy Statement to be dated on
or about March 26, 2001 (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.
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
2000, the Company signed a new contract with Delphi to supply PVC and some
textile tapes until 2005. Delphi accounted for approximately 31%, 32% and 29% of
the Company's net sales in 2000, 1999 and 1998, 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 11 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., 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 480 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" and
non-participating parties' shares, the Company most recently has been
contributing approximately 2.16% toward the performing PRP group's ongoing
expenses. To date approximately $15 million in response costs have been spent or
committed at this Site. Based upon the extensive investigations and remedial
actions conducted at the Site to date, it is presently estimated that the total
future costs at the SRS Site may range from approximately $18 million to $50
million. In the accompanying consolidated financial statements as of December 1,
2000, management has accrued $474,000 as a reserve against the Company's
potential future liability in this matter, which is net of approximately
$252,000 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), the 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. The remediation program at the OSL Site has been divided
into two phases, called Operable Units ("OU"). OU#1 primarily involves capping
of the site and OU#2 is groundwater remediation, if any. A Record of Decision
("ROD") was issued in September, 1994 for OU#1 and, in December, 1997, following
mediation, the Company contributed $140,180 in full settlement of OU#1 (toward a
total contribution by the SRS transshipper PRPs of approximately $2.5 million).
The SRS transshipper PRPs' payment of $2.5 million represented approximately 8%
of the OU#1 total settlement. At present, neither the remedy for OU#2 nor the
allocation of the costs thereof among the PRPs has been determined. Whatever
remedy ultimately is selected, the SRS transshippers' allocable share of the
OU#2 expenses likely will be greater than the 8% paid for OU#1. It has been
estimated that the total costs of OU#2 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, which is net of approximately $168,000 in payments
made to date by the Company.
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
contamination had occurred. The Company duly reported these findings regarding
each location to the Massachusetts Department of Environmental Protection
("DEP"), and the DEP has issued Notices of Responsibility under Massachusetts
General Laws Chapter 21E to the Company for each location (RTN No. 3-11520 for
the set of five tanks and RTN Nos. 3-15347 and 3-19744 for the set of three
tanks). 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 contamination appears to be confined to a small area of soil
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 and groundwater in the vicinity of
the tanks. Costs incurred to date in connection with these two locations have
totaled approximately $442,000. These costs have been funded through operating
cash flows. It presently is estimated that the combined future costs to complete
the assessment and remediation actions at the two locations will total
approximately $329,000, and that amount has been accrued in the accompanying
financial statements.
In January, 1997 the Company received a Chapter 21E Notice of Responsibility
from the DEP concerning two sites located in Dartmouth, Massachusetts (RTN No.
4-0234) and Freetown, Massachusetts (RTN No. 4-0086), respectively. According to
the 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. The 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 has 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 the 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 (which the Company would not be
responsible for) 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 one or both sites, or the
Company's potential share of liability or responsibility therefor. Accordingly,
no reserve has been recorded in the accompanying financial statements with
respect to these two sites.
In April, 2000 the Company received a Chapter 21E Notice of Responsibility from
the DEP concerning an oil release in the portion of the East Branch of the
Neponset River that flows through the Company's property in Canton,
Massachusetts (RTN No. 3-19407). The Company had duly reported the presence of
oil in the river to the appropriate government agencies. The Company commenced
cleanup and investigatory actions as soon as it became aware of the presence of
the oil, and immediately retained both an LSP to oversee response actions in
this matter and also an environmental services firm to perform cleanup and
containment services. At the present time, neither the source nor the cause of
the release has been positively determined. Costs incurred to date have totaled
approximately $232,000. These costs have been funded through operating cash
flows. It presently is estimated that the future costs in this matter will total
approximately $100,000 which has been accrued in the accompanying financial
statements.
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
Name Position/Officer Age (at last Birthday) Served Since
- ---- ---------------- ---------------------- ------------
Maurice J. Hamilburg President and Co - Chief Executive
Officer and Director 54 1987
Joseph D. Hamilburg Chairman and Co - Chief Executive
Officer and Director 52 1998
Fiore D. DiGiovine VP - Mfg. Development 73 1987
Alan I. Eisenberg VP - Sales & Marketing 50 1988 & 1986
Sheldon S. Leppo VP - Research & Development 66 1970
Joseph J. Berns VP - Finance and Treasurer 54 1997
Thomas L. McCarthy VP - Manufacturing 40 1999
David M. Kozol Clerk and Secretary 42 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 2000 Quarter 1999
First............. 8.25 7.00 7.00 6.31 First.......... 6.63 6.00 6.38 5.75
Second............ 7.38 3.75 6.25 2.75 Second......... 7.00 6.25 6.94 6.00
Third............. 5.81 4.75 4.19 3.25 Third.......... 9.00 6.13 7.88 6.13
Fourth............ 5.94 3.25 5.44 2.63 Fourth......... 8.63 6.75 7.19 6.00
(b) APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS
As of January 26, 2001, 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............. 220
Class B non-voting common stock $1.00 par value......... 260
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
-----------------------------------------------------------------------
2000 1999 1998 1997 1996
--------- --------- ---------- ---------- -----------
Net Sales $ 74,392,000 $ 78,038,000 $ 69,390,000 $ 67,463,000 $57,404,000
Income (loss) from operations $ (3,989,000) $ 3,122,000 $ 1,838,000 $ 1,266,000 $ 1,872,000
Per Share Data:
Income (loss) from operations
(diluted) $ (1.95) $ 1.42 $ 0.84 $ 0.58 $ 0.84
Weighted average shares outstanding 2,041,481 2,198,480 2,200,406 2,174,482 2,226,008
SELECTED BALANCE SHEET DATA:
Total Assets 51,461,000 55,035,000 50,701,000 44,064,000 34,750,000
Long Term Liabilities 6,318,000 16,000,000 16,919,000 15,858,000 11,439,000
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
2000 COMPARED WITH 1999
Sales decreased 5% to $74.4 million (52 weeks) from $78.0 million (53 weeks) in
1999. Plymouth Tapes' sales of $66.6 million were down 3% from 1999. Sales in
the automotive market decreased approximately 7%, largely due to weak fourth
quarter sales. Sales in all other markets combined increased 5%, partially
offsetting the automotive decrease. Sales at Brite-Line Technologies decreased
20% to $7,801,000 from $9,729,000 in 1999, largely due to lower than expected
reorder business, unacceptable pricing in Europe due to currency exchange rates,
and unfavorable spring weather conditions in certain key market regions.
Gross margin decreased to 19.1% from 27.6% in 1999. Plymouth Tapes' gross margin
decreased to 17.4% from 27.0% in 1999. The major factor driving this decrease
was rising raw material purchase prices during fiscal 2000, primarily for PVC
resins, which increased product costs significantly compared to 1999, and which
the Company was largely unable to pass along to customers. The resultant margin
decrease is estimated to be $2,000,000 for the year. Another factor was
extensive time during July and early August that was necessary to install and
debug capital equipment additions and improvements. The resultant low production
output produced a large overhead absorption variance, estimated at approximately
$400,000, lower direct labor utilization, and lower sales due to the temporary
inability to produce certain products. Overall processing yields were also
significantly unfavorable compared to last year, and were a significant
contributor to the lower gross margin. One large component of the lower
processing yields was the installation and startup costs for certain coating
equipment. In addition, manufacturing costs were higher for certain automotive
products, due to product development activities. Increases were also experienced
in indirect labor, equipment repair, healthcare, and utility costs. Lower
contractual selling prices, mainly to a major automotive customer, also
contributed approximately $400,000 to the margin decrease, as did unfavorable
European pricing caused by currency exchange rates. Slightly offsetting this was
the gross margin at Brite-Line Technologies, which increased to 34.1% from 31.8%
in 1999.
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,
decreased to 19.1% from 20.4% in 1999. The major source of the decrease was
Brite-Line Technologies, where selling, general and administrative expenses, as
a percentage of sales, decreased to 22.8% from 32.7% last year. The major factor
was a decrease in professional fees to $108,000 from $1,275,000 in 1999, due
largely to costs in 1999 associated with a patent infringement lawsuit. Salaries
in Brite-Line Technologies also decreased by approximately $147,000, due in
large part to a reduction in accrued bonuses. Selling, general and
administrative expenses, as a percentage of sales, in Plymouth Tapes decreased
slightly to 18.6% from 18.7% last year. The major factor reducing expenses was a
$912,000 decrease in bonus and profit sharing. There was also a $162,000
decrease in professional fees and a $104,000 decrease in advertising. These
decreases were largely offset by a $582,000 increase in environmental expenses,
an increase in salary and fringe of $158,000, a freight expense increase of
$74,000, and a bad debt expense increase of $66,000.
