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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
November 30, 2001 1-5197
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PLYMOUTH RUBBER COMPANY, INC.
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(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 405 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.
---
The aggregate market value of the registrant's voting stock held by
non-affiliates of the registrant at January 24, 2002, was approximately
$507,000.
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 . . . . . 1,248,390
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Documents incorporated by reference:
Portions of the registrant's definitive Proxy Statement to be dated on
or about March 26, 2002 (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 33%, 31% and 32% of
the Company's net sales in 2001, 2000 and 1999, 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 400 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. 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 November
30, 2001, management has accrued $461,000 as a reserve against the Company's
potential future liability in this matter, which is net of approximately
$265,000 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 $140,000 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 $609,000. 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 $222,000, 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 $268,000. It presently is estimated that the future costs in this
matter will total approximately $62,000 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 55 1987
Joseph D. Hamilburg Chairman and Co - Chief Executive
Officer and Director 53 1998
Fiore D. DiGiovine VP - Mfg. Development 74 1987
Alan I. Eisenberg VP - Sales & Marketing 51 1988 & 1986
Sheldon S. Leppo VP - Research & Development 67 1970
Joseph J. Berns VP - Finance and Treasurer 55 1997
Thomas L. McCarthy VP - Manufacturing 41 1999
David M. Kozol Clerk and Secretary 43 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.
Mr. 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. David M. 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
Rubber Company 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 - 2001 Quarter - 2000
First............. $ 8.38 $ 5.94 $ 3.44 $ 2.40 First.......... $ 8.25 $ 7.00 $ 7.00 $ 6.31
Second............ 6.35 0.80 2.81 0.80 Second......... 7.38 3.75 6.25 2.75
Third............. 2.24 1.50 1.80 1.40 Third.......... 5.81 4.75 4.19 3.25
Fourth............ 1.70 0.75 1.50 0.75 Fourth......... 5.94 3.25 5.44 2.63
(b) APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS
As of February 4, 2002, the approximate number of holders of each class of
equity securities of the Company was:
Title of Class Number of Holders
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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 fiscal year
1970. Under the Company's loan agreements, the Company 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
Fiscal Years
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2001 2000 1999 1998 1997
--------- --------- ---------- ---------- -----------
SELECTED INCOME STATEMENT DATA:
Net Sales $66,498,000 $74,392,000 $78,038,000 $69,390,000 $67,463,000
Income (loss) from operations $(2,899,000) $(3,989,000) $ 3,122,000 $ 1,838,000 $ 1,266,000
Per Share Data:
Net income (loss) per share
(diluted) $ (1.42) $ (1.95) $ 1.42 $ 0.84 $ 0.58
Weighted average shares outstanding 2,042,411 2,041,481 2,198,480 2,200,406 2,174,482
SELECTED BALANCE SHEET DATA (AS OF YEAR END):
Total Assets $48,658,000 $ 51,461,000 $55,035,000 $50,701,000 $44,064,000
Long Term Liabilities $ 6,815,000 $ 6,318,000 $16,000,000 $16,919,000 $15,858,000
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FISCAL YEAR 2001 COMPARED WITH FISCAL YEAR 2000
Sales decreased 10.6% to $66,498,000 in 2001 from $74,392,000 in 2000. Sales at
Plymouth Tapes decreased 13.6% to $57,553,000 from $66,591,000 last year. The
largest decrease was in the automotive market, where sales decreased 16.6% from
2000, largely because of the slowdown in U.S. auto production and market share
shifts among auto producers. Sales in all other markets decreased 8.8% due in
part to the economic slowdown. Sales at Brite-Line Technologies increased 14.7%
to $8,945,000, from $7,801,000 in 2000, due to increased customer demand.
Gross margin decreased to 17.6% in 2001 from 19.1% in 2000. Plymouth Tapes'
gross margin decreased to 15.7% in 2001 from 17.4% in 2000. The major factor was
lower production volumes, resulting from both lower sales and a $2,961,000
reduction in inventory, partially offset by lower manufacturing spending and
lower raw material purchase costs. At Brite-Line Technologies, gross margin
decreased to 30.1% in 2001 from 34.1% in 2000 as a result of product mix and
lower sales margins to foreign markets, partially offset by improved
manufacturing overhead absorption resulting from increased production volumes.
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 18.6% in 2001 from 19.1% in 2000. At Plymouth Tapes, selling,
general and administrative expenses, as a percentage of sales, decreased to
18.4% in 2001 from 18.6% in 2000, and total selling, general and administrative
expenses decreased 14.7% to $10,589,000 from $12,408,000 in 2000. The decrease
in expenses included $455,000 of lower freight and $172,000 of decreased
external warehouse expenses, due to lower volumes and a reduction in the number
of warehouses, a $498,000 decrease in environmental expenses, a $342,000
reduction in salaries and fringe due to headcount and salary reductions,
$140,000 of reduced commissions due to lower sales levels, $103,000 of lower
professional fees, $75,000 of reduced advertising, $94,000 lower travel
expenses, and $56,000 of lower foreign selling expenses. These reductions were
partially offset by a $119,000 bad debt increase from 2000, which benefited from
a reversal of $41,000.
In February, 2002, KM Logistics, a third party freight audit and payment
service, filed for Chapter 11 bankruptcy protection, while holding approximately
$300,000 of Company funds intended to reimburse the Company's freight carriers
for normal services. Approximately $100,000 of these payments were made to KM
Logistics prior to fiscal 2001 year-end. Due to the bankruptcy filing, the
Company provided a reserve for the full amount of the funds held by KM Logistics
at November 30, 2001. This charge is included as a selling, general and
administrative expense at Plymouth Tapes in the fourth quarter of fiscal 2001. A
loss of approximately $200,000 will be recorded in the first quarter of fiscal
2002 for the funds remitted to KM Logistics after November 30, 2001. The Company
intends to pursue all legal means of recovery of the $300,000 balance.
At Brite-Line, selling, general and administrative expenses, as a percentage of
sales, decreased to 20.0% in 2001 from 22.8% in 2000. The largest factors were a
$59,000 decrease in professional fees, a $20,000 reduction in travel expenses, a
$51,000 reduction in field equipment expenses, and a $26,000 reduction in
accrued commissions, partially offset by a $106,000 increase in freight expense
and a $23,000 increase in product license fees.
Interest expense in 2001 decreased to $2,298,000 from $2,342,000 in 2000,
because of lower balances and lower interest rates on both the revolving line of
credit and the real estate loan, and lower balances on the equipment term loans,
partially offset by higher lender fees. The foreign currency exchange loss was
$25,000 in 2001 compared to $110,000 in 2000. Other income was $99,000 in 2001,
due largely to non-recurring rental income of $35,000, a $25,000 gain on the
sale of securities, a $25,000 gain on the cash surrender value of life insurance
policies, and other net income items of $14,000, compared to $110,000 in 2000,
which had a $62,000 gain on the sale of securities and miscellaneous net income
items of $48,000.
The pre-tax loss for 2001 was $2,910,000, compared to a pre-tax loss of
$2,287,000 in 2000. The net loss was $2,899,000 in 2001, compared to a net loss
of $3,989,000 in 2000. The Company generated a tax benefit of $1,127,000 as a
result of the fiscal 2001 loss. In accordance with the Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (FAS109), a full
valuation allowance was recorded for this benefit as it could not be carried
back to recover taxes paid and will not be offset by the reversal of future
taxable differences. The Company's liquidity situation at November 30, 2001 also
provides significant negative evidence regarding its ability to generate
sufficient taxable income in the future to realize this benefit.
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 10.2% of the Company's revenues in fiscal 2001.
