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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 29, 2002 1-5197
----------------- ------
PLYMOUTH RUBBER COMPANY, INC.
-----------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-1733970
- --------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
104 Revere Street, Canton, Massachusetts 02021
- ---------------------------------------- ----------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (781) 828-0220
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Securities registered pursuant to
Section 12(b) of the Act: Name of each exchange on
Title of each class Which registered
- ---------------------------------- -----------------------
Class A Common Stock, par value $1 American Stock Exchange
Class B Common Stock, par value $1 American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 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 13, 2003, 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 28, 2003 (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%, 33% and 31%
of the Company's net sales in 2002, 2001 and 2000, 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.
The Company files its annual report on Form 10-K, quarterly reports on Form
10-Q, and current reports on Form 8-K with the Securities and Exchange
Commission (the "SEC"). The Company reports filed with the SEC are available at
the SEC's website at www.sec.gov.
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 2.24% 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
29, 2002, management has accrued $437,000 as a reserve against the Company's
potential future liability in this matter, which is net of approximately
$289,000 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 $660,000. 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 $240,000, 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 $70,000, 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 56 1987
Joseph D. Hamilburg Chairman and Co - Chief Executive
Officer and Director 54 1998
Fiore D. DiGiovine VP - Mfg. Development 75 1987
Alan I. Eisenberg VP - Sales & Marketing 52 1988 & 1986
Sheldon S. Leppo VP - Research & Development 68 1970
Joseph J. Berns VP - Finance and Treasurer 56 1997 & 1998
Thomas L. McCarthy VP - Manufacturing 42 1999
Kevin H. White VP - Brite-Line Technologies 52 2002
David M. Kozol Clerk and Secretary 44 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.
Mr. Kevin H. White joined the Company in October 1996. Form 1996 to 2001 he
served as Director, Sales and Marketing Brite-Line Technologies and was
appointed VP-Brite-Line Technologies in 2002.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
(a) PRICE RANGE OF COMMON STOCK
The Company's Class A and Class B common stock is traded on the American Stock
Exchange ("AMEX") under the symbols PLRA and PLRB. 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 - 2002 Quarter - 2001
First............. $ 1.60 $ 1.20 $ 1.20 $ 0.75 First.......... $ 8.38 $ 5.94 $ 3.44 $ 2.40
Second............ 1.65 1.30 1.30 0.80 Second......... 6.35 0.80 2.81 0.80
Third............. 2.20 1.30 2.15 1.00 Third.......... 2.24 1.50 1.80 1.40
Fourth............ 1.48 1.15 1.34 0.90 Fourth......... 1.70 0.75 1.50 0.75
(b) APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS
As of February 3, 2003, the approximate number of holders of each class of
equity securities of the Company was:
Title of Class Number of Holders
-------------- -----------------
Class A voting common stock $1.00 par value.......... 220
Class B non-voting common stock $1.00 par value...... 250
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.
(d) EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth a summary of the Company's equity compensation
plans as of November 29, 2002. Details of the plans are discussed in Note 7 to
the Consolidated Financial Statements.
Number of Weighed
securities to be average
issued upon exercise Number of
exercise price of securities
outstanding outstanding remaining available
options options for future issuance
-------------- ----------- -------------------
Stock option plans
approved by shareholders .. 507,300 $2.75 142,942
Stock option plans subject
to shareholder approval at
the 2003 Annual Meeting ... 84,000 $0.90 96,000
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591,300 $2.49 238,942
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ITEM 6. SELECTED FINANCIAL DATA
Fiscal Years
-------------------------------------------------------------------
2002 2001 2000 1999 1998
------ ------ ------ ------ ------
SELECTED INCOME STATEMENT DATA:
Net Sales $ 65,259,000 $ 66,498,000 $ 74,392,000 $ 78,038,000 $69,390,000
Income (loss) from operations $ 101,000 $ (2,899,000) $ (3,989,000) $ 3,122,000 $ 1,838,000
Per Share Data:
Net income (loss) per share
(diluted) $ 0.05 $ (1.42) $ (1.95) $ 1.42 $ 0.84
Weighted average shares outstanding 2,105,857 2,042,411 2,041,481 2,198,480 2,200,406
SELECTED BALANCE SHEET DATA (AS OF YEAR END):
Total Assets $ 46,246,000 $ 48,658,000 $ 51,461,000 $ 55,035,000 $50,701,000
Long Term Liabilities $ 16,817,000 $ 6,815,000 $ 6,318,000 $ 16,000,000 $16,919,000
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FISCAL YEAR 2002 COMPARED WITH FISCAL YEAR 2001
Sales decreased 1.9% to $65,259,000 in 2002 from $66,498,000 in 2001. Sales at
Plymouth Tapes decreased 2.3% to $56,237,000 from $57,553,000 last year. The
largest decrease was in the contractor industrial and OEM markets, where sales
decreased 12.0% from 2001, largely because of the continued economic slowdown.