Operating income for 1999 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 $2,342,000 from $2,045,000 last year. The increase
occurred because of both higher average loan balances (approximately $2,800,000
higher) and higher interest rates (approximately 0.8% higher) on the revolving
line of credit in 2000 compared to 1999. This was partially offset by slightly
lower average balances for term debt.
As a result of the above factors, income before taxes in 2000 decreased to a
loss of $2,287,000, compared to a profit of $5,362,000 in 1999. Fiscal 1999
results benefited from a one-time insurance recovery of $1,750,000, and were
adversely affected by $1,275,000 in expense connected with patent litigation. In
accordance with the Statement of Financial Accounting No. 109, Accounting for
Income Taxes (FAS 109), management performed an analysis of the realizability of
its deferred tax assets. FAS 109 requires that deferred tax assets be reduced by
a valuation allowance if it is more likely than not that some portion or all of
the deferred tax asset will not be realized. During the fourth quarter of fiscal
2000, the Company increased the valuation allowance for deferred tax assets by
$2,387,000. Such an increase was deemed necessary as the net deferred tax asset
balance at December 1, 2000 could not be carried back to recover taxes paid in
previous years and will not be offset by the reversal of future taxable
differences. Also, the Company's liquidity situation at December 1, 2000
provides significant negative evidence regarding the ability to generate
sufficient taxable income in the future to recover these assets. The increase in
the valuation allowance resulted in a $1,702,000 tax expense for fiscal 2000,
compared to a $2,240,000 tax expense in 1999. Net income for fiscal 2000
decreased to a loss of $3,989,000, compared to a profit of $3,122,000 in 1999.
Cash generated from operating activities was $3.0 million in 2000, as compared
to $4.3 million in 1999. The major factors contributing to cash from operating
activities included depreciation and amortization of $2.8 million, deferred
income tax expense of $2.4 million, a decrease in accounts receivable of $2.1
million, an increase in accounts payable of $1.0 million, a decrease in
inventory of $0.5 million, an increase in environmental reserves of $0.4
million, and a decrease in other assets of $0.1 million. These were partially
offset by a net loss of $4.0 million, a decrease in accrued expenses of $1.7
million, a decrease in pension obligation of $0.4 million, and a decrease in
other liabilities of $0.2 million. The operating cash flow and cash provided
through additional borrowings totaling $1.1 million under the Company's
revolving line of credit, and $4.1 million under a capital expenditure line of
credit were used to finance capital expenditures of $4.8 million, pay off or
reduce term debt and capital leases of $3.3 million, and repurchase Plymouth
Rubber common stock in the amount of $0.1 million.
The U.S. dollar is the functional currency for the Company's U.S. operations.
For these operations, all gains and losses from foreign currency transactions
are included in income currently. The Company operates a wholly owned subsidiary
in Spain, which accounted for 8.6% of the Company's revenues in fiscal 2000. 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. The U.S. Company infrequently enters into
purchase or sales contracts in currencies other than the U.S. dollar, and hedges
only those transactions that are of significant size. At the end of fiscal 2000,
there were no forward contracts in place.
1999 COMPARED WITH 1998
Sales increased for the ninth consecutive year, as 1999 sales at $78.0 million
were up 12.5% from 1998. The major contributor was Plymouth Tapes, where 1999
sales of $68.3 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 15.6% over 1998.
Gross margin increased to 27.6% from 25.9% last year. Plymouth Tapes' gross
margin increased to 27.0% from 25.9% in 1998. 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 31.8% from 25.3% in 1998, due
to better pricing and higher volume, partially offset by higher manufacturing
spending and raw material usage.
Selling, general and administrative expenses were incurred and recorded in both
Plymouth Tapes and Brite-Line Technologies. Certain of the selling, general and
administrative expenses recorded in Plymouth Tapes could have been considered as
incurred for the benefit of Brite-Line, but were not allocated to that segment.
These expenses included 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 20.4% from 19.2% in 1998. The major source of the increase was
Brite-Line Technologies, where selling, general and administrative expenses, as
a percentage of sales, increased to 32.7% from 20.4% in 1998. The major factor
was an increase in professional fees to $1,275,000 from $201,000 in 1998, 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 18.7% from 19.1% in 1998. 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 in 1999 increased to $2,045,000 from $1,871,000 in 1998. 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
1998, 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 1998. 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 in 1998. 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% in 1998. 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 in 1998. 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 included 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.
LIQUIDITY AND CAPITAL RESOURCES
During 1997, 1998, 1999, and 2000, Plymouth Rubber invested in a significant
capital expansion and improvement program, for a total amount of $23.7 million,
including a new calender and coating line, and other production 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.). In connection with these
investments and to provide working capital for operations, the Company has
increased its debt from approximately $12.2 million in 1996 to approximately
$26.9 million in 2000.
As of December 1, 2000, the Company had used all of its borrowing capacity under
its 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. As of December 1, 2000, the Company was not in compliance with
two of its financial covenants (minimum working capital and minimum fixed charge
coverage ratio) with its primary term debt lender. Because of a cross default
provision, the Company was therefore also not in compliance with a covenant with
its primary working capital lender. As a result, the $9.4 million long-term
portion of debt with these lenders has been classified as current on the
Company's Consolidated Balance Sheet, and the total debt with these lenders
currently would be payable on demand. This reclassification resulted in a
negative working capital of $11,357,000. The Company is projecting that it will
not be in compliance with the covenants of its primary term debt and primary
working capital facilities in the next twelve months. The Company expects that
demands on its liquidity and credit resources will continue to be significant
through fiscal 2001.
In response, the Company has developed a number of cash conservation plans for
fiscal 2001. First, the Company has negotiated modified loan agreements with its
primary term lender to defer certain principal payments and extend the remaining
loan amortization period by four months. The Company is currently working with
another of its term lenders to negotiate a similar arrangement. The reduced 2001
cash outflow from deferred principal payments with these two lenders would total
approximately $800,000. The Company is also working with its primary working
capital lender to increase cash availability and/or defer certain principal
payments on term debt. In addition, the Company is currently working with a
number of other lenders to obtain additional financing or refinance its existing
debt. The Company has also developed plans to conserve cash, including cost
reductions, inventory reductions, expense deferrals, capital expenditure
reductions, incentive compensation reductions, and certain delayed payments.
In the opinion of management, and based upon the plans above, anticipated cash
flow from operations, and from existing, renegotiated, refinanced, and/or
additional debt facilities, cash conservation measures, and other planned cash
inflows will provide sufficient funds to meet expected needs during fiscal 2001.
Although management expects to be able to accomplish its plans, there is no
assurance that it will be able to do so. The Company's plans depend upon many
factors, including those outlined in the Safe Harbor Statement below. Failure to
accomplish these plans could have an adverse impact on the Company's liquidity,
financial position, and future operations.
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As described above, the negative
working capital position of $11,357,000 at December 1, 2000, demand status of
the Company's term debt facilities and the lack of borrowing capacity under the
line of credit may indicate that the Company will be unable to continue as a
going concern for a reasonable period of time. The accompanying financial
statements do not include any adjustments relating to the recoverability and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
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" and
non-participating parties' shares, the Company most recently has been
contributing approximately 2.16% toward the performing PRP group's ongoing
expenses. To date approximately $15 million in response costs have been spent or
committed at this Site. Based upon the extensive investigations and remedial
actions conducted at the Site to date, it is presently estimated that the total
future costs at the SRS Site may range from approximately $18 million to $50
million. In the accompanying consolidated financial statements as of December 1,
2000, management has accrued $474,000 as a reserve against the Company's
potential future liability in this matter, which is net of approximately
$252,000 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), the 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. The remediation program at the OSL Site has been divided
into two phases, called Operable Units ("OU"). OU#1 primarily involves capping
of the site and OU#2 is groundwater remediation, if any. A Record of Decision
("ROD") was issued in September, 1994 for OU#1 and, in December, 1997, following
mediation, the Company contributed $140,180 in full settlement of OU#1 (toward a
total contribution by the SRS transshipper PRPs of approximately $2.5 million).