The functional currency of this subsidiary has been the Peseta and will be the
Euro in 2002. Changes in the Peseta/Euro/Dollar exchange rate could affect the
reporting of the subsidiary's earnings in the Consolidated Statement of
Operations. The Company occasionally enters into purchase or sales contracts in
currencies other than the functional currency, and hedges only those
transactions that are of significant size. The Company did not enter into any
foreign currency forward contracts in 2001 and 2000 and did not have any forward
contracts outstanding at the end of 2001 and 2000.
FISCAL YEAR 2000 COMPARED WITH FISCAL YEAR 1999
Sales decreased 5% to $74,392,000 (52 weeks) from $78,038,000 (53 weeks) in
1999. Plymouth Tapes' sales of $66,591,000 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 was 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 1999, 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 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 be 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,
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% in 1999. 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% in 1999. 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 in 1999. 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company's term debt agreements contain various covenants which specify that
the Company meet certain financial requirements, including minimum tangible net
worth, fixed charge coverage ratio and working capital and maximum ratio of
total liabilities to net worth. In addition, the revolving working capital
credit facility and the real estate term loan contain an acceleration provision,
which can be triggered if the lender subjectively determines that an event of
default has occurred.
The Company has been in default of certain covenants of its term debt facility
as of each quarter-end since September 1, 2000, and therefore, due to a cross
default provision, the Company was also not in compliance with a covenant under
its revolving working capital credit facility and real estate term loan. As of
November 30, 2001, the Company was not in compliance with the minimum working
capital, fixed charge coverage ratio and maximum ratio of total liabilities to
net worth covenants under its term debt agreements, resulting in the working
capital, real estate term loan and term debt facilities being payable on demand,
although no such demand has been made to date. As a result, all of the Company's
term loans (except for that of its Spanish subsidiary) remain classified as
current liabilities on the Company's Consolidated Balance Sheet at November 30,
2001 and December 1, 2000, respectively. As of November 30, 2001, the Company
had delayed $897,000 in principal payments on its term debt and capital lease
facilities.
As of November 30, 2001, the Company had approximately $300,000 of unused
borrowing capacity under its $18 million line of credit with its primary working
capital lender, after consideration of collateral limitations and a letter of
credit related to a guarantee of 80 million pesetas (approximately $0.4 million)
on a term loan agreement with a Spanish bank syndicate.
The Company's working capital position decreased from a negative $11,357,000 at
December 1, 2000 to a negative $13,661,000 at November 30, 2001, due to a
$3,542,000 increase in accounts payable and accrued expenses, a $3,353,000
reduction in inventory, a $1,229,000 increase in short-term debt, and a $151,000
of other working capital decreases, partially offset by a $3,012,000 decrease in
the current portion of long term debt, and a $2,959,000 increase in accounts
receivable.
The Company is obligated to contribute $855,000 to its defined benefit plan for
the plan year ending November 30, 2001. Based upon cash flow projections for
fiscal 2002 and the lack of available borrowing capacity under its debt
facilities, the Company will not have sufficient funds to satisfy this
obligation. The Company has filed for a funding waiver from the Internal Revenue
Service for the $855,000 payments due for the plan year ending November 30,
2001.
The Company has generated net losses of $2,899,000 and $3,989,000 during the
years ended November 30, 2001 and December 1, 2000, respectively.
The consolidated 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 $13,661,000, the demand status of the term debt facilities, the lack
of significant borrowing capacity under the line of credit ($300,000 available
at November 30, 2001), the funding requirement for the defined benefit plan and
the recurring losses generated from operations during fiscal 2001 and 2000, may
indicate that the Company will be unable to continue as a going concern for a
reasonable period of time. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainity.
Since September, 2001, the Company has been negotiating with its lenders to
defer principal payments and modify the financial covenants under its existing
debt facilities. In December, 2001, the Company reached an agreement with its
primary term debt lender to defer principal payments from August, 2001, through
March, 2002, and to modify the financial covenants. In January, 2002, an
agreement also was reached with the Company's working capital lender to defer
certain principal payments on the real estate term loan from December, 2001
through March, 2002. However, these two agreements will not be deemed effective
until all other lenders have agreed to similar terms, interest payments are
current, and several other conditions are met. The Company anticipates that it
will be able to negotiate similar agreements with the remaining lenders. Beyond
March, 2002, the Company plans to continue to pursue restructured debt
facilities and/or deferred principal payments at least through the end of fiscal
2002.
It is management's belief that if payments of interest and principal on the
Company's debt facilities can be deferred and the Internal Revenue Service
grants a pension funding waiver for the plan year ending November 30, 2001, as
described above, cash flows generated from operations will be sufficient to meet
the Company's liquidity needs during fiscal 2002. Although management expects to
be able to accomplish its business and financing 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 ability to continue operations.
Cash generated from operating activities was $3.1 million in 2001, as compared
to $3.0 million in 2000. The major factors contributing to cash from operating
activities were a decrease in inventory of $3.4 million, largely at Plymouth
Tapes, depreciation and amortization of $3.1 million, an increase in accounts
payable of $1.6 million, an increase in accrued expenses of $0.6 million, a $0.1
million increase in pension and other liabilities, and a decrease in prepaid
expenses of $0.1 million, partially offset by a net loss of $2.9 million, and an
increase in accounts receivable of $2.9 million. This operating cash flow was
used to pay off term debt and capital leases of $2.1 million, to reduce
borrowings under the Company's revolving line of credit by $0.3 million, and for
capital expenditures of $0.7 million.
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.
During the first quarter of 2001, the Company was contacted by the American
Stock Exchange (AMEX) regarding minimum listing requirements on the number of
public Class A common stockholders (200), and the aggregate market value of the
publicly held Class A common stock ($1,000,000). The Company met with AMEX
representatives and believes that it meets the minimum number of public Class A
stockholders. The Company has reviewed various options regarding the aggregate
market value of the publicly held Class A common stock. The Company has not
received further communication from AMEX regarding this matter.
ENVIRONMENTAL
The Company has been named as a Potentially Responsible Party by the United
States Environmental Protection Agency in two ongoing claims under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA"). The Company has also received Notices of Responsibility under
Massachusetts General Laws Chapter 21E on two sites in Massachusetts. The
Company has accrued $798,000 as of November 30, 2001 to cover future
environmental expenditures related to these claims, which is net of $447,000
payments made to date. The accrual represents the Company's estimate of the
remaining remediation costs based upon the best information currently available.
Actual future costs may be different from the amount accrued for as of November
30, 2001 and may be affected by various factors, including future testing, the
remediation alternatives taken at the sites, and actual cleanup costs. The final
remediation costs could also be subject to adjustment because of the long term
nature of the cases, legislative changes, insurance coverage, joint and several
liability provisions of CERCLA, and the Company's ability to successfully
negotiate an outcome similar to its previous experience in these matters.
The Company has also received Notices of Responsibility under Massachusetts
General Laws Chapter 21E on three sites at the Company's facilities in Canton,
Massachusetts. In all of these cases, the Company has taken a variety of actions
towards the ultimate cleanup, depending upon the status of each of the sites.
These activities include the retention of an independent Licensed Site
Professional, investigation, assessment, containment, and remediation. The
Company has accrued $284,000 as of November 30, 2001 to cover estimated future
environmental cleanup expenditures, which is net of $877,000 payments made to
date. Actual future costs may be different from the amount accrued for as of
November 30, 2001.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the FASB issued Statement of Financial Accounting Standards No.
141, "Business Combinations" (FAS 141), and Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets" (FAS 142). FAS 141
requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001. FAS 141 also specifies criteria that
intangible assets acquired in a purchase method business combination must meet
to be recognized and reported apart from goodwill. FAS 142 will require that
goodwill and intangible assets with indefinite useful lives no longer be
amortized, but instead tested for impairment. FAS 142 is effective for fiscal
years beginning after December 15, 2001, and will be adopted by the Company
effective December 1, 2001. As of November 30, 2001, the Company had unamortized
goodwill of approximately $360,000, which will be subject to the provisions of
FAS 142. The adoption of these standards will not have a material impact on the
Company's consolidated financial statements.