Sales in the automotive market decreased 1.5%, reflecting relatively stable
demand from Plymouth's automotive customers. Sales at Brite-Line Technologies
increased 0.9% to $9,022,000, from $8,945,000 in 2001.
Gross margin increased to 20.7% in 2002 from 17.6% in 2001. Plymouth Tapes'
gross margin increased to 19.1% in 2002 from 15.7% in 2001. The major factors
driving this increase were (1) lower manufacturing spending, which was
approximately $700,000 favorable compared to 2001, and (2) lower raw material
purchase prices for 2002, primarily for PVC resins, accounting for
approximately $600,000 of favorable margin. At Brite-Line Technologies, gross
margin increased to 31.1% in 2002 from 30.1% in 2001, as a result of improved
manufacturing overhead absorption and improved manufacturing yields.
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 18.0% in 2002 from 18.6% in 2001. At Plymouth Tapes, selling,
general and administrative expenses, as a percentage of sales, decreased to
17.9% in 2002 from 18.4% in 2001, although total selling, general and
administrative expenses decreased 4.8% to $10,081,000 from $10,589,000 in 2001.
The major contributors to the lower amount were a $653,000 decrease in salaries
and fringe benefits due to headcount and salary reductions, a $118,000
reduction in freight, and a $85,000 decrease in depreciation and amortization.
These reductions were partially offset by a $141,000 recognition of deferred
compensation expenses, a $173,000 loss on the cash surrender value of officer
life insurance, and an $86,000 increased freight loss as described below.
In February, 2002, KM Logistics, a third party freight audit and payment
service provider, filed for Chapter 11 bankruptcy protection, and subsequently
Chapter 7 bankruptcy, while holding approximately $286,000 of Company funds
intended to reimburse the Company's freight carriers for normal services.
Approximately $100,000 of these payments had been made to KM Logistics prior to
fiscal 2001 year-end; this charge was included as a selling, general and
administrative expense at Plymouth Tapes in the fourth quarter of fiscal 2001.
The remaining $186,000 was recorded in fiscal 2002.
At Brite-Line, selling, general and administrative expenses, as a percentage of
sales, decreased to 18.7% in 2002 from 20.0% in 2001. The largest factors were
reductions in freight ($76,000), applicator equipment ($45,000), travel
($30,000), and advertising ($27,000).
Interest expense in 2002 decreased 11.8% to $2,026,000 from $2,298,000 in 2001,
because of lower interest rates and loan balances on the Company's borrowings
under the revolving working capital facility. Foreign currency exchange gain
was $64,000 in 2002 compared to a foreign currency exchange loss of $25,000 in
2001. Other income was $178,000 in 2002, due to a $131,000 gain on the sale of
equipment and $44,000 of miscellaneous income, compared to $99,000 in 2001,
which included non-recurring rental income of $35,000, a $25,000 gain on the
sale of securities, and other net income items of $39,000.
The pre-tax loss for 2002 was $24,000, compared to a pre-tax loss of $2,910,000
in 2001. The net profit was $101,000 in 2002, compared to a net loss of
$2,899,000 in 2001. In 2002, a $187,000 tax benefit was recorded for the
Company's domestic operations, to recognize a tax refund resulting from a
change in a U.S. tax law, and a $62,000 tax expense was recorded for the
Company's Spanish subsidiary.
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 11.4% of the Company's revenues in
fiscal 2002. The functional currency of this subsidiary was the Peseta and is
the Euro in 2002. Changes in the 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 2002 and 2001 and did not have any
forward contracts outstanding at the end of 2002 and 2001.