The SRS transshipper PRPs' payment of $2.5 million represented approximately 8%
of the OU#1 total settlement. At present, neither the remedy for OU#2 nor the
allocation of the costs thereof among the PRPs has been determined. Whatever
remedy ultimately is selected, the SRS transshippers' allocable share of the
OU#2 expenses likely will be greater than the 8% paid for OU#1. It has been
estimated that the total costs of OU#2 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, which is net of approximately $168,000 in payments
made to date by the Company.
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
contamination had occurred. The Company duly reported these findings regarding
each location to the Massachusetts Department of Environmental Protection
("DEP"), and the DEP has issued Notices of Responsibility under Massachusetts
General Laws Chapter 21E to the Company for each location (RTN No. 3-11520 for
the set of five tanks and RTN Nos. 3-15347 and 3-19744 for the set of three
tanks). 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 contamination appears to be confined to a small area of soil
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 and groundwater in the vicinity of
the tanks. Costs incurred to date in connection with these two locations have
totaled approximately $442,000. These costs have been funded through operating
cash flows. It presently is estimated that the combined future costs to complete
the assessment and remediation actions at the two locations will total
approximately $329,000, and that amount has been accrued in the accompanying
financial statements.
In January, 1997 the Company received a Chapter 21E Notice of Responsibility
from the DEP concerning two sites located in Dartmouth, Massachusetts (RTN No.
4-0234) and Freetown, Massachusetts (RTN No. 4-0086), respectively. According to
the 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. The 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 has 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 the 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 (which the Company would not be
responsible for) 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 one or both sites, or the
Company's potential share of liability or responsibility therefor. Accordingly,
no reserve has been recorded in the accompanying financial statements with
respect to these two sites.
In April, 2000 the Company received a Chapter 21E Notice of Responsibility from
the DEP concerning an oil release in the portion of the East Branch of the
Neponset River that flows through the Company's property in Canton,
Massachusetts (RTN No. 3-19407). The Company had duly reported the presence of
oil in the river to the appropriate government agencies. The Company commenced
cleanup and investigatory actions as soon as it became aware of the presence of
the oil, and immediately retained both an LSP to oversee response actions in
this matter and also an environmental services firm to perform cleanup and
containment services. At the present time, neither the source nor the cause of
the release has been positively determined. Costs incurred to date have totaled
approximately $232,000. These costs have been funded through operating cash
flows. It presently is estimated that the future costs in this matter will total
approximately $100,000 which has been accrued in the accompanying financial
statements.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities ("FAS 133"), as amended, will be effective
for the Company as of December 2, 2000. FAS 133 establishes accounting and
reporting standards requiring that all derivative instruments, including certain
derivative instruments embedded in other contracts, be recorded in the balance
sheet as either assets or liabilities measured at fair value. FAS 133 requires
that changes in the derivative instrument's fair value be recognized currently
in earnings, unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative instrument's gains and
losses to offset related results on the hedged item in the income statement, and
requires that a company must formally document, designate, and assess the
effectiveness of transactions that receive hedge accounting. The Company did not
hold derivative positions at December 1, 2000. As such, the effect of adopting
FAS 133 on the Company's financial statement is not expected to be significant.
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 estimates is
subject to certain risks and uncertainties. Actual results may differ materially
from those projected, forecast 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 and
/or markets in which its products are sold, the Company's ability to refinance
its credit facility or obtain additional financing, the concentration of a
substantial percentage of the Company's sales with a few major automotive
customers, cost of raw materials, and competition in pricing.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At December 1, 2000, the carrying value of Company's debt totaled $26.9 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 1, 2000, the Company had fixed rate debt of $15.3 million and
variable rate debt of $11.6 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 1, 2000.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is hereby incorporated by reference from
the Company's definitive proxy statement pursuant to Regulation 14A, which proxy
statement involves the election of Directors and is expected to be filed with
the Commission within 120 days after the close of the fiscal year ended December
1, 2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is hereby incorporated by reference from
the Company's definitive proxy statement pursuant to Regulation 14A, which proxy
statement involves the election of Directors and is expected to be filed with
the Commission within 120 days after the close of the fiscal year ended December
1, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is hereby incorporated by reference from
the Company's definitive proxy statement pursuant to Regulation 14A, which proxy
statement involves the election of Directors and is expected to be filed with
the Commission within 120 days after the close of the fiscal year ended December
1, 2000.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(A)1. Financial statements filed as part of this report are listed in the
index appearing on page 15.
(A)2. Financial statement schedules required as part of this report are
listed in the index appearing on page 15.
(A)3. Exhibits required as part of this report are listed in the index
appearing on pages 43 - 45.
(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, 2001
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, 2001.
/s/ MAURICE J. HAMILBURG President and Co-Chief Executive Officer
- -------------------------- and Director
Maurice J. Hamilburg
/s/ JOSEPH D. HAMILBURG Chairman and Co-Chief Executive Officer
- -------------------------- 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
/s/ JOSEPH J. BERNS Vice President - Finance and Treasurer
- -------------------------- (Principal Financial Officer and
Joseph J. Berns Principal Accounting Officer)
PLYMOUTH RUBBER COMPANY, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
PAGE
Report of Independent Accountants.................................. 16
Consolidated Balance Sheet at December 1, 2000
and December 3, 1999............................................ 17 - 18
Consolidated Statement of Operations and Retained Earnings
(Deficit) for each of the three years in the period
ended December 1, 2000........................................... 19
Consolidated Statement of Comprehensive Income (Loss)
for each of the three years in the period ended
December 1, 2000................................................ 20
Consolidated Statement of Cash Flows for each of the
three years in the period ended December 1, 2000................ 21
Notes to Consolidated Financial Statements......................... 22 - 41
Reserves (Schedule II)............................................. 42
The financial statement schedules should be read in conjunction with the
financial statements. Schedules not included with this financial data have been
omitted because they are not applicable or the required information is shown in
the financial statements or notes thereto.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Plymouth Rubber Company, Inc.