In June 2001, the FASB issued Statement of Financial Accounting Standards No.
143,"Accounting for Asset Retirement Obligations"(FAS 143). FAS 143 requires
entities to record the fair value of a liability for an asset retirement
obligation in the period in which it is incurred. When the liability is
initially recorded, the Company is required to capitalize a cost by increasing
the carrying amount of the related long-lived asset. Over time, the liability is
accreted to its present value each period, and the capitalized cost is
depreciated over the useful life of the related asset. Upon settlement of the
liability, an entity either settles the obligation for its recorded amount or
incurs a gain or loss upon settlement. FAS 143 will be effective for fiscal
years beginning after June 15, 2002 and will be adopted by the Company effective
November 30, 2002. The Company is currently assessing the impact of the adoption
of FAS 143.
In August 2001, the FASB issued Statement of Financial Accounting Standards No.
144, "Accounting for the Impairment or Disposal of Long-lived Assets" (FAS 144),
which supersedes Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to
Be Disposed Of" (FAS 121), and the accounting and reporting provisions of APB
Opinion No. 30, "Reporting the Results of Operations -- Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions" (APB 30), for the disposal of a segment of a
business. Because FAS 121 did not address the accounting for a segment of a
business accounted for as a discontinued operation under APB 30, two accounting
models existed for long-lived assets to be disposed of. FAS 144 establishes a
single accounting model, based on the framework established in FAS 121, for
long-lived assets to be disposed of. It also addresses certain significant
implementation issues under FAS 121. The provisions of FAS 144 will be effective
for the Company as of November 30, 2002. The Company is in the process of
assessing the impact of the adoption of FAS 144.
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 facilities or obtain additional financing, risk of the Company's
lenders demanding principal payments on outstanding terms loans, risk of not
receiving waiver from the government on the required contribution into the
pension plan, the concentration of a substantial percentage of the Company's
sales with a few major automotive customers, cost of raw materials, and pricing
pressures from competitors and customers.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At November 30, 2001, the carrying value of Company's debt totaled $24.5 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 November 30, 2001, the Company had fixed rate debt of $10.3 million and
variable rate debt of $14.2 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 $180,000. The earnings and cash flows impact for the next
year resulting from a one percentage point increase in interest rates would be
approximately $140,000, holding other variables constant.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PLYMOUTH RUBBER COMPANY, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
PAGE
Report of Independent Accountants..................................... 14
Consolidated Balance Sheet at November 30, 2001 and December 1, 2000.. 15 - 16
Consolidated Statement of Operations and Retained Earnings (Deficit)
for each of the three years in the period ended November 30, 2001... 17
Consolidated Statement of Comprehensive Income (Loss) for each of the
three years in the period ended November 30, 2001................... 18
Consolidated Statement of Cash Flows for each of the three years
in the period ended November 30, 2001............................... 19
Notes to Consolidated Financial Statements............................ 20 - 39
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 November 30, 2001 and
December 1, 2000, and the results of their operations and their cash flows for
each of the three years in the period ended November 30, 2001 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 suffered recurring losses
from operations and a net working capital deficiency that raise 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.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 1, 2002
PLYMOUTH RUBBER COMPANY, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
November 30, December 1,
2001 2000
------------ -----------
Cash........................................... $ 7,000 $ 4,000
Accounts receivable, less allowance for
doubtful accounts of $422,000 and $331,000 at
November 30, 2001 and December 1, 2000,
respectively................................. 12,637,000 9,678,000
Inventories:
Raw materials............................ 3,540,000 4,671,000
Work in process.......................... 1,870,000 1,627,000
Finished goods........................... 5,207,000 7,672,000
------------ ------------
10,617,000 13,970,000
------------ ------------
Prepaid expenses and other current assets...... 772,000 926,000
------------ ------------
Total current assets..................... 24,033,000 24,578,000
------------ ------------
PLANT ASSETS:
Land......................................... 505,000 498,000
Buildings.................................... 6,263,000 6,266,000
Machinery and equipment...................... 40,886,000 40,163,000
Construction in progress..................... -- 1,043,000
------------ ------------
47,654,000 47,970,000
Less: Accumulated depreciation.............. (23,801,000) (21,874,000)
------------ ------------
Total plant assets, net................... 23,853,000 26,096,000
------------ ------------
Other long-term assets....................... 772,000 787,000
------------ ------------
$ 48,658,000 $ 51,461,000
============ ============
The accompanying notes
are an integral part of these Financial Statements.
PLYMOUTH RUBBER COMPANY, INC.
CONSOLIDATED BALANCE SHEET -- (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
November 30, December 1,
2001 2000
------------ ------------
CURRENT LIABILITIES:
Revolving line of credit....................... $ 13,467,000 $ 12,238,000
Current portion of long-term borrowings........ 10,222,000 13,234,000
Trade accounts payable......................... 9,474,000 7,845,000
Accrued expenses............................... 4,531,000 2,618,000
------------ ------------
Total current liabilities................... 37,694,000 35,935,000
------------ ------------
LONG-TERM LIABILITIES:
Borrowings.................................... 830,000 1,403,000
Pension obligation............................ 3,253,000 2,270,000
Deferred tax liability........................ 107,000 105,000
Other......................................... 2,625,000 2,540,000
------------ ------------
Total long-term liabilities................. 6,815,000 6,318,000
------------ ------------
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 November 30, 2001
and December 1, 2000.......................... 810,000 810,000
Class B non-voting common stock, $1 par value,
3,500,000 shares authorized, 1,281,304 shares
issued and outstanding at November 30, 2001
and December 1, 2000.......................... 1,281,000 1,281,000
Paid-in capital ................................ 9,084,000 9,084,000
Retained earnings (deficit)..................... (4,328,000) (1,311,000)
Accumulated other comprehensive loss:
Cumulative translation adjustment............. (279,000) (291,000)
Minimum pension liability, net of tax......... (2,234,000) --
Deferred compensation........................... -- (38,000)
------------ ------------
4,334,000 9,535,000
Less: Treasury stock at cost (32,914 and 55,000
shares at November 30, 2001 and
December 1, 2000) (185,000) (327,000)
------------ ------------
4,149,000 9,208,000
------------ ------------
$ 48,658,000 $ 51,461,000
============ ============
The accompanying notes
are an integral part of these Financial Statements.
PLYMOUTH RUBBER COMPANY, INC.
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
Year Ended
-----------------------------------------------------
November 30, December 1, December 3,
2001 2000 1999
------------ ------------ ------------
Revenues:
Net sales........................................ $ 66,498,000 $ 74,392,000 $ 78,038,000
------------ ------------ ------------
Costs and Expenses:
Cost of products sold............................. 54,802,000 60,153,000 56,471,000
Selling, general and administrative............... 12,382,000 14,184,000 15,936,000
Insurance settlement.............................. -- -- (1,750,000)
------------ ------------ ------------
67,184,000 74,337,000 70,657,000
------------ ------------ ------------
Operating income (loss).............................. (686,000) 55,000 7,381,000
Interest expense..................................... (2,298,000) (2,342,000) (2,045,000)
Foreign currency exchange loss....................... (25,000) (110,000) (77,000)
Other income, net.................................... 99,000 110,000 103,000
------------ ------------ ------------
Income (loss) before income taxes.................... (2,910,000) (2,287,000) 5,362,000
Provision for (benefit from) income taxes............ (11,000) 1,702,000 2,240,000
------------ ------------ ------------
Net income (loss).................................... (2,899,000) (3,989,000) 3,122,000
Retained earnings (deficit) at beginning of year..... (1,311,000) 2,678,000 (444,000)
Treasury stock issued................................ (118,000) -- --
------------ ------------ ------------
Retained earnings (deficit) at end of year........... $ (4,328,000) $ (1,311,000) $ 2,678,000
============ ============ ============
PER SHARE DATA:
BASIC EARNINGS (LOSS) PER SHARE:
Net income (loss)................................. $ (1.42) $ (1.95) $ 1.51
============ ============ ============
Weighted average number of shares outstanding..... 2,042,411 2,041,481 2,068,509
============ ============ ============
DILUTED EARNINGS (LOSS) PER SHARE:
Net income (loss)................................. $ (1.42) $ (1.95) $ 1.42
============ ============ ============
Weighted average number of shares outstanding .... 2,042,411 2,041,481 2,198,480
============ ============ ============
The accompanying notes are an
integral part of these Financial Statements.