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 in 2000. 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 were incurred and recorded in both
Plymouth Tapes and Brite-Line Technologies. Certain of the selling, general and
administrative expenses recorded in Plymouth Tapes could have been considered
as incurred for the benefit of Brite-Line, but were not allocated to that
segment. These expenses 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 was included as a selling,
general and administrative expense at Plymouth Tapes in the fourth quarter of
fiscal 2001. A loss of approximately $200,000 was to be recorded in the first
quarter of fiscal 2002 for the funds remitted to KM Logistics after November
30, 2001. The Company planned 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, and other net income items of $39,000, 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 provided significant negative evidence regarding its ability to generate
sufficient taxable income in the future to realize this benefit.
LIQUIDITY AND CAPITAL RESOURCES
Prior to December, 2002, the Company's term debt agreements had contained
various covenants specifying certain financial requirements, including minimum
tangible net worth, fixed charge and EBITDA coverage ratios, 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 determines that an
event of default has occurred.
As of each quarter end from September 1, 2000 through August 30, 2002, the
Company had been in violation of certain covenants of its term debt facility
and therefore, due to a cross default provision, the Company had not been in
compliance with a covenant under its revolving working capital credit facility
and real estate term loan. As a result, all of the Company's term loans (except
for that of its Spanish subsidiary) had been classified as current liabilities
on the Company's Consolidated Balance Sheet at the end of each fiscal quarter
end. In addition, during July 2002, the Company received a demand from its
primary term debt lender for the payment of their outstanding loan balances in
the amount of $8,658,000, which represented the total of all future payments
and accumulated late fees, and a demand letter from a smaller equipment lender
for approximately $69,000 of payments due.
During 2002, the Company negotiated with these lenders and, in November, 2002,
reached formal agreement to obtain relief from their demands and to restructure
existing term debt facilities. Under the new arrangements, the term debt
lenders accepted significantly reduced principal payments over the next three
years, eliminated financial covenants, waived existing defaults and rescinded
demands for accelerated payment, in return for enhanced collateral positions.
As of November 29, 2002, the Company had approximately $1,200,000 of unused
borrowing capacity under its revolving line of credit with its primary working
capital lender, after consideration of collateral limitations.
The Company's working capital position improved from a negative $13,661,000 at
November 30, 2001 to a negative $2,339,000 at November 29, 2002, due to an
$8,686,000 decrease in the current portion of long term borrowings, a
$2,439,000 decrease in accounts payable, a $1,024,000 increase in inventory, a
$212,000 increase in prepaid and other current assets, a $153,000 decrease in
short term debt, a $49,000 decrease in accrued expenses and a $30,000 increase
in cash, partially offset by a $1,271,000 decrease in accounts receivable.
During the second quarter of 2002, the Company received a funding waiver from
the Internal Revenue Service for the $855,000 payment due to its defined
benefit plan for the year ended November 30, 2001, conditioned on the Company
satisfying the minimum funding requirements for the plan years ending November
30, 2002 and November 30, 2003. The Company had notified the Pension Benefit
Guarantee Corporation that the Company intended to make the $1,262,000
contribution for the plan year ending November 30, 2002 by the final due date
of August 15, 2003, instead of on a quarterly basis. During the first quarter
of 2003, the Company requested a partial funding waiver from the Internal
Revenue Service for $1,030,000 of the $1,262,000 payment due for the plan year
ending November 30, 2002.
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 $2,339,000, the funding requirement for the defined benefit plan of
$1,262,000 for the plan year ending November 30, 2002, the lack of sales
growth, and the overall risks associated with the fiscal 2003 plan 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 uncertainty.
It is management's belief that cash flows generated from operations and
available incremental borrowings will be sufficient to meet the Company's
liquidity needs during fiscal 2003. Management has also identified a number of
additional expense reductions possible in 2003, including the deferral of
certain planned personnel replacements or additions, the deferral of certain
planned marketing expenses, reduced product costs through materials
substitutions, and decreased usage of certain operating supplies. 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. Failure to accomplish these plans could have an adverse
impact on the Company's liquidity, financial position, and ability to continue
operations.