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of
Plymouth Rubber Company, Inc. and its subsidiaries at December 1, 2000 and
December 3, 1999, and the results of their operations and their cash flows for
each of the three years in the period ended December 1, 2000 in conformity with
accounting principles generally accepted in the United States of America. In
addition, in our opinion, the financial statement schedules listed in the
accompanying index present fairly, in all material respects, the information set
forth therein when read in conjunction with the related consolidated financial
statements. These financial statements and financial statement schedules are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements and financial statement schedules based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, 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 our opinion.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has a net capital deficiency that
raises substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 2. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
February 2, 2001
PLYMOUTH RUBBER COMPANY, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
December 1, December 3,
2000 1999
------------ ------------
Cash .......................................... $ 4,000 $ --
Accounts receivable, less allowance for
doubtful accounts of $331,000 and $369,000
at December 1, 2000 and December 3, 1999,
respectively ................................ 9,678,000 12,050,000
Inventories:
Raw materials ........................... 4,671,000 4,481,000
Work in process ......................... 1,627,000 2,332,000
Finished goods .......................... 7,672,000 7,661,000
------------ ------------
13,970,000 14,474,000
------------ ------------
Deferred tax assets, net ...................... -- 1,580,000
Prepaid expenses and other current assets ..... 926,000 913,000
------------ ------------
Total current assets .................... 24,578,000 29,017,000
------------ ------------
PLANT ASSETS:
Land ....................................... 498,000 554,000
Buildings .................................. 6,266,000 5,969,000
Machinery and equipment .................... 40,163,000 34,804,000
Construction in progress ................... 1,043,000 2,544,000
------------ ------------
47,970,000 43,871,000
Less: Accumulated depreciation ............ (21,874,000) (19,678,000)
------------ ------------
Total plant assets, net .................. 26,096,000 24,193,000
------------ ------------
OTHER ASSETS:
Deferred tax assets, net .................... -- 798,000
Other long-term assets ...................... 787,000 1,027,000
------------ ------------
Total other assets ...................... 787,000 1,825,000
------------ ------------
$ 51,461,000 $ 55,035,000
============ ============
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 1, December 3,
2000 1999
------------ -------------
CURRENT LIABILITIES:
Revolving line of credit .................... $ 12,238,000 $ 11,233,000
Trade accounts payable ...................... 7,845,000 6,827,000
Accrued expenses ............................ 2,618,000 4,378,000
Current portion of long-term borrowings ..... 13,234,000 3,260,000
------------ ------------
Total current liabilities ................ 35,935,000 25,698,000
------------ ------------
LONG-TERM LIABILITIES:
Borrowings .................................. 1,403,000 10,796,000
Pension obligation .......................... 2,270,000 2,546,000
Deferred tax liability ...................... 105,000 120,000
Other ....................................... 2,540,000 2,538,000
------------ ------------
Total long-term liabilities .............. 6,318,000 16,000,000
------------ ------------
COMMITMENTS AND CONTINGENCIES
(Notes 2 and 11)
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 1, 2000 and December 3, 1999 ..... 810,000 810,000
Class B non-voting common stock, $1 par
value, 3,500,000 shares authorized,
1,281,304 and 1,280,304 shares issued
and outstanding at December 1, 2000 and
December 3, 1999, respectively ............ 1,281,000 1,280,000
Paid-in capital ............................. 9,084,000 9,083,000
Retained earnings (deficit) ................. (1,311,000) 2,678,000
Accumulated other comprehensive loss:
Cumulative translation adjustment ....... (291,000) (179,000)
Deferred compensation ....................... (38,000) (76,000)
------------ ------------
9,535,000 13,596,000
Less: Treasury stock at cost (55,000
and 39,200 shares at December 1, 2000
and December 3, 1999) ..................... (327,000) (259,000)
------------ ------------
9,208,000 13,337,000
------------ ------------
$ 51,461,000 $ 55,035,000
============ ============
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 1, December 3, November 27,
2000 1999 1998
------------ ------------ ------------
Revenues:
Net sales ................................... $ 74,392,000 $ 78,038,000 $ 69,390,000
------------ ------------ ------------
Costs and Expenses:
Cost of products sold ....................... 60,153,000 56,471,000 51,433,000
Selling, general and administrative ......... 14,184,000 15,936,000 13,359,000
Insurance settlement ........................ -- (1,750,000) --
------------ ------------ ------------
74,337,000 70,657,000 64,792,000
------------ ------------ ------------
Operating income ............................... 55,000 7,381,000 4,598,000
Interest expense ............................... (2,342,000) (2,045,000) (1,871,000)
Foreign currency exchange loss ................. (110,000) (77,000) (69,000)
Other income, net .............................. 110,000 103,000 70,000
------------ ------------ ------------
Income (loss) before income taxes ............. (2,287,000) 5,362,000 2,728,000
Provision for income taxes ..................... 1,702,000 2,240,000 890,000
------------ ------------ ------------
Net income (loss) .............................. (3,989,000) 3,122,000 1,838,000
Retained earnings (deficit) at beginning of year 2,678,000 (444,000) (2,282,000)
------------ ------------ ------------
Retained earnings (deficit) at end of year ..... $ (1,311,000) $ 2,678,000 $ (444,000)
============ ============ ============
PER SHARE DATA:
BASIC EARNINGS (LOSS) PER SHARE:
Net income (loss) ........................... $ (1.95) $ 1.51 $ 0.89
============ ============ ============
Weighted average number of shares outstanding 2,041,481 2,068,509 2,073,270
============ ============ ============
DILUTED EARNINGS (LOSS) PER SHARE:
Net income (loss) ........................... $ (1.95) $ 1.42 $ 0.84
============ ============ ============
Weighted average number of shares outstanding 2,041,481 2,198,480 2,200,406
============ ============ ============
The accompanying Notes to Consolidated Financial Statements
are an integral part of these Financial Statements.
PLYMOUTH RUBBER COMPANY, INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
Year Ended
--------------------------------------------
December 1, December 3, November 27,
2000 1999 1998
------------ ------------ ------------
Net income (loss) .............................. $ (3,989,000) $ 3,122,000 $ 1,838,000
------------ ------------ ------------
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments ... (112,000) (110,000) 22,000
Minimum pension liability adjustment ....... -- -- 145,000
------------ ------------ ------------
Other comprehensive income (loss) .............. (112,000) (110,000) 167,000
------------ ------------ ------------
Comprehensive income (loss) .................... $ (4,101,000) $ 3,012,000 $ 2,005,000
============ ============ ============
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 1, December 3, November 27,
2000 1999 1998
------------ ------------ ------------
CASH FLOWS RELATING TO OPERATING ACTIVITIES:
Net income (loss) ............................ $ (3,989,000) $ 3,122,000 $ 1,838,000
Adjustments to reconcile net income (loss), to
net cash provided by operating activities:
Depreciation and amortization .............. 2,788,000 2,494,000 1,956,000
Deferred income tax expense ................ 2,378,000 1,184,000 511,000
Provision for environmental reserves ....... 351,000 -- --
Amortization of deferred compensation ...... 38,000 38,000 38,000
Changes in assets and liabilities:
Accounts receivable ........................ 2,148,000 268,000 (2,457,000)
Inventory .................................. 490,000 (3,600,000) (501,000)
Prepaid expenses ........................... (16,000) (7,000) (35,000)
Other assets ............................... 88,000 25,000 4,000
Accounts payable ........................... 1,007,000 829,000 40,000
Accrued expenses ........................... (1,748,000) 220,000 906,000
Other liabilities .......................... (189,000) (5,000) (78,000)
Pension obligation ......................... (391,000) (303,000) (320,000)
------------ ------------ ------------
Net cash provided by operating activities ...... 2,955,000 4,265,000 1,902,000
------------ ------------ ------------
CASH FLOWS RELATING TO INVESTING ACTIVITIES:
Capital expenditures ......................... (4,827,000) (5,256,000) (6,044,000)
Sale/leaseback of plant assets ............... -- 151,000 964,000
------------ ------------ ------------
Net cash used in investing activities .......... (4,827,000) (5,105,000) (5,080,000)
------------ ------------ ------------
CASH FLOWS RELATING TO FINANCING ACTIVITIES:
Net increase in revolving line of credit ..... 1,112,000 1,202,000 1,878,000
Proceeds from term debt ...................... 4,095,000 2,618,000 5,499,000
Payments of term debt ........................ (2,814,000) (2,154,000) (3,762,000)
Payments on capital leases ................... (504,000) (673,000) (405,000)
Payments on treasury stock purchase .......... (68,000) (245,000) (14,000)
Proceeds from exercises of options ........... 2,000 11,000 51,000
------------ ------------ ------------
Net cash provided by financing activities ..... 1,823,000 759,000 3,247,000
------------ ------------ ------------
Effect of exchange rate changes on cash ........ 53,000 27,000 (27,000)
------------ ------------ ------------
Net change in cash ............................. 4,000 (54,000) 42,000
Cash at the beginning of the year .............. -- 54,000 12,000
------------ ------------ ------------
Cash at the end of the year .................... $ 4,000 $ -- $ 54,000
============ ============ ============
Supplemental Disclosure of Cash Flow Information
Cash paid for interest ......................... $ 2,367,000 $ 2,082,000 $ 1,883,000
============ ============ ============
Cash paid for income taxes ..................... $ 431,000 $ 831,000 $ 159,000
============ ============ ============
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. In December
1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, Revenue Recognition in Financial Statements ("SAB101").
SAB101 summarizes the staff's views in applying generally accepted
accounting principles to revenue recognition in financial statements. The
Company has adopted the provisions of SAB101 during the fourth quarter of
fiscal 2000. The adoption of SAB101 did not have a material impact on the
Company's Consolidated Financial Statements.
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 $0.3 million of fully
depreciated plant assets in 2000 and 1999, 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.
G. RETIREMENT PLANS -- The Company provides certain pension and health
benefits to retired employees. Pension costs are accounted for in
accordance with Statement of Financial Accounting Standards No. 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. A valuation allowance is
provided for deferred tax assets if it is more likely than not that these
items will either expire before the Company is able to realize their
benefit, or that future deductibility is uncertain.
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 debt also approximates fair value based on
current rates for similar debt.