PLYMOUTH RUBBER COMPANY, INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
Year Ended
---------------------------------------------------
November 30, December 1, December 3,
2001 2000 1999
------------ ------------ ------------
Net income (loss)................................... $ (2,899,000) $ (3,989,000) $ 3,122,000
------------ ------------ ------------
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments......... 12,000 (112,000) (110,000)
Minimum pension liability adjustment............. (2,234,000) -- --
------------ ------------ ------------
Other comprehensive income (loss) ................... (2.222,000) (112,000) (110,000)
------------ ------------ ------------
Comprehensive income (loss).......................... $ (5,121,000) $ (4,101,000) $ 3,012,000
============ ============ ============
The accompanying notes are an
integral part of these Financial Statements.
PLYMOUTH RUBBER COMPANY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended
-----------------------------------------------------
November 30, December 1, December 3,
2001 2000 1999
--------------- --------------- ----------------
CASH FLOWS RELATING TO OPERATING ACTIVITIES:
Net income (loss) .......................................... $ (2,899,000) $ (3,989,000) $ 3,122,000
Adjustments to reconcile net income (loss), to
net cash provided by operating activities:
Depreciation and amortization .......................... 3,053,000 2,788,000 2,494,000
Deferred income tax expense ............................ -- 2,378,000 1,184,000
Provision for environmental reserves ................... 89,000 351,000 --
Amortization of deferred compensation .................. 38,000 38,000 38,000
Other .................................................. 24,000 -- --
Changes in assets and liabilities:
Accounts receivable .................................... (2,930,000) 2,148,000 268,000
Inventory .............................................. 3,371,000 490,000 (3,600,000)
Prepaid expenses ....................................... 150,000 (16,000) (7,000)
Other assets ........................................... (39,000) 88,000 25,000
Accounts payable ....................................... 1,590,000 1,007,000 829,000
Accrued expenses ....................................... 568,000 (1,748,000) 220,000
Other liabilities ...................................... 22,000 (189,000) (5,000)
Pension obligation ..................................... 95,000 (391,000) (303,000)
------------ ------------ ------------
Net cash provided by operating activities .................. 3,132,000 2,955,000 4,265,000
------------ ------------ ------------
CASH FLOWS RELATING TO INVESTING ACTIVITIES:
Capital expenditures ..................................... (644,000) (4,827,000) (5,256,000)
Sale/leaseback of plant assets ........................... -- -- 151,000
------------ ------------ ------------
Net cash used in investing activities ...................... (644,000) (4,827,000) (5,105,000)
------------ ------------ ------------
CASH FLOWS RELATING TO FINANCING ACTIVITIES:
Net (decrease )increase in revolving line of credit ...... (338,000) 1,112,000 1,202,000
Proceeds from term debt .................................. -- 4,095,000 2,618,000
Payments of term debt .................................... (1,677,000) (2,814,000) (2,154,000)
Payments on capital leases ............................... (461,000) (504,000) (673,000)
Payments on treasury stock purchase ...................... -- (68,000) (245,000)
Proceeds from exercises of options ....................... -- 2,000 11,000
------------ ------------ ------------
Net cash provided by financing activities ................. (2,476,000) 1,823,000 759,000
------------ ------------ ------------
Effect of exchange rate changes on cash .................... (9,000) 53,000 27,000
------------ ------------ ------------
Net change in cash ......................................... 3,000 4,000 (54,000)
Cash at the beginning of the year .......................... 4,000 -- 54,000
------------ ------------ ------------
Cash at the end of the year ................................ $ 7,000 $ 4,000 $ --
============ ============ ============
Supplemental Disclosure of Cash Flow Information
Cash paid for interest ..................................... $ 2,157,000 $ 2,367,000 $ 2,082,000
============ ============ ============
Cash paid for income taxes ................................. $ 16,000 $ 431,000 $ 831,000
============ ============ ============
The accompanying notes
are an integral part of these Financial Statements.
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. THE COMPANY -- Plymouth Rubber Company, Inc. and its subsidiaries primarily
operate through the following two business segments: Plymouth Tapes and
Brite-Line Technologies. Management has determined these to be Plymouth
Rubber Company's business segments, based upon its process to review and
assess Company performance, and to allocate resources. Plymouth Tapes
manufactures plastic and rubber products, including automotive, electrical,
and industrial tapes. Brite-Line Technologies manufactures and supplies
rubber and plastic highway marking and safety products.
B. PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements include
the accounts of Plymouth Rubber Company, Inc. and its wholly-owned
subsidiaries, Brite-Line Technologies, Inc. and Plymouth Rubber Europa,
S.A.. Significant intercompany accounts and transactions have been
eliminated in consolidation.
C. INVENTORIES -- Inventories are valued at the lower of cost, determined
principally on the first-in, first-out method, or market.
D. REVENUE RECOGNITION -- The Company recognizes revenues at the point of
passage of title, which is generally at the time of shipment.
E. PLANT ASSETS -- Plant assets are stated at cost. Additions, renewals and
betterments of plant assets, unless those 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 assets are removed from the accounts. The
Company wrote off approximately $1.1 million and $0.3 million of fully
depreciated plant assets in 2001 and 2000, 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 Statement of Financial Accounting Standards No. 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 - As permitted under Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (FAS 123), the Company accounts 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 10.2% of the
Company's revenues in fiscal 2001. The functional currency of this
subsidiary is the Spanish 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.
M. ACCOUNTING FOR SHIPPING AND HANDLING FEES AND COSTS - In accordance with
Emerging Issues Task Force Issue 00-10, "Accounting for Shipping and
Handling Fees and Costs" ("Issue 00-10"), 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 costs
were $2,603,000, $2,952,000 and $2,999,000 in 2001, 2000 and 1999,
respectively.
N. ACCOUNTING FOR DERIVATIVES--Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS
133"), as amended, was 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 derivative instruments that receive hedge accounting.
The Company did not hold any derivative positions for the years ended
November 30, 2001, and December 1, 2000.
O. 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.
P. RECLASSIFICATIONS - Certain reclassifications of prior year balances have
been made to conform to the current presentation.
Q. BUSINESS COMBINATIONS, GOODWILL AND OTHER INTANGIBLE ASSETS--In June 2001,
the FASB issued Statement of Financial Accounting Standards No. 141,
"Business Combinations" (FAS 141), and Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets" (FAS 142). FAS 141
requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001. FAS 141 also specifies criteria
that intangible assets acquired in a purchase method business combination
must meet to be recognized and reported apart from goodwill. FAS 142 will
require that goodwill and intangible assets with indefinite useful lives no
longer be amortized, but instead tested for impairment. FAS 142 is effective
for fiscal years beginning after December 15, 2001, and will be adopted by
the Company effective December 1, 2001. As of November 30, 2001, the Company
had unamortized goodwill of approximately $360,000, which will be subject to
the provisions of FAS 142. The adoption of these standards will not have a
material impact on the Company's consolidated financial statements.
R. ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS--In June 2001, the FASB issued
Statement of Financial Accounting Standards No. 143,"Accounting for Asset
Retirement Obligations"(FAS 143). FAS 143 requires entities to record the
fair value of a liability for an asset retirement obligation in the period
in which it is incurred. When the liability is initially recorded, the
Company is required to capitalize a cost by increasing the carrying amount
of the related long-lived asset. Over time, the liability is accreted to its
present value each period, and the capitalized cost is depreciated over the
useful life of the related asset. Upon settlement of the liability, an
entity either settles the obligation for its recorded amount or incurs a
gain or loss upon settlement. FAS 143 will be effective for fiscal years
beginning after June 15, 2002 and will be adopted by the Company effective
November 30, 2002. The Company is currently assessing the impact of the
adoption of FAS 143.
S. ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS--In August
2001, the FASB issued Statement of Financial Accounting Standards No. 144,
"Accounting for the Impairment or Disposal of Long-lived Assets" (FAS 144),
which supersedes Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-lived Assets and for Long-lived
Assets to Be Disposed Of" (FAS 121), and the accounting and reporting
provisions of APB Opinion No. 30, "Reporting the Results of Operations --
Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions"
(APB 30), for the disposal of a segment of a business. Because FAS 121 did
not address the accounting for a segment of a business accounted for as a
discontinued operation under APB 30, two accounting models existed for
long-lived assets to be disposed of. FAS 144 establishes a single accounting
model, based on the framework established in FAS 121, for long-lived assets
to be disposed of. It also addresses certain significant implementation
issues under FAS 121. The provisions of FAS 144 will be effective for the
Company as of November 30, 2002. The Company is in the process of assessing
the impact of the adoption of FAS 144.
NOTE 2 -- GOING CONCERN, BORROWING ARRANGEMENTS AND FINANCING COMMITMENTS
GOING CONCERN
The Company's revolving credit and long term loan agreements contain various
covenants which, among other things, prohibit cash dividends without the consent
of the lenders and specify that the Company meet certain financial requirements,
including minimum working capital, tangible net worth, and fixed charge and
EBITDA coverage ratios and maximum ratio of total liabilities to net worth. In
addition, for certain short-term borrowing, the agreements contain certain
subjective provisions which would result in an event of default if the bank
would deem itself "insecure" for any reason. As of November 30, 2001, the
Company was not in compliance with the minimum working capital, fixed charge
coverage ratio and maximum ratio of total liabilities to net worth covenants of
its term debt agreements. The Company has not been in compliance with certain of
these financial covenants since the third quarter of fiscal 2000. 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, all of the
Company's term debt facilities, except that of its Spanish subsidiary, were
classified as current liabilities on the consolidated balance sheet as of both
November 30, 2001 and December 1, 2000 and are currently payable on demand. The
Company is projecting that it will not be in compliance with the covenants
of its term debt and primary working capital facilities over the next twelve
months. As of November 30, 2001, the Company had deferred $897,000 in principal
payments on its term debt and capital lease facilities.
The Company is obligated to contribute $855,000 to its defined benefit plan for
the plan year ending November 30, 2001. Based upon cash flow projections for
fiscal 2002, the Company will not have sufficient funds to satisfy this
obligation. The Company has filed for a funding waiver from the Internal Revenue
Service for the $855,000 payments due for the plan year ending November 30,
2001.
The Company has generated a net losses of $2,899,000 and $3,989,000 during the
years ended November 30, 2001 and December 1, 2000, respectively.
The consolidated 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 $13,661,000, the demand status of the term debt facilities, the lack
of significant borrowing capacity under the line of credit ($300,000 available
at November 30, 2001), the funding requirement for the defined benefit plan and
the recurring losses generated from operations during fiscal 2001 and 2000, may
indicate that the Company will be unable to continue as a going concern for a
reasonable period of time. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainity.
Since September, 2001, the Company has been negotiating with its lenders to
defer principal payments and modify the financial covenants under its existing
debt facilities. In December 2001, the Company reached an agreement with its
primary term debt lender to defer principal payments from August, 2001, through
March, 2002, and to modify the financial covenants. In January, 2002, an
agreement also was reached with the Company's working capital lender to defer
certain principal payments on the real estate term loan from December 2001
through March 2002. However, these two agreements will not be deemed effective
until all other lenders have agreed to similar terms, interest payments are
current, and several other conditions are met. The Company anticipates that it
will be able to negotiate similar agreements with the remaining lenders. Beyond
March, 2002, the Company plans to continue to pursue restructured debt
facilities and/or deferred principal payments at least through the end of fiscal
2002.
It is management's belief that if payments of interest and principal on the
Company's debt facilities can be deferred and the Internal Revenue Service
grants a pension funding waiver for the plan year ending November 30, 2001, as
described above, cash flows generated from operations will be sufficient to meet
the Company's liquidity needs during fiscal 2002. Although management expects to
be able to accomplish its plans, there is no assurance that it will be able to
do so. Failure to accomplish these plans could have an adverse impact on the
Company's liquidity, financial position and future operations.
BORROWING ARRANGEMENTS AND FINANCING COMMITMENTS
The revolving line of credit and term debt of the Company consisted of the following as of:
November 30, December 1,
2001 2000
------------ ------------
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 plus 1%. At November
30, 2001, the Company had used all of its borrowing availability on its
revolving line of credit. The interest rate at November 30, 2001 was 6% .......... $ 10,980,000 $ 11,341,000
Term debt, in the original principal amount of $3,000,000, with a month to
month renewal term, secured by a first interest in real property. Monthly
Principal payments of $50,000 plus interest at prime plus 1% are required. The
interest rate at November 30, 2001 was 6 % ...................................... 1,550,000 --
Short-term borrowings with three Spanish Banks and a German Bank with interest
rates ranging from 4.35% to 6.25% at November 30, 2001. Principal amount
176,000,000 pesetas (approximately $937,000) at November 30, 2001 ............... 937,000 897,000
------------ ------------
$ 13,467,000 $ 12,238,000
============ ============
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
Term debt, in the original principal amount of $1,339,000, due April 2004,
secured by a first interest in certain equipment. Monthly payments of
$26,578 including interest at 7.1% .............................................. 794,000 881,000
Term debt, in the original principal amount of $3,710,000, due October
2003, secured by a first interest in certain equipment. Monthly payments
of $75,296 including interest at 8.04% .......................................... 1,790,000 1,977,000
Term debt, in the original principal amount of $868,000, due November
2004, secured by a first interest in certain equipment. Monthly payments
of $17,757 including interest at 8.39% .......................................... 618,000 670,000
Term debt, in the original principal amount of $4,050,000, due September 2008,
secured by a first interest in certain equipment. Monthly payments of $69,680
including interest at 8.54%. In September 2003, the remaining debt will be
amortized over five years, giving a monthly payment of $20,644, including
interest, until September 2008 .................................................. 2,485,000 2,689,000
Term debt, in the original principal amount of $550,000, due May 2005,
secured by a first interest in certain equipment. Monthly payments of
$11,268 including interest at 8.75% ............................................. 431,000 463,000
Term debt, in the original principal amount of $810,250, due June 2005,
secured by a first interest in certain equipment. Monthly payments of
$16,863 including interest at 9.11% ............................................. 676,000 722,000
Term debt, in the original principal amount of $161,313 due September
2005, secured by a first interest in certain equipment. Monthly payments
of $3,353 including interest at 9.05% ........................................... 139,000 148,000
Term debt, in the original principal amount of $1,469,979, due October
2005, secured by a first interest in certain equipment. Monthly payments
of $30,915 including interest at 9.56% .......................................... 1,291,000 1,372,000
Term debt, in the original amount of $1,104,077, due December 2005,
secured by a first interest in certain equipment. Monthly payments of
$22,908 including interest at 8.98% ............................................. 999,000 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 ................... 268,000 323,000
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 November 30, 2001 was 4.75% .................................... 733,000 852,000
Term debt, in the original 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 ........................................................................ 72,000 141,000
Capital lease obligations (see Note 9) .......................................... 756,000 1,139,000
------------ ------------
11,052,000 14,637,000
Less current portion ............................................................ 10,222,000 13,234,000
------------ ------------
$ 830,000 $ 1,403,000
============ ============
During the second quarter of fiscal 2001, the Company negotiated modified loan
agreements with its primary term lender and a second term lender to defer
certain principal payments from January 2001 through April 2001 and to extend
the remaining amortization period by four months. In May 2001, the primary
working capital lender also amended the real estate term loan agreement with the
Company to change the loan maturity date from June 2002 to May 31, 2001 with an
automatic month to month renewal option.