Cash provided by operating activities was $1,291,000 in 2002, as compared to
cash provided of $3,132,000 in 2001. The major factors contributing to cash
provided by operating activities were depreciation and amortization of
$2,973,000, a decrease in accounts receivable of $1,488,000, a $319,000
increase in pension obligation, an increase in accrued expenses of $239,000,
and net income of $101,000, partially offset by a decrease in accounts payable
of $2,565,000, an increase in inventory of $866,000, a $210,000 increase in
prepaid expenses, a $131,000 gain on the disposal of plant assets, a $26,000
increase in other assets, and a $103,000 decrease in other liabilities. This
operating cash flow, additional short term borrowings of $35,000, and cash
provided through the sale of plant assets and sale/leaseback of plant assets
totaling $191,000 were used to pay off term debt and capital leases of
$1,049,000, and for capital expenditures of $376,000.
Cash generated from operating activities was $3,132,000 in 2001, as compared to
$2,955,000 in 2000. The major factors contributing to cash from operating
activities were a decrease in inventory of $3,371,000, largely at Plymouth
Tapes, depreciation and amortization of $3,053,000, an increase in accounts
payable of $1,590,000, an increase in accrued expenses of $568,000, a $95,000
increase in pension obligations, a decrease in prepaid expenses of $150,000, an
increase in environmental reserves of $89,000, and $84,000 of other increases
in cash, partially offset by a net loss of $2,899,000, and an increase in
accounts receivable of $2,930,000, and an increase in other assets of $39,000.
This operating cash flow was used to pay off term debt and capital leases of
$2,138,000, to reduce borrowings under the Company's revolving line of credit
by $338,000, and for capital expenditures of $644,000.
During the first quarter of 2001 and the third quarter of 2002, 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).
In 2001 the Company met with AMEX representatives and believes that it meets the
minimum number of public Class A stockholders. The Company is reviewing various
options regarding the aggregate market value of the publicly held Class A
common stock.
A summary of the Company's cash requirements related to its outstanding long
term debt and future minimum lease payments is as follows:
Operating
Lease
Fiscal Year: Long Term Debt Commitments Total
-------------- ----------- -----------
2003.............. $ 1,536,000 $ 556,000 $ 2,092,000
2004.............. 1,630,000 535,000 2,165,000
2005 ............. 5,771,000 296,000 6,067,000
2006 ............. 606,000 95,000 701,000
2007 ............. 663,000 -- 663,000
Thereafter ....... 302,000 -- 302,000
----------- ---------- -----------
Total................. $10,508,000 $1,482,000 $11,990,000
=========== ========== ===========
CRITICAL ACCOUNTING POLICIES
The Company's significant accounting policies are discussed in Note 1 to the
Consolidated Financial Statements. Certain accounting policies are important to
the portrayal of the Company's financial condition and results of operations,
and require management's subjective judgments. These policies relate to the
deferred tax asset valuation allowance, inventory reserves, provision for
doubtful accounts receivable and impairment of long lived assets.
Recognition of a deferred tax asset is dependent on generating sufficient
future taxable income prior to the expiration of the tax loss or credit
carryforward. The Company has taken a full valuation allowance for this tax
benefit in accordance with the Statement of Financial Accounting Standards No.
109 "Accounting for Income Taxes". Should the Company's liquidity situation
improve, the amount of the deferred tax asset considered realizable could be
increased and could result in a credit to income tax expense in the period such
determination was made.
The Company writes down its inventory for estimated obsolescence or
unmarketable inventory based upon the difference between the cost of the
inventory and the estimated net realizable value, based upon assumptions about
future demand and market pricing. If actual market conditions are less
favorable than those projected by management, additional inventory write-downs
may be required.
The Company periodically reviews the aging of accounts receivable to identify
potentially uncollectible accounts and establishes a reserve based on
experience and discussion with customers. Actual write-offs could differ from
bad debt reserves.
The Company reviews long-lived assets annually or whenever events of
circumstances indicate that the carrying amounts of the asset may not be
recoverable in accordance with SFAS No.121. Impaired assets are written down to
their estimated fair value based on the best information available to the
Company.