K. 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).
L. 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 the
Consolidated Statement of Operations. The Company operates a wholly-owned
tape subsidiary in Spain which accounted for approximately 8.6% of the
Company's revenues in fiscal 2000. The functional currency of this
subsidiary is the peseta. The balance sheet is translated at year end
exchange rates and the statement of operations 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.
M. ACCOUNTING FOR SHIPPING AND HANDLING FEES AND COSTS -- The Company has
adopted the provisions of the Emerging Issues Task Force Issue 00-10,
Accounting for Shipping and Handling Fees and Costs ("Issue 00-10") during
the fourth quarter of fiscal 2000. The Company classifies shipping and
handling fees as revenues and shipping and handling costs as part of
selling, general and administrative expenses. Shipping and handling cost
were $2,952,000, $2,999,000 and $2,542,000 in 2000, 1999 and 1998
respectively.
N. 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.
O. RECLASSIFICATIONS - Certain reclassifications of prior year balances have
been made to conform to the current presentation.
P. ACCOUNTING FOR DERIVATIVES--Statement of Financial Accounting Standards
No. 133, Accounting for Derivative Instruments and Hedging Activities
("FAS 133"), as amended, will be effective for the Company as of December
2, 2000. FAS 133 establishes accounting and reporting standards requiring
that all derivative instruments, including certain derivative instruments
embedded in other contracts, be recorded in the balance sheet as either
assets or liabilities measured at fair value. FAS 133 requires that
changes in the derivative instrument's fair value be recognized currently
in earnings, unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative instrument's gains
and losses to offset related results on the hedged item in the statement
of operations, and requires that a company must formally document,
designate, and assess the effectiveness of transactions that receive hedge
accounting. The Company did not hold derivative positions at December 1,
2000. As such, the effect of adopting FAS 133 on the Company's
consolidated financial statements is not expected to be significant.
NOTE 2 -- GOING CONCERN, BORROWING ARRANGEMENTS AND FINANCING COMMITMENTS
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. As of December 1,
2000, the Company was not in compliance with two of its financial covenants
(minimum working capital and minimum fixed charge coverage ratio) with its
primary term debt lender. Because of a cross default provision, the Company was
therefore also not in compliance with a covenant with its primary working
capital lender. As a result, the $9.4 million long-term portion of debt with
these lenders has been classified as current on the Company's Consolidated
Balance Sheet, and the total debt with these lenders currently would be payable
on demand. The Company is projecting that it will not be in compliance with the
covenants of its primary term debt and primary working capital facilities in the
next twelve months.
The financial statements have been prepared on a going concern basis, which
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. The negative working capital position of
$11,357,000, the demand status of the Company's term debt facilities, as
described above, and the lack of borrowing capacity under the line of credit, at
December 1, 2000, may indicate that the Company will be unable to continue as a
going concern for a reasonable period of time. The financial statements do not
include any adjustments relating to the recoverability and classification of
liabilities that might be necessary should the Company be unable to continue as
a going concern.
In response, the Company has developed a number of cash conservation plans for
fiscal 2001. First, the Company has negotiated modified loan agreements with its
primary term lender to defer certain principal payments and extend the remaining
loan amortization period by four months. The Company is currently working with
another of its term lenders to negotiate a similar arrangement. The reduced 2001
cash outflow from deferred principal payments with these two lenders would total
approximately $800,000. The Company is also working with its primary working
capital lender to increase cash availability and/or defer certain principal
payments on term debt. The Company is currently working with a number of other
lenders to obtain additional financing or refinance its existing debt, although
there is no assurance that it will be able to do so. The Company has also
developed plans to conserve cash, including cost reductions, inventory
reductions, expense deferrals, capital expenditure reductions, incentive
compensation reductions, and certain delayed payments.
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. At
December 1, 2000, the Company was at the maximum borrowing capacity under this
revolving line of credit.
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.
On December 30, 1999 the Company entered into a new loan agreement in the amount
of $550,000 with an equipment lender to finance the acquisition of certain
equipment. The new loan is secured by a first interest in the equipment. On
March 3, 2000 the Company entered into a new loan agreement in the amount of
$810,250 with an equipment lender to finance the acquisition of certain
equipment. The new loan is secured by a first interest in the equipment. On May
3, 2000 the Company entered into a new loan agreement in the amount of $161,313
with an equipment lender to finance the acquisition of certain equipment. The
new loan is secured by a first interest in the equipment. On June 5, 2000 the
Company entered into a new loan agreement in the amount of $1,469,979 with an
equipment lender to finance the acquisition of certain equipment. The new loan
is secured by a first interest in the equipment. On August 24, 2000 the Company
entered into a new loan agreement in the amount of $1,104,077 with an equipment
lender to finance the acquisition of certain equipment. The new loan is secured
by a first interest in the equipment.
The revolving line of credit and term debt of the Company consisted of the
following as of:
December 1, December 3,
2000 1999
------------ -------------
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 1,
2000, the Company had used all of it's
borrowing availability on its revolving line
of credit. The interest rate at December 1,
2000 was 9.5% .................................... $ 11,341,000 $ 10,585,000
Short-term borrowings with three Spanish Banks
with interest rates ranging from 5.8% to 6.2%
at December 1, 2000. Principal amount
171,000,000 pesetas (approximately $897,000)
at December 1, 2000 .............................. 897,000 648,000
------------ ------------
$ 12,238,000 $ 11,233,000
============ ============
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 1, 2000
was 9.5 % ........................................ $ 2,200,000 $ 2,750,000
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% ... 881,000 1,108,000
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% .. 1,977,000 2,690,000
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% .. 670,000 808,000
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 ......................................... 2,689,000 3,222,000
Term debt, in the original principal amount of
$550,000, due December 2004, secured by a
first interest in certain equipment. Monthly
payments of $11,268 including interest at 8.75% .. 463,000 --
Term debt, in the original principal amount of
$810,250, due March 2005, secured by a first
interest in certain equipment. Monthly
payments of $16,863 including interest
at 9.11% ......................................... 722,000 --
Term debt, in the original principal amount of
$161,313 due June 2005, secured by a first
interest in certain equipment. Monthly
payments of $3,353 including interest at 9.05% ... 148,000 --
Term debt, in the original principal amount of
$1,469,979, due June 2005, secured by a first
interest in certain equipment. Monthly
payments of $30,915 including interest at
9.56% ............................................ 1,372,000 --
Term debt, in the original amount of
$1,104,077, due August 2005, secured by a
first interest in certain equipment. Monthly
payments of $22,908 including interest at
8.98% ............................................ 1,060,000 --
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 ............... 323,000 386,000
Term debt, in the original principal amount of
250,000,000 pesetas, due April 2007, secured
by a first interest in real property.
Semi-annual principal payments of 12,500,000
pesetas, with interest paid quarterly at the
one-year Madrid inter-bank market rate (MIBOR)
plus 1.25%, adjusted quarterly. The interest
rate at December 1, 2000 was 6.6% ................ 852,000 1,129,000
Term debt, in the principal amount of
37,500,000 pesetas plus interest at 8.0%,
payable in three annual installments of
12,500,000 pesetas plus accrued interest,
beginning December 31, 1999 ...................... 141,000 278,000
Capital lease obligations (see Note 9) ........... 1,139,000 1,685,000
------------ ------------
14,637,000 14,056,000
Less current portion ............................. 13,234,000 3,260,000
------------ ------------
$ 1,403,000 $ 10,796,000
============ ============
The Company has a letter of credit with its primary working capital lender,
related to guarantee of 80 million pesetas (approximately $0.6 million) on a
term loan agreement with a Spanish bank syndicate.
Maturities of long-term obligations in the next five years are: 2001 -
$3,874,000; 2002 - $5,072,000; 2003 - $2,604,000; 2004 - $1,423,000; 2005 -
$850,000; and thereafter - $814,000.