The Company has a letter of credit with its primary working capital lender,
related to a 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: 2002 -
$4,410,000; 2003 - $3,019,000; 2004 - $1,576,000; 2005 - $1,154,000; 2006 -
$382,000; and thereafter - $511,000.
NOTE 3 -- INCOME TAXES
Income (loss) before taxes consists of the following:
Year Ended
----------------------------------------------------
November 30, December 1, December 3,
2001 2000 1999
------------ ------------ -------------
U.S. ................. $ (2,869,000) $ (2,413,000) $ 5,173,000
Foreign............... (41,000) 126,000 189,000
------------ ------------ -------------
Total $ (2,910,000) $ (2,287,000) $ 5,362,000
============ ============ =============
The provision (benefit) for income taxes consists of the following:
Year Ended
-------------------------------------------------
November 30, December 1, December 3,
2001 2000 1999
---------- ----------- -----------
Current:
Federal............... $ -- $ (658,000) $ 749,000
State................. -- (66,000) 236,000
Foreign............... (11,000) 48,000 71,000
---------- ----------- -----------
(11,000) (676,000) 1,056,000
---------- ----------- -----------
Deferred:
Federal............... -- 1,787,000 970,000
State................. -- 591,000 214,000
---------- ----------- -----------
-- 2,378,000 1,184,000
---------- ----------- -----------
Total ................... $ (11,000) $ 1,702,000 $ 2,240,000
========== =========== ===========
The components of the net deferred tax asset (liability) are as follows:
November 30, December 1,
2001 2000
----------- -----------
Deferred tax asset:
Pension obligations......................... $ 1,995,000 $ 1,016,000
Federal and state NOL carryforwards......... 1,754,000 627,000
Environmental reserves...................... 455,000 521,000
AMT credit carryfoward...................... 433,000 433,000
Postretirement benefits..................... 410,000 410,000
State investment tax credit (ITC)
carryforwards ............................ 382,000 399,000
Accrued vacation............................ 205,000 261,000
Other reserves.............................. 677,000 445,000
------------ ------------
Total gross deferred tax assets .......... 6,311,000 4,112,000
Valuation allowance......................... (4,471,000) (2,467,000)
------------ ------------
1,840,000 1,645,000
Deferred tax liability:
Plant assets................................ (1,947,000) (1,750,000)
------------ ------------
Net deferred tax asset (liability).... $ (107,000) $ (105,000)
============ ============
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. The Company
increased the valuation allowance for deferred tax assets by $2,004,000 and
$2,287,000 in 2001 and 2000, respectively. Such an increase was deemed necessary
as the net deferred tax asset balance at November 30, 2001 and 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 November 30, 2001 and 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
November 30, 2001, December 1, 2000, and December 3, 1999, is as follows:
Year Ended
-----------------------------------------------------
November 30, December 1, December 3,
2001 2000 1999
------------ ----------- -----------
Tax (benefit) computed at statutory rate... $ (989,000) $ (778,000) $ 1,822,000
State income taxes, net of federal
income tax benefit....................... (154,000) (166,000) 297,000
Expired federal investment tax credit -- 327,000 --
State investment tax credit................ -- -- --
Valuation allowance ....................... 1,127,000 2,387,000 --
Rate differential attributable to
foreign operations....................... 1,000 5,000 7,000
Other...................................... 4,000 (73,000) 114,000
---------- ---------- -----------
$ (11,000) $1,702,000 $ 2,240,000
========== ========== ===========
Effective income tax rate.................. (0.4)% (74.4)% 41.8%
During 2001, the Company recorded $2,234,000 minimum pension liability and a
full valuation allowance on the related deferred tax asset of $877,000. These
amounts are included in Other Comprehensive Income (Loss) for the year ended
November 30, 2001.
NOTE 4 -- ACCRUED EXPENSES
The Company's accrued expenses consist of the following:
November 30, December 1,
2001 2000
------------ ------------
Accrued payroll and related benefits........ $ 970,000 $ 1,257,000
Accrued pension contributions............... 1,497,000 150,000
Other....................................... 2,064,000 1,211,000
------------ ------------
$ 4,531,000 $ 2,618,000
============ ============
NOTE 5 -- RETIREMENT AND OTHER BENEFIT PLANS
The Company has a non-contributory, defined benefit pension plan and a
contributory, defined contribution profit sharing plan, 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, the Company accrued $400,000 of profit
sharing contribution. During 2001 and 2000, the Company did not accrue for any
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.
November 30, December 1,
2001 2000
------------ ------------
RECONCILIATION OF BENEFIT OBLIGATION:
Benefit obligation at beginning of year ..... $ 11,911,000 $ 12,079,000
Interest cost ............................... 832,000 847,000
Benefit payments ............................ (1,266,000) (1,304,000)
Actuarial (gain) loss ....................... 1,519,000 289,000
------------ ------------
Benefit obligation at end of year ........... $ 12,996,000 $ 11,911,000
============ ============
RECONCILIATION OF FAIR VALUE OF PLAN ASSETS:
Fair value at beginning of year ............. $ 9,747,000 $ 11,075,000
Actual return on plan assets ................ (234,000) (257,000)
Employer contributions ...................... -- 233,000
Benefit payments ............................ (1,266,000) (1,304,000)
------------ ------------
Fair value at end of year ................... $ 8,247,000 $ 9,747,000
============ ============
FUNDED STATUS:
Funded status ............................... $ (4,749,000) $ (2,164,000)
Unrecognized (gain) loss .................... 2,234,000 (256,000)
------------ ------------
Net amount recognized ....................... $ (2,515,000) $ (2,420,000)
============ ============
AMOUNTS RECOGNIZED IN THE CONSOLIDATED
BALANCE SHEET:
Accrued pension cost ........................ $ (4,749,000) $ (2,420,000)
Accumulated other comprehensive loss ........ 2,234,000 --
------------ ------------
Net amount recognized ....................... $ (2,515,000) $ (2,420,000)
============ ============
Net periodic pension expense (income) for the pension plan for the years ended
November 30, 2001, December 1, 2000 and December 3, 1999, are as follows:
Year Ended
-------------------------------------------
November 30, December 1, December 3,
2001 2000 1999
------------ ----------- -----------
Service cost...................... $ -- $ -- $ --
Interest cost..................... 832,000 847,000 812,000
Expected return on assets......... (730,000) (845,000) (823,000)
Amortization of net gain.......... (7,000) (160,000) (36,000)
--------- ---------- ----------
Net periodic pension expense
(income) ....................... $ 95,000 $ (158,000) $ (47,000)
========= ========== ==========
Key weighted-average assumptions used in the measurement of the Company's
defined benefit pension obligation are as follows:
2001 2000 1999
---- ---- ----
Discount rate.............................. 6.00% 7.25% 7.25%
Long term rate of return on assets......... 8.00% 8.00% 8.00%
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
Statement of Financial Accounting Standards No. 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.