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 $774,000 as of November 29, 2002 to cover future
environmental expenditures related to these claims, which is net of $471,000
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 29, 2002 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 $310,000 as of November 29, 2002 to cover estimated future
environmental cleanup expenditures, which is net of $928,000 payments made to
date. Actual future costs may be different from the amount accrued for as of
November 29, 2002.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
In April 2002, the Financial Accounting Standards Board ("FASB") issued
Statement No. 145 (FAS 145), Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical Corrections. FAS 145 rescinds
FAS 4, Reporting Gains and Losses from Extinguishment of Debt, FAS 44,
accounting for Intangible Assets of Motor Carriers, and FAS 64 (an amendment of
FAS 4), Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. FAS
145 eliminates the requirement that gains and losses from the extinguishment of
debt be aggregated and, if material, classified as an extraordinary item, net
of the related income tax effect. However, an entity would not be prohibited
from classifying such gains and losses as extraordinary items so long as they
are both unusual in nature and infrequent in occurrence. This provision will be
effective for fiscal years beginning after December 15, 2002. FAS 145 also
amends FAS 13, Accounting for Leases, to eliminate an inconsistency between the
required accounting for sale-leaseback transactions and the required accounting
for certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. The amendment to FAS 13 and other technical
amendments will be effective for all transactions occurring and financial
statements issued after May 15, 2002. The Company is in the process of
assessing the impact of the adoption of FAS 145.
In June 2002, the FASB issued Statement No. 146 (FAS 146), Accounting for Costs
Associated with Exit or Disposal Activities, which eliminates Emerging Issues
Task Force (EITF) Issue No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring). FAS 146 applies to costs associated with an
exit activity including:(a) termination benefits provided to current employees
that are involuntarily terminated under the terms of a benefit arrangement that
is not an ongoing benefit arrangement or an individual deferred compensation
contract (one-time termination benefit); (b) costs to terminate a contract that
is not a capital lease; and (c) costs to consolidate facilities or relocate
employees. FAS 146 requires that these liabilities be recognized and measured
initially at fair value in the period in which the liability is incurred. If
fair value cannot be reasonably estimated, the liability shall be recognized
initially in the period in which fair value can be reasonably estimated. The
provisions on FAS 146 will be effective for the Company prospectively for exit
or disposal activities initiated after December 31, 2002. The Company is in the
process of assessing the impact of the adoption of FAS 146.
In November 2002, the FASB issued Interpretation No. 45 ("FIN 45"), Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others (an interpretation of FASB Statements No.
5, 57, and 107 and rescission of FASB Interpretation No. 34). FIN 45 clarifies
the requirements of the FASB Statement No. 5 (FAS 5), Accounting for
Contingencies, relating to a guarantor's accounting for, and disclosure of, the
issuance of certain types of guarantees. FIN 45 requires that upon issuance of
a guarantee, the guarantor must recognize a liability for the fair value of the
obligation it assumes under that guarantee. Many guarantees are embedded in
purchase or sales agreements, service contracts, joint venture agreements, or
other commercial agreements and the guarantor in many of those arrangements
does not receive separately identifiable up-front payment (e.g., a premium) for
issuing the guarantee. Prior to FIN 45, many guarantors did not recognize an
initial liability for such embedded guarantees. Now, however, they are required
to recognize a liability at fair value upon issuance of the guarantees,
regardless of whether they receive a separate premium for doing so. The
Interpretation is intended to improve the comparability of financial reporting
by requiring identical accounting for guarantees issued with a separately
identified premium and guarantees issued without a separately identified
premium. For guarantees issued or modified after December 31, 2002, significant
new disclosure requirements are effective beginning with 2002 calendar year-end
financial statements, including a requirement to disclose the maximum amount of
future payments that an entity might need to make under a guarantee and a
reconciliation of during the period in their product warranty liabilities. The
Company is in the process of assessing the impact of the adoption of FIN 45.
On December 31, 2002, the FASB issued Statement of Financial Accounting
Standards No. 148, Accounting for Stock-Based Compensation -- Transition and
Disclosure -- an amendment of FAS 123 (FAS 148). As the title of the standard
implies, it is fairly limited in its scope, however it will have implications
for all entities that issue stock-based compensation to their employees. This
Statement amends FASB Statement No. 123, Accounting for Stock-Based
Compensation, to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure requirements of
Statement 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. This
Statement permits two additional transition methods for entities that adopt the
preferable method of accounting for stock-based employee compensation. Both of
those methods avoid the ramp-up effect arising from prospective application of
the fair value based method. In addition, to address concerns raised by some
constituents about the lack of comparability caused by multiple transition
methods, this Statement does not permit the use of the original Statement 123
prospective method of transition for changes to the fair value based method
made in fiscal years beginning after December 15, 2003. The Company is in the
process of assessing the impact of the adoption of FAS 148.