NOTE 3 -- INCOME TAXES
Income (loss) from operations before income taxes consist of the following:
Year Ended
--------------------------------------------
December 1 , December 3 , November 27,
2000 1999 1998
------------ ------------ ------------
U.S. ...... $ (2,413,000) $ 5,173,000 $ 2,536,000
Foreign ... 126,000 189,000 192,000
------------ ------------ ------------
Total ..... $ (2,287,000) $ 5,362,000 $ 2,728,000
============ ============ ============
The provision (benefit) for income taxes consists of the following:
Year Ended
--------------------------------------------
December 1 , December 3 , November 27,
2000 1999 1998
------------ ------------ ------------
Current:
Federal .... $ (658,000) $ 749,000 $ 113,000
State ...... (66,000) 236,000 193,000
Foreign .... 48,000 71,000 73,000
------------ ------------ ------------
(676,000) 1,056,000 379,000
------------ ------------ ------------
Deferred:
Federal .... 1,787,000 970,000 668,000
State ...... 591,000 214,000 (157,000)
------------ ------------ ------------
2,378,000 1,184,000 511,000
------------ ------------ ------------
Total
$ 1,702,000 $ 2,240,000 $ 890,000
============ ============ ============
The components of the net deferred tax asset (liability) are as follows:
December 1, December 3,
2000 1999
------------ ------------
Deferred tax asset:
Pension obligations.......... $ 1,016,000 $ 1,180,000
Federal and state NOL
carryforwards.............. 627,000 --
Environmental reserves....... 521,000 449,000
AMT credit carryfoward....... 433,000 58,000
Postretirement benefits...... 410,000 410,000
State investment tax credit
(ITC) carryforwards........ 399,000 217,000
Accrued vacation............. 261,000 248,000
Other reserves............... 445,000 1,161,000
------------ ------------
Total gross deferred tax assets 4,112,000 3,723,000
Valuation allowance.......... (2,467,000) (80,000)
------------ ------------
1,645,000 3,643,000
Deferred tax liability:
Plant assets................. (1,750,000) (1,385,000)
------------ ------------
Net deferred tax asset
(liability)............ $ (105,000) $ 2,258,000
============ ============
In accordance with the Statement of Financial Accounting No. 109, Accounting for
Income Taxes (FAS 109), management performed an analysis of the realizability of
its deferred tax assets. FAS 109 requires that deferred tax assets be reduced by
a valuation allowance if it is more likely than not that some portion or all of
the deferred tax asset will not be realized. During the fourth quarter of fiscal
2000, the Company increased the valuation allowance for deferred tax assets by
$2,387,000. Such an increase was deemed necessary as the net deferred tax asset
balance at December 1, 2000 could not be carried back to recover taxes paid in
previous years and will not be offset by the reversal of future taxable
differences. Also, the Company's liquidity situation at December 1, 2000
provides significant negative evidence regarding the ability to generate
sufficient taxable income in the future to recover these assets.
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 1, 2000, December 3, 1999, and November 27, 1998, is as follows:
Year Ended
--------------------------------------------
December 1, December 3, November 27,
2000 1999 1998
------------ ------------ ------------
Tax (benefit) computed at statutory rate ....... $ (778,000) $ 1,822,000 $ 933,000
State income taxes, net of U.S.
income tax benefit .......................... (166,000) 297,000 134,000
Expired federal investment tax credit .......... 327,000 -- --
State investment tax credit .................... -- -- (158,000)
Valuation allowance ............................ 2,387,000 -- (13,000)
Rate differential attributable to
foreign operations ........................... 5,000 7,000 2,000
Other .......................................... (73,000) 114,000 (8,000)
------------ ------------ ------------
$ 1,702,000 $ 2,240,000 $ 890,000
============ ============ ============
Effective income tax rate ...................... (74.4)% 41.8% 32.6%
NOTE 4 -- ACCRUED EXPENSES
The Company's accrued expenses consist of the following:
December 1, December 3,
2000 1999
------------ ------------
Accrued payroll and related benefits ............. $ 1,257,000 $ 2,029,000
Accrued pension contributions .................... 150,000 265,000
Other ............................................ 1,211,000 2,084,000
------------ ------------
$ 2,618,000 $ 4,378,000
============ ============
NOTE 5 -- 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 and 1998, the Company accrued $400,000 and
$306,000 of profit sharing contribution, respectively. During 2000, the Company
did not accrue a profit sharing contribution.
The following table provides reconciliation of changes in benefit obligations
and fair value of plan assets. In addition, this table shows the plan's funded
status and the amounts recognized in the consolidated balance sheet for the
Company's defined benefit pension plan.
December 1, December 3,
2000 1999
------------ ------------
RECONCILIATION OF BENEFIT OBLIGATION:
Benefit obligation at beginning of year ........ $ 12,079,000 $ 13,933,000
Interest cost .................................. 847,000 812,000
Benefit payments ............................... (1,304,000) (1,204,000)
Actuarial (gain) loss .......................... 289,000 (1,487,000)
Transfer from Profit Sharing Plan .............. -- 25,000
------------ ------------
Benefit obligation at end of year .............. $ 11,911,000 $ 12,079,000
============ ============
RECONCILIATION OF FAIR VALUE OF PLAN ASSETS:
Fair value at beginning of year ................ $ 11,075,000 $ 10,722,000
Actual return on plan assets ................... (257,000) 1,156,000
Employer contributions ......................... 233,000 376,000
Benefit payments ............................... (1,304,000) (1,204,000)
Transfer from Profit Sharing Plan .............. -- 25,000
------------ ------------
Fair value at end of year ...................... $ 9,747,000 $ 11,075,000
============ ============
FUNDED STATUS:
Funded status .................................. $ 2,164,000 $ 1,004,000
Unrecognized gain .............................. 256,000 1,807,000
------------ ------------
Accrued pension costs .......................... $ 2,420,000 $ 2,811,000
============ ============
AMOUNTS RECOGNIZED IN THE
CONSOLIDATED BALANCE SHEET:
Accrued pension obligation ..................... $ 2,420,000 $ 2,811,000
------------ ------------
Net amount recognized .......................... $ 2,420,000 $ 2,811,000
============ ============
Net periodic pension benefits for the pension plan for the years ended December
1, 2000, December 3, 1999 and November 27, 1998, are as follows:
Year Ended
--------------------------------------------
December 1, December 3, November 27,
2000 1999 1998
------------ ------------ ------------
Service cost ................................... $ -- $ -- $ --
Interest cost .................................. 847,000 812,000 880,000
Expected return on assets ...................... (845,000) (823,000) (889,000)
Amortization of net gain ....................... (160,000) (36,000) (19,000)
------------ ------------ ------------
Net periodic pension benefits .............. $ (158,000) $ (47,000) $ (28,000)
============ ============ ============
NOTE 5 -- RETIREMENT AND OTHER BENEFIT PLANS -- (CONTINUED)
Key weighted-average assumptions used in the measurement of the Company's
defined benefit pension obligation are as follows:
2000 1999 1998
------- ------- -------
Discount rate........................ 7.25% 7.25% 6.75%
Long term rate of return on assets... 8.00% 8.00% 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 shows the funded status and the amounts recognized in
the consolidated balance sheet for the Company's postretirement benefits.
December 1, December 3,
2000 1999
------------ ------------
RECONCILIATION OF BENEFIT OBLIGATION:
Benefit obligation at beginning of year ........ $ 709,000 $ 725,000
Service cost ................................... 34,000 33,000
Interest cost .................................. 51,000 46,000
Benefit payments ............................... (77,000) (78,000)
Actuarial (gain) loss .......................... 30,000 (17,000)
------------ ------------
Benefit obligation at end of year .............. $ 747,000 $ 709,000
============ ============
RECONCILIATION OF FAIR VALUE OF PLAN ASSETS:
Fair value at beginning of year ............... $ -- $ --
Employer contributions ......................... 77,000 78,000
Benefit payments ............................... (77,000) (78,000)
------------ ------------
Fair value at end of year ...................... $ -- $ --
============ ============
FUNDED STATUS:
Funded status .................................. $ 747,000 $ 709,000
Unrecognized gain .............................. 228,000 266,000
------------ ------------
Accrued postretirement benefit cost ............ $ 975,000 $ 975,000
============ ============
AMOUNTS RECOGNIZED IN THE CONSOLIDATED
BALANCE SHEET:
Accrued benefit obligation ..................... $ 975,000 $ 975,000
------------ ------------
Net amount recognized .......................... $ 975,000 $ 975,000
============ ============
Key weighted-average assumptions used in the measurement of the Company's
postretirement benefit obligation are as follows:
2000 1999 1998
------------ ------------ ------------
Discount rate ............ 7.25% 7.25% 6.75%
The components of net postretirement expense are as follows:
Year Ended
--------------------------------------------
December 1, December 3, November 27,
2000 1999 1998
------------ ------------ ------------
Service cost ................... $ 34,000 $ 33,000 $ 33,000
Interest cost .................. 51,000 46,000 48,000
Amortization of gain or loss ... (8,000) (6,000) (8,000)
------------ ------------ ------------
Net periodic postretirement
expense ...................... $ 77,000 $ 73,000 $ 73,000
============ ============ ============
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 Increase Point Decrease
-------------- ------------
Effect on total of service and
interest cost components .................... $ 8,000 $ (6,000)
Effect on postretirement benefit obligation ... 48,000 (41,000)
NOTE 6 -- COMMON STOCK AND EARNINGS (LOSS) 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 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)
Purchase of treasury shares .. (68,000)
Issuance of Class B common
stock under stock option
plans ..................... 1,000 1,000 1,000
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 1, 2000 .. 810,586 1,281,304 $ 810,000 $ 1,281,000 $ 9,084,000 $ (327,000)
=========== =========== =========== =========== =========== ===========
Treasury stock includes 55,000 and 39,200 shares of Class B Common Stock at December 1, 2000 and at December 3,
1999, respectively.