November 30, December 1,
2001 2000
------------ -----------
RECONCILIATION OF BENEFIT OBLIGATION:
Benefit obligation at beginning of year ..... $ 747,000 $ 709,000
Service cost ................................ 35,000 34,000
Interest cost ............................... 49,000 51,000
Benefit payments ............................ (78,000) (77,000)
Actuarial (gain) loss ....................... 54,000 30,000
------------ ------------
Benefit obligation at end of year ........... $ 807,000 $ 747,000
============ ============
RECONCILIATION OF FAIR VALUE OF PLAN ASSETS:
Fair value at beginning of year ............ $ -- $ --
Employer contributions ...................... 78,000 77,000
Benefit payments ............................ (78,000) (77,000)
------------ ------------
Fair value at end of year ................... $ -- $ --
============ ============
FUNDED STATUS:
Funded status ............................... $ (807,000) $ (747,000)
Unrecognized gain (loss) .................... (165,000) (228,000)
------------ ------------
Accrued postretirement benefit cost ......... $ (972,000) $ (975,000)
============ ============
AMOUNTS RECOGNIZED IN THE CONSOLIDATED
BALANCE SHEET:
Accrued benefit obligation .................. $ (972,000) $ (975,000)
------------ ------------
Net amount recognized ....................... $ (972,000) $ (975,000)
============ ============
Key weighted-average assumptions used in the measurement of the Company's
postretirement benefit obligation are as follows:
2001 2000 1999
---- ---- ----
Discount rate......................... 6.00% 7.25% 7.25%
For measurement purposes, a 6.3% annual rate of increase in the per capita cost
of covered health care benefits was assumed for 2002. The rate assumed decreased
gradually to 6.0% for 2005 and remains at that level thereafter.
The components of net postretirement expense are as follows:
Year Ended
-----------------------------------------
November 30, December 1, December 3,
2001 2000 1999
------------ ----------- -----------
Service cost....................... $ 35,000 $ 34,000 $ 33,000
Interest cost...................... 49,000 51,000 46,000
Amortization of (gain) loss........ (10,000) (8,000) (6,000)
---------- ---------- ----------
Net periodic postretirement expense $ 74,000 $ 77,000 $ 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 ...................... $ 10,000 $ (8,000)
Effect on postretirement benefit
obligation ........................... 62,000 (52,000)
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 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)
Issuance of treasury shares............. 142,000
------- --------- --------- ---------- ---------- ---------
Balance at November 30, 2001 ........... 810,586 1,281,304 $ 810,000 $1,281,000 $9,084,000 $(185,000)
======= ========= ========= ========== ========== =========
Treasury stock includes 32,914 and 55,000 shares of Class B Common Stock at
November 30, 2001 and December 1, 2000, respectively. During fiscal 2001, 22,086
shares of treasury stock were issued to Directors in lieu of cash payment of
annual non-employee director retainer fees.
The following table reflects the factors used in computing earnings (loss) per
share and the effect on income (loss) and the weighted average number of shares
of dilutive potential common stock.
Year Ended November 30, 2001
-----------------------------------------
(Loss) Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
BASIS EPS
Income (loss) available to
common stockholders ............. $(2,889,000) 2,042,411 $ (1.42)
=========
Effect of dilutive stock
options (a) .................... -- --
----------- ---------
DILUTED EPS
Income (loss) available to common
stockholders and assumed
conversions ..................... $(2,889,000) 2,042,411 $ (1.42)
=========== ========= =========
Year Ended November 30, 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 stock
options (a) ..................... -- --
----------- ---------
DILUTED EPS
Income (loss) available to
common stockholders and
assumed conversions ............. $(3,989,000) 2,041,481 $ (1.95)
=========== ========= =========
Year Ended November 30, 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 stock
options (a) ..................... -- 129,971
----------- ---------
DILUTED EPS
Income available to common
stockholders and assumed
conversions ..................... $ 3,122,000 2,198,480 $ 1.42
=========== ========= =========
(a) Options for 380,729, 335,520, and 195,619 shares of common stock were
outstanding at November 30 2001, December 1, 2000 and December 3, 1999,
respectively, but were not included in computing diluted earnings (loss) per
share in each of the respective periods because their effects were
anti-dilutive. In addition, options for 100,667 and 151,509 shares of common
stock were outstanding at November 30, 2001 and December 1, 2000,
respectively, but were not included in computing diluted earnings per share
because of the net 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 from the standard terms, 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. At November 30, 2001, there were 6,930 options available for grant
under this plan.
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-employee 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 the 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 from the standard terms, 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 November 30,
2001, there were 20,242 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 the 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 from the standard
terms, 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 November 30, 2001, there were 192,475 options available for grant under this
plan.
A summary of the Company's stock option plans as of November 30, 2001, December
1, 2000, and December 3, 1999, and the changes during the years then ended on
those dates are presented below:
Weighted
Number of Average
Options Exercise Price
------- --------------
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
Options granted ............................... 159,500 1.27
Options exercised ............................. -- --
Options expired ............................... (167,330) 6.31
-------
Outstanding at November 30, 2001 .............. 477,739 3.33
=======
Weighted
Number of Average
Options Exercise Price
------- --------------
Exercisable at December 3, 1999 ............... 242,815 $ 5.37
Exercisable at December 1, 2000 ............... 300,170 $ 5.54
Exercisable at November 30, 2001 .............. 215,564 $ 4.94
The following table summarizes information about all stock options outstanding
at November 30, 2001:
Options Outstanding Options Exercisable
------------------------------------------- ------------------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Average
Exercise Of Options Contractual Exercise Number Exercise
Prices Outstanding Life (Years) Price Exercisable Price
------ ----------- ------------ ----- ----------- --------
$ 1.25 - 1.38 148,000 9 $ 1.28 -- $ --
2.17 - 2.38 147,739 1 2.25 49,564 2.16
4.25 - 4.63 73,800 7 4.55 73,800 4.55
5.95 - 6.81 58,200 4 6.25 52,200 6.25
7.12 - 7.75 50,000 3 7.42 40,000 7.40
------- -------
477,739 215,564
======= =======
The options outstanding at November 30, 2001 expire at various times in 2002
through 2010.
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 consistent with the
provisions of FAS 123, the Company's pro forma net income (loss) and earnings
(loss) share would have been as follows:
Year Ended
-------------------------------------------
November 30, December 1, December 3,
2001 2000 1999
------------ ----------- -----------
Net income (loss), as reported $ (2,899,000) $ (3,989,000) $ 3,122,000
Net income (loss), pro forma... (3,034,000) (4,206,000) 3,005,000
Basic EPS, as reported ........ (1.42) (1.95) 1.51
Basic EPS, pro forma .......... (1.49) (2.06) 1.45
Diluted EPS, as reported ...... (1.42) (1.95) 1.42
Diluted EPS, pro forma ........ $ (1.49) $ (2.06) $ 1.37
The weighted average fair value of the options granted during the fiscal years
2001 and 1999 was $1.23 and $4.88 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:
2001 1999
---- ----
Expected life (years) ................... 10 10
Expected stock price volatility.......... 150% 50%
Risk-free interest rate.................. 4.00% 6.07%
At November 30, 2001 and December 1, 2000, 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 November 30, 2001 and December 1,
2000. During 2001 and 2000, no shares were repurchased or issued throughout the
year. At November 30, 2001 and December 1, 2000, 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
---------------------------------------------------
November 30, December 1, December 3,
2001 2000 1999
------------ ------------ ------------
Segment sales to unaffiliated customers:
Plymouth Tapes ............................... $ 57,553,000 $ 66,591,000 $ 68,309,000
Brite-Line Technologies ...................... 8,945,000 7,801,000 9,729,000
------------ ------------ ------------
Consolidated net sales ....................... $ 66,498,000 $ 74,392,000 $ 78,038,000
============ ============ ============
Segment income (loss):
Plymouth Tapes ............................... $ (1,581,000) $ (833,000) $ 5,724,000
Brite-Line Technologies ...................... 895,000 888,000 (93,000)
------------ ------------ ------------
Segment income (loss) ........................ (686,000) 55,000 5,631,000
Insurance settlement ......................... -- -- 1,750,000
------------ ------------ ------------
Consolidated operating income (loss) ......... (686,000) 55,000 7,381,000
Interest expense ............................. (2,298,000) (2,342,000) (2,045,000)
Foreign currency exchange loss ............... (25,000) (110,000) (77,000)
Other income, net ............................ 99,000 110,000 103,000
------------ ------------ ------------
Consolidated income (loss) before tax ........ $ (2,910,000) $ (2,287,000) $ 5,362,000
============ ============ ============
Depreciation and amortization:
Plymouth Tapes ............................... $ 2,967,000 $ 2,717,000 $ 2,452,000
Brite-Line Technologies ...................... 86,000 71,000 42,000
------------ ------------ ------------
Total depreciation and amortization .......... $ 3,053,000 $ 2,788,000 $ 2,494,000
============ ============ ============
Assets:
Plymouth Tapes ............................... $ 44,559,000 $ 47,733,000 $ 50,575,000
Brite-Line Technologies ...................... 4,099,000 3,728,000 4,460,000
------------ ------------ ------------
Total assets ................................. $ 48,658,000 $ 51,461,000 $ 55,035,000
============ ============ ============
Geographic information:
Net sales to unaffiliated customers:
United States ................................ $ 54,800,000 $ 62,385,000 $ 65,795,000
Spain and Portugal ........................... 3,199,000 4,294,000 5,429,000
Other ........................................ 8,499,000 7,713,000 6,814,000
------------ ------------ ------------
Consolidated net sales ....................... $ 66,498,000 $ 74,392,000 $ 78,038,000
============ ============ ============
Long-lived assets:
United States ................................ $ 22,410,000 $ 24,658,000 $ 22,630,000
Spain ........................................ 1,443,000 1,438,000 1,563,000
------------ ------------ ------------
Total long-lived assets ...................... $ 23,853,000 $ 26,096,000 $ 24,193,000
============ ============ ============
The Company has one customer, whose operations are primarily in the automotive
industry, which accounted for 33%, 31% and 32% of net sales in 2001, 2000, and
1999, respectively.