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, risk of the
Company's working capital lender and real estate lender demanding payment of
outstanding balances, 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 29, 2002, the carrying value of Company's debt totaled $23.8
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 29, 2002, the Company had fixed rate debt of $9.8 million and
variable rate debt of $14.0 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 $228,000. 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 SCHEDULE
PAGE
Report of Independent Accountants ...................................... 15
Consolidated Balance Sheet at November 29, 2002 and November 30, 2001 .. 16 - 17
Consolidated Statement of Operations and Retained Earnings (Deficit)
for each of the three years in the period ended November 29, 2002 ... 18
Consolidated Statement of Comprehensive Income (Loss) for each of
the three years in the period ended November 29, 2002 ............... 19
Consolidated Statement of Cash Flows for each of the three years
in the period ended November 29, 2002 ................................ 20
Notes to Consolidated Financial Statements ............................. 21 - 41
Reserves (Schedule II) ................................................. 47
The financial statement schedule should be read in conjunction with the
financial statements. Schedules not included with this financial data have been
omitted because they are not applicable or the required information is shown in
the financial statements or notes thereto.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Plymouth Rubber Company, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and retained earnings (deficit),
comprehensive income (loss) and cash flows present fairly, in all material
respects, the financial position of Plymouth Rubber Company, Inc. and its
subsidiaries at November 29, 2002 and November 30, 2001, and the results of
their operations and their cash flows for each of the three years in the period
ended November 29, 2002 in conformity with accounting principles generally
accepted in the United States of America. In addition, in our opinion, the
financial statement schedule listed in the accompanying index presents 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 schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedule 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 included any adjustments that might result from the
outcome of this uncertainty.
Boston, Massachusetts
February 12, 2003
PLYMOUTH RUBBER COMPANY, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
November 29, November 30,
2002 2001
------------ ------------
Cash ................................... $ 37,000 $ 7,000
Accounts receivable, less allowance for
doubtful accounts of $397,000 and
$422,000 at November 29, 2002 and
November 30, 2001, respectively ...... 11,366,000 12,637,000
Inventories:
Raw materials ........................ 3,481,000 3,540,000
Work in process ...................... 1,799,000 1,870,000
Finished goods ....................... 6,361,000 5,207,000
------------ ------------
Total inventories .................... 11,641,000 10,617,000
------------ ------------
Prepaid expenses and other current assets 984,000 772,000
------------ ------------
Total current assets ................. 24,028,000 24,033,000
------------ ------------
PLANT ASSETS:
Land ................................ 551,000 505,000
Buildings ........................... 6,371,000 6,263,000
Machinery and equipment ............. 40,697,000 40,886,000
Construction in progress ............ 8,000 --
------------ ------------
47,627,000 47,654,000
Less: Accumulated depreciation ..... (26,199,000) (23,801,000)
------------ ------------
Total plant assets, net ........... 21,428,000 23,853,000
------------ ------------
Other long-term assets ............... 790,000 772,000
------------ ------------
$ 46,246,000 $ 48,658,000
============ ============
The accompanying notes
are an integral part of these Consolidated Financial Statements.
PLYMOUTH RUBBER COMPANY, INC.
CONSOLIDATED BALANCE SHEET -- (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
November 29, November 30,
2002 2001
------------ ------------
CURRENT LIABILITIES:
Revolving line of credit ............... $ 13,314,000 $ 13,467,000
Trade accounts payable ................. 7,035,000 9,474,000
Accrued expenses ....................... 4,482,000 4,531,000
Current portion of long-term borrowings 1,536,000 10,222,000
------------ ------------
Total current liabilities ............ 26,367,000 37,694,000
------------ ------------
LONG-TERM LIABILITIES:
Borrowings ............................. 8,972,000 830,000
Pension obligation ..................... 5,115,000 3,253,000
Deferred tax liability ................. 119,000 107,000
Other .................................. 2,611,000 2,625,000
------------ ------------
Total long-term liabilities .......... 16,817,000 6,815,000
------------ ------------
COMMITMENTS AND CONTINGENCIES
(Notes 2, 9 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 29, 2002 and November
30, 2001 ............................. 810,000 810,000
Class B non-voting common stock, $1 par
value, 3,500,000 shares authorized,
1,281,304 shares issued and 1,248,390
shares outstanding at November 29,
2002 and November 30, 2001 ........... 1,281,000 1,281,000
Paid-in capital ........................ 9,084,000 9,084,000
Retained earnings (deficit) ............ (4,227,000) (4,328,000)
Accumulated other comprehensive loss:
Cumulative translation adjustment .... (171,000) (279,000)
Minimum pension liability, net of tax (3,530,000) (2,234,000)
------------ ------------
3,247,000 4,334,000
Less: Treasury stock at cost (32,914
shares at November 29, 2002 and
November 30, 2001) ................... (185,000) (185,000)
------------ ------------
3,062,000 4,149,000
------------ ------------
$ 46,246,000 $ 48,658,000
============ ============
The accompanying notes
are an integral part of these Consolidated Financial Statements.