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 1, 2000
--------------------------------------------
(Loss) Shares Per Share
(Numerator) (Denominator) Amount
------------ --------- ------------
BASIS EPS
Income (loss) available to
common stockholders .......................... $ (3,989,000) 2,041,481 $ (1.95)
============
Effect of dilutive security options (A)... -- --
------------ ---------
DILUTED EPS
Income (loss) available to
common stockholders and
assumed conversions ........................... $ (3,989,000) 2,041,481 $ (1.95)
============ ============ ============
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 $ 0.89
============
Effect of dilutive security options (A) ........ -- 127,136
------------ -----------
DILUTED EPS
Income available to
common stockholders and assumed conversions .. $ 1,838,000 2,200,406 $ 0.84
============ ============ ============
(A) Options for 335,520, 195,619, and 195,842 shares of common stock were
outstanding at December 1, 2000, December 3, 1999 and November 27, 1998,
respectively, but were not included in computing diluted earnings per share
in each of the respective periods because their effects were anti-dilutive.
In addition, options for 151,509 shares of common stock were outstanding at
December 1, 2000, but were not included in computing diluted earnings per
share because of the loss.
NOTE 7 -- 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 1, 2000 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 1, 2000 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 1, 2000 there were 54,075 options
available for grant this plan.
A summary of the Company's stock option plans as of December 1, 2000, December
3, 1999, and November 27, 1998, and the changes during the years ending on those
dates are presented below:
Weighted
Number of Average
Shares Exercise Price
---------- --------------
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 .......................... (18,465) 4.75
----------
Outstanding at December 3, 1999 .......... 490,199 5.04
Options granted .......................... -- --
Options exercised ........................ (1,000) 2.17
Options expired .......................... (3,630) 5.78
----------
Outstanding at December 1, 2000 .......... 485,569 5.04
==========
Weighted
Number of Average
Shares Exercise Price
---------- --------------
Exercisable at November 27, 1998........... 189,405 $ 5.06
Exercisable at December 3, 1999............ 242,815 $ 5.37
Exercisable at December 1, 2000............ 300,170 $ 5.54
The following table summarizes information about all stock options outstanding
at December 1, 2000:
Outstanding Options Options Exercisable
-------------------------------------------------- ----------------------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life (Years) Price Exercisable Price
------------- --------------- -------------- -------------- --------------- -----------------
$ 2.17 - 2.38 151,204 2 $ 2.25 53,029 $ 2.16
4.25 - 4.63 76,800 8 4.55 52,450 4.52
5.95 - 6.81 190,240 6 6.57 161,415 6.57
7.13 - 7.49 67,325 5 7.50 33,276 7.45
-------------- --------------
485,569 300,170
============== ==============
The options outstanding at December 1, 2000 expire at various times in 2002 through 2009.
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 1, December 3, November 27,
2000 1999 1998
------------ ------------ -------------
Net income (loss), as reported ................. $ (3,989,000) $ 3,122,000 $ 1,838,000
Net income (loss), pro forma ................... (4,206,000) 3,005,000 1,745,000
Basic EPS, as reported ......................... (1.95) 1.51 0.89
Basic EPS, pro forma ........................... (2.06) 1.45 0.84
Diluted EPS, as reported ....................... (1.95) 1.42 0.84
Diluted EPS, pro forma ......................... $ (2.06) $ 1.37 $ 0.79
The weighted average fair value of the options granted during the fiscal years
1999 and 1998 were $4.88, $3.05 per option, respectively. No options were
granted during fiscal 2000.
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
--------- --------
Expected life (years) ................... 10 7.6
Expected stock price volatility.......... 50 % 35 %
Risk-free interest rate.................. 6.07 % 5.40 %
At December 1, 2000 and December 3, 1999, 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. The restrictions for all shares of stock issued under this plan have
lapsed. Repurchased shares totaled 3,720 at December 1, 2000 and December 3,
1999. During 2000 and 1999 no shares were repurchased or issued throughout the
year. At December 1, 2000 and December 3, 1999, 30,452 shares were outstanding.
NOTE 8 - 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 for each of the past three years.
Year Ended
--------------------------------------------
December 1, December 3, November 27,
2000 1999 1998
------------ ------------ ------------
Segment sales to unaffiliated customers:
Plymouth Tapes ............................... $ 66,591,000 $ 68,309,000 $ 60,977,000
Brite-Line Technologies ...................... 7,801,000 9,729,000 8,413,000
------------ ------------ ------------
Consolidated net sales ....................... $ 74,392,000 $ 78,038,000 $ 69,390,000
============ ============ ============
Segment income (loss):
Plymouth Tapes ............................... $ (833,000) $ 5,724,000 $ 4,190,000
Brite-Line Technologies ...................... 888,000 (93,000) 408,000
------------ ------------ ------------
Segment income ............................... 55,000 5,631,000 4,598,000
Insurance settlement ......................... -- 1,750,000 --
------------ ------------ ------------
Consolidated operating income ................ 55,000 7,381,000 4,598,000
Interest expense ............................. (2,342,000) (2,045,000) (1,871,000)
Foreign currency exchange loss ............... (110,000) (77,000) (69,000)
Other income, net ............................ 110,000 103,000 70,000
------------ ------------ ------------
Consolidated income (loss) before tax ........ $ (2,287,000) $ 5,362,000 $ 2,728,000
============ ============ ============
Depreciation and amortization:
Plymouth Tapes ............................... $ 2,717,000 $ 2,452,000 $ 1,914,000
Brite-Line Technologies ...................... 71,000 42,000 42,000
------------ ------------ ------------
Total depreciation and amortization .......... $ 2,788,000 $ 2,494,000 $ 1,956,000
============ ============ ============
Assets:
Plymouth Tapes ............................... $ 47,733,000 $ 50,575,000 $ 46,840,000
Brite-Line Technologies ...................... 3,728,000 4,460,000 3,861,000
------------ ------------ ------------
Total assets ................................. $ 51,461,000 $ 55,035,000 $ 50,701,000
============ ============ ============
Year Ended
--------------------------------------------
December 1, December 3, November 27,
2000 1999 1998
------------ ------------ ------------
Geographic information:
Net sales to unaffiliated customers:
United States ................................ $ 62,385,000 $ 65,795,000 $ 56,234,000
Spain and Portugal ........................... 4,294,000 5,429,000 5,325,000
Other ........................................ 7,713,000 6,814,000 7,831,000
------------ ------------ ------------
Consolidated net sales ....................... $ 74,392,000 $ 78,038,000 $ 69,390,000
============ ============ ============
Long-lived assets:
United States ................................ $ 24,658,000 $ 22,630,000 $ 19,858,000
Spain ........................................ 1,438,000 1,563,000 1,705,000
------------ ------------ ------------
Total long-lived assets ...................... $ 26,096,000 $ 24,193,000 $ 21,563,000
============ ============ ============
The Company has one customer, whose operations are primarily in the automotive
industry, which accounted for 31%, 32% and 29% of net sales in 2000, 1999, and
1998, respectively.