NOTE 9 -- LEASES
Included in Plant Assets in the accompanying Consolidated Balance Sheet is
leased property under capital leases as follows:
November 30, December 1,
2001 2000
------------ -----------
Machinery and equipment.................. $ 3,174,000 $ 3,659,000
Less: Accumulated amortization.......... 1,539,000 1,822,000
----------- -----------
$ 1,635,000 $ 1,837,000
=========== ===========
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 November 30, 2001:
2002.......................................... $ 564,000
2003.......................................... 209,000
2004.......................................... 26,000
Thereafter.................................... --
---------
Total minimum lease payments 799,000
Less: Amount representing interest 43,000
---------
$ 756,000
=========
Minimum annual rentals under noncancelable operating leases (which are
principally for equipment) are as follows:
2002.......................................... $ 612,000
2003.......................................... 581,000
2004.......................................... 549,000
2005.......................................... 296,000
2006.......................................... $ 95,000
Total rental expense for 2001, 2000 and 1999 was $1,071,000, $1,121,000, and
$1,156,000, 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 2001, 2000 and 1999,
consulting fees of $51,700, $51,700, and $61,100, 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. In 2001, 2000 and 1999, consulting fees under this agreement were $0,
$14,100, and $11,400, respectively.
NOTE 11 -- COMMITMENTS AND CONTINGENCIES
The Company has been named as a Potentially Responsible Party by the United
States Environmental Protection Agency in two ongoing claims under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA"). The Company has also received Notices of Responsibility under
Massachusetts General Laws Chapter 21E on two sites in Massachusetts. The
Company has accrued $798,000 as of November 30, 2001 to cover future
environmental expenditures related to these claims, which is net of $447,000
payments made to date. The accrual represents the Company's estimate of the
remaining remediation costs based upon the best information currently available.
Actual future costs may be different from the amount accrued for as of November
30, 2001 and may be affected by various factors, including future testing, the
remediation alternatives taken at the sites, and actual cleanup costs. The final
remediation costs could also be subject to adjustment because of the long term
nature of the cases, legislative changes, insurance coverage, joint and several
liability provisions of CERCLA, and the Company's ability to successfully
negotiate an outcome similar to its previous experience in these matters.
The Company has also received Notices of Responsibility under Massachusetts
General Laws Chapter 21E on three sites at the Company's facilities in Canton,
Massachusetts. In all of these cases, the Company has taken a variety of actions
towards the ultimate cleanup, depending upon the status of each of the sites.
These activities include the retention of an independent Licensed Site
Professional, investigation, assessment, containment, and remediation. The
Company has accrued $284,000 as of November 30, 2001 to cover estimated future
environmental cleanup expenditures, which is net of $877,000 payments made to
date. Actual future costs may be different from the amount accrued for as of
November 30, 2001.
NOTE 12 -- UNAUDITED QUARTERLY FINANCIAL DATA
The following table presents the quarterly information for fiscal 2001 and 2000.
Quarter Ended
---------------------------------------------------------------
March 2 June 1 August 31 November 30
--------- -------- ----------- -------------
2001 (a)
Net sales .......................... $ 15,017,000 $ 18,308,000 $ 16,074,000 $ 17,099,000
Gross profit ....................... 1,192,000 4,074,000 2,664,000 3,766,000
Net income (loss) .................. (2,329,000) 151,000 (842,000) 121,000
Earnings (loss) per share:
Basic ............................ $ (1.14) $ 0.07 $ (0.41) $ 0.06
Diluted .......................... $ (1.14) $ 0.07 $ (0.41) $ 0.06
March 3 June 2 September 1 December 1
--------- -------- ----------- -------------
2000 (b)
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)
(a) Sales in the first and third quarters of 2001 in Plymouth Tapes were reduced due to normal seasonal
fluctuations. Sales in the first quarter of 2001 in Plymouth Tapes were also reduced due to weak sales
in the automotive market. In addition, sales for the first quarter of 2001 for Brite-Line Technologies
were reduced due to the highly seasonal nature of the highway market segment. Net loss for the first
and third quarters of 2001 was increased due to lower margins at Plymouth Tapes, resulting from
decreased production volumes from both lower sales and reductions in inventory. Net loss for the first
quarter of 2001 was also increased due to lower margins at Brite-Line and lower margins on foreign
sales.
(b) 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 loss for the fourth
quarter of 2000 was increased due to a $1.7 million tax expense, due primarily to an increase in
deferred tax valuation allowance of $2.4 million.
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 November 30, 2001.
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 November
30, 2001.
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 November
30, 2001.
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 November
30, 2001.
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 13.
(A)2. Financial statement schedules required as part of this report are listed
in the index appearing on page 13.
(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 JOSEPH J. BERNS
-----------------------------
Joseph J. Berns
Vice President - Finance and Treasurer
Date: March 1, 2002
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 March 1, 2002.
President and Co-Chief
MAURICE J. HAMILBURG Executive Officer and Director
- --------------------------------
Maurice J. Hamilburg
Chairman and Co-Chief
JOSEPH D. HAMILBURG Executive Officer and Director
- --------------------------------
Joseph D. Hamilburg
C. GERALD GOLDSMITH Director
- --------------------------------
C. Gerald Goldsmith
JANE H. GUY Director
- --------------------------------
Jane H. Guy
MELVIN L. KEATING Director
- --------------------------------
Melvin L. Keating
SUMNER KAUFMAN Director
- --------------------------------
Sumner Kaufman
JAMES M. OATES Director
- --------------------------------
James M. Oates
EDWARD PENDERGAST Director
- --------------------------------
Edward Pendergast
DUANE E. WHEELER Director
- --------------------------------
Duane E. Wheeler
Vice President - Finance
and Treasurer (Principal
Financial Officer and
JOSEPH J. BERNS Principal Accounting Officer)
- --------------------------------
Joseph J. Berns
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 Year to Income of recoveries of Year
------------ ----------- ------------- ---------
Allowance for doubtful accounts
Year ended November 30, 2001........... $ 331,000 $ 101,000 $ (10,000) $ 422,000
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
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.