PLYMOUTH RUBBER COMPANY, INC.
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
Year Ended
----------------------------------------------------
November 29, November 30, December 1,
2002 2001 2000
------------ ------------ -----------
Revenues:
Net sales ................................................ $ 65,259,000 $ 66,498,000 $ 74,392,000
------------ ------------ ------------
Costs and Expenses:
Cost of products sold .................................... 51,729,000 54,802,000 60,153,000
Selling, general and administrative ...................... 11,770,000 12,382,000 14,184,000
------------ ------------ ------------
63,499,000 67,184,000 74,337,000
------------ ------------ ------------
Operating income (loss) .................................... 1,760,000 (686,000) 55,000
Interest expense ........................................... (2,026,000) (2,298,000) (2,342,000)
Foreign currency exchange gain (loss) ...................... 64,000 (25,000) (110,000)
Other income, net .......................................... 178,000 99,000 110,000
------------ ------------ ------------
Loss before income taxes ................................... (24,000) (2,910,000) (2,287,000)
Provision for (benefit from) income taxes .................. (125,000) (11,000) 1,702,000
------------ ------------ ------------
Net income (loss) .......................................... 101,000 (2,899,000) (3,989,000)
Retained earnings (deficit) at beginning of year ........... (4,328,000) (1,311,000) 2,678,000
Treasury stock issued ...................................... -- (118,000) --
------------ ------------ ------------
Retained earnings (deficit) at end of year ................. $ (4,227,000) $ (4,328,000) $ (1,311,000)
============ ============ ============
PER SHARE DATA:
BASIC EARNINGS (LOSS) PER SHARE:
Net income (loss) ........................................ $ 0.05 $ (1.42) $ (1.95)
============ ============ ============
Weighted average number of shares outstanding ............ 2,058,976 2,042,411 2,041,481
============ ============ ============
DILUTED EARNINGS (LOSS) PER SHARE:
Net income (loss) ........................................ $ 0.05 $ (1.42) $ (1.95)
============ ============ ============
Weighted average number of shares outstanding ............ 2,105,857 2,042,411 2,041,481
============ ============ ============
The accompanying notes
are an integral part of these Consolidated Financial Statements.
PLYMOUTH RUBBER COMPANY, INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
Year Ended
----------------------------------------------------
November 29, November 30, December 1,
2002 2001 2000
------------ ------------ -----------
Net income (loss) .......................................... $ 101,000 $ (2,899,000) $ (3,989,000)
------------ ------------ ------------
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments ............... 108,000 12,000 (112,000)
Minimum pension liability adjustment ................... (1,296,000) (2,234,000) --
------------ ------------ ------------
Other comprehensive income (loss) .......................... (1,188,000) (2,222,000) (112,000)
------------ ------------ ------------
Comprehensive income (loss) ................................ $ (1,087,000) $ (5,121,000) $ (4,101,000)
============ ============ ============
The accompanying notes
are an integral part of these Consolidated Financial Statements.