NOTE 9 -- LEASES
Included in Plant Assets in the accompanying Consolidated Balance Sheet is
leased property under capital leases as follows:
December 1, December 3,
2000 1999
------------ ------------
Machinery and equipment .......................... $ 3,659,000 $ 3,715,000
Less: Accumulated amortization .................. 1,822,000 1,499,000
------------ ------------
$ 1,837,000 $ 2,216,000
============ ============
The Company entered into agreements for the sale and leaseback of certain
machinery and equipment in the aggregate amount of $151,000 in 1999. 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 Standards 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 1, 2000:
2001............................................... $ 581,000
2002............................................... 467,000
2003............................................... 180,000
2004............................................... --
2005............................................... --
------------
Total minimum lease payments 1,228,000
Less: Amount representing interest 89,000
------------
$ 1,139,000
============
Minimum annual rentals under noncancelable operating leases (which are
principally for equipment) are as follows:
2001............................................... $ 435,000
2002............................................... 384,000
2003............................................... 385,000
2004............................................... 196,000
2005............................................... $ 179,000
Total rental expense for 2000, 1999 and 1998 was $1,121,000, $1,156,000, and
$994,000, 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 10 -- 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 2000, 1999 and
1998, consulting fees of $51,700, $61,100, and $51,700, 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 2000 and 1999 consulting fees under this agreement were $14,100
and $11,400, respectively. Previously, the Company had a consulting agreement
with a third Director of the Company, to provide the Company with various
consulting services. During 1998 consulting fees under this agreement were
$55,200.
NOTE 11 -- 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" and
non-participating parties' shares, the Company most recently has been
contributing approximately 2.16% toward the performing PRP group's ongoing
expenses. To date approximately $15 million in response costs have been spent or
committed at this Site. Based upon the extensive investigations and remedial
actions conducted at the Site to date, it is presently estimated that the total
future costs at the SRS Site may range from approximately $18 million to $50
million. In the accompanying consolidated financial statements as of December 1,
2000 management has accrued $474,000 as a reserve against the Company's
potential future liability in this matter, which is net of approximately
$252,000 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), the 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. The remediation program at the OSL Site has been divided
into two phases, called Operable Units ("OU"). OU#1 primarily involves capping
of the site and OU#2 is groundwater remediation, if any. A Record of Decision
("ROD") was issued in September, 1994 for OU#1 and, in December, 1997, following
mediation, the Company contributed $140,180 in full settlement of OU#1 (toward a
total contribution by the SRS transshipper PRPs of approximately $2.5 million).
The SRS transshipper PRPs' payment of $2.5 million represented approximately 8%
of the OU#1 total settlement. At present, neither the remedy for OU#2 nor the
allocation of the costs thereof among the PRPs has been determined. Whatever
remedy ultimately is selected, the SRS transshippers' allocable share of the
OU#2 expenses likely will be greater than the 8% paid for OU#1. It has been
estimated that the total costs of OU#2 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, which is net of approximately $168,000 in payments
made to date by the Company.
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
contamination had occurred. The Company duly reported these findings regarding
each location to the Massachusetts Department of Environmental Protection
("DEP"), and the DEP has issued Notices of Responsibility under Massachusetts
General Laws Chapter 21E to the Company for each location (RTN No. 3-11520 for
the set of five tanks and RTN Nos. 3-15347 and 3-19744 for the set of three
tanks). 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 contamination appears to be confined to a small area of soil
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 and groundwater in the vicinity of
the tanks. Costs incurred to date in connection with these two locations have
totaled approximately $442,000. These costs have been funded through operating
cash flows. It presently is estimated that the combined future costs to complete
the assessment and remediation actions at the two locations will total
approximately $329,000, and that amount has been accrued in the accompanying
financial statements.
In January, 1997 the Company received a Chapter 21E Notice of Responsibility
from the DEP concerning two sites located in Dartmouth, Massachusetts (RTN No.
4-0234) and Freetown, Massachusetts (RTN No. 4-0086), respectively. According to
the 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. The 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 has 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 the 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 (which the Company would not be
responsible for) 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 one or both sites, or the
Company's potential share of liability or responsibility therefor. Accordingly,
no reserve has been recorded in the accompanying financial statements with
respect to these two sites.
In April, 2000 the Company received a Chapter 21E Notice of Responsibility from
the DEP concerning an oil release in the portion of the East Branch of the
Neponset River that flows through the Company's property in Canton,
Massachusetts (RTN No. 3-19407). The Company had duly reported the presence of
oil in the river to the appropriate government agencies. The Company commenced
cleanup and investigatory actions as soon as it became aware of the presence of
the oil, and immediately retained both an LSP to oversee response actions in
this matter and also an environmental services firm to perform cleanup and
containment services. At the present time, neither the source nor the cause of
the release has been positively determined. Costs incurred to date have totaled
approximately $232,000. These costs have been funded through operating cash
flows. It presently is estimated that the future costs in this matter will total
approximately $100,000 which has been accrued in the accompanying financial
statements.
NOTE 12-- UNAUDITED QUARTERLY FINANCIAL DATA
The following table presents the quarterly information for fiscal 2000 and 1999.
Quarter Ended
-------------------------------------------------------------
March 3 June 2 September 1 December 1
------------ ------------ ------------ --------------
2000 (a)
Net sales ..................... $ 17,047,000 $ 21,030,000 $ 18,504,000 $ 17,811,000
Gross profit .................. 3,485,000 4,783,000 3,313,000 2,658,000
Net income (loss) ............. (319,000) 377,000 (453,000) (3,594,000)
Earnings (loss) per share
Basic ....................... $ (0.16) $ 0.18 $ (0.22) $ (1.76)
Diluted ..................... $ (0.16) $ 0.18 $ (0.22) $ (1.76)
February 26 May 28 August 27 December 3
------------ ------------ ------------ --------------
1999 (b)
Net sales ..................... $ 16,483,000 $ 21,611,000 $ 18,779,000 $ 21,165,000
Gross profit .................. 4,432,000 6,105,000 5,264,000 5,766,000
Net income .................... 359,000 1,843,000 307,000 613,000
Earnings per share
Basic ....................... $ 0.17 $ 0.89 $ 0.15 $ 0.30
Diluted ..................... $ 0.16 $ 0.84 $ 0.14 $ 0.28
(a) Sales for the first and third quarters of 2000 in Plymouth Tapes were
reduced due to normal seasonal fluctuations. Sales in the fourth quarter
for Plymouth Tapes were reduced due to weak sales in the automotive
market. In addition, sales for the first quarter of 2000 for Brite-Line
Technologies were reduced due to the highly seasonal nature of the highway
market segment. Net income (loss) for the fourth quarter of 2000 was
reduced due to a $1.7 million tax expense, due primarily to an increase in
deferred tax valuation allowance of $2.4 million.
(b) 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 of the highway market segment. Net income for the
second quarter of 1999 was increased due to income from an insurance
settlement.
SCHEDULE II
PLYMOUTH RUBBER COMPANY, INC.
ACCOUNTS RECEIVABLE
RESERVES
Accounts
Balance at Provision Charged to Balance
Beginning Charged Reserve, net at End
Deducted from assets: of Period to Income of recoveries of Period
------------- ------------ -------------- ------------
Allowance for doubtful accounts
Year ended December 1, 2000............ $ 369,000 $ (31,000) $ (7,000) $ 331,000
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
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.
(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 -- incorporated
by reference to Exhibit (4)(xiv) to the Company's Annual Report on
Form 10-K for the year ended November 27, 1998.
(4)(xv) Promissory Note between Plymouth Rubber Company, Inc. and General
Electric Capital Corporation dated April 13, 1998 -- incorporated by
reference to Exhibit (4)(xv) to the Company's Annual Report on Form
10-K for the year ended November 27, 1998.
(4)(xvi) Promissory Note between Plymouth Rubber Company, Inc. and General
Electric Capital Corporation dated November 12, 1998 -- incorporated
by reference to Exhibit (4)(xvi) to the Company's Annual Report on
Form 10-K for the year ended November 27, 1998.
(4)(xvii) Promissory Note between Plymouth Rubber Company, Inc. and General
Electric Capital Corporation dated November 25, 1998 -- incorporated
by reference to Exhibit (4)(xvii) to the Company's Annual Report on
Form 10-K for the year ended November 27, 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.
(24) Not Applicable.
(27) Not Applicable.
(28) Not applicable.
(29) Not applicable.