PLYMOUTH RUBBER COMPANY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended
----------------------------------------------------
November 29, November 30, December 1,
2002 2001 2000
------------ ------------ -----------
CASH FLOWS RELATING TO OPERATING ACTIVITIES:
Net income (loss) ........................................ $ 101,000 $ (2,899,000) $ (3,989,000)
Adjustments to reconcile net income (loss), to
net cash provided by operating activities:
Depreciation and amortization .......................... 2,973,000 3,053,000 2,788,000
Gain on disposal of plant assets ....................... (131,000) -- --
Provision for environmental reserves ................... 72,000 89,000 351,000
Deferred income tax expense ............................ -- -- 2,378,000
Amortization of deferred compensation .................. -- 38,000 38,000
Other .................................................. -- 24,000 --
Changes in assets and liabilities:
Accounts receivable .................................... 1,488,000 (2,930,000) 2,148,000
Inventory .............................................. (866,000) 3,371,000 490,000
Prepaid expenses and other current assets .............. (210,000) 150,000 (16,000)
Other assets ........................................... (26,000) (39,000) 88,000
Trade accounts payable ................................. (2,565,000) 1,590,000 1,007,000
Accrued expenses ....................................... 239,000 568,000 (1,748,000)
Other liabilities ...................................... (103,000) 22,000 (189,000)
Pension obligation ..................................... 319,000 95,000 (391,000)
------------ ------------ ------------
Net cash provided by operating activities .................. 1,291,000 3,132,000 2,955,000
------------ ------------ ------------
CASH FLOWS RELATING TO INVESTING ACTIVITIES:
Capital expenditures ..................................... (376,000) (644,000) (4,827,000)
Proceeds from sale of plant assets ....................... 131,000 -- --
Sale/leaseback of plant assets ........................... 60,000 -- --
------------ ------------ ------------
Net cash used in investing activities ...................... (185,000) (644,000) (4,827,000)
------------ ------------ ------------
CASH FLOWS RELATING TO FINANCING ACTIVITIES:
Net (decrease )increase in revolving line of credit ...... 35,000 (338,000) 1,112,000
Proceeds from term debt .................................. -- -- 4,095,000
Payments of term debt .................................... (869,000) (1,677,000) (2,814,000)
Payments on capital leases ............................... (180,000) (461,000) (504,000)
Payments on treasury stock purchase ...................... -- -- (68,000)
Proceeds from exercises of options ....................... -- -- 2,000
------------ ------------ ------------
Net cash provided by (used in) financing activities ........ (1,014,000) (2,476,000) 1,823,000
------------ ------------ ------------
Effect of exchange rate changes on cash .................... (62,000) (9,000) 53,000
------------ ------------ ------------
Net change in cash ......................................... 30,000 3,000 4,000
Cash at the beginning of the year .......................... 7,000 4,000 --
------------ ------------ ------------
Cash at the end of the year ................................ $ 37,000 $ 7,000 $ 4,000
============ ============ ============
Supplemental Disclosure of Cash Flow Information
Cash paid for interest ..................................... $ 2,042,000 $ 2,157,000 $ 2,367,000
============ ============ ============
Cash paid for income taxes ................................. $ 44,000 $ 16,000 $ 431,000
============ ============ ============
The accompanying notes
are an integral part of these Consolidated 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 for purchased assets and at
the lesser of the present value of minimum lease payments or fair value for
capital lease assets. 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. Capital leases are depreciated over the shorter of the estimated
useful life or the life of the lease. The cost and related accumulated
depreciation of fully depreciated and disposed assets are removed from the
accounts. The Company reviews long-lived assets annually or whenever events
of circumstances indicate that the carrying amounts of the asset may not be
recoverable in accordance with SFAS No. 121. Any impaired assets are written
down to their estimated fair value based on the best information available
to the Company. The Company wrote off approximately $0.8 million and $1.1
million of fully depreciated plant assets in 2002 and 2001, 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 11.4% of the
Company's revenues in fiscal 2002. The functional currency of this
subsidiary is the Euro. The balance sheet is translated at year end
exchange rates and the statement of operations at weighted average exchange
rates. Changes in the Euro 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 $2,409,000, $2,603,000 and $2,952,000 in 2002, 2001 and 2000,
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 29, 2002, and November 30, 2001.
O. USE OF ESTIMATES -- The preparation of consolidated 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 requires 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 was
adopted by the Company effective December 1, 2001. As of November 29, 2002,
the Company had unamortized goodwill of approximately $402,000, which is
subject to the provisions of FAS 142. The adoption of these standards did
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.
T. STATEMENT OF FINANCIAL ACCOUNTING STATEMENT NO. 145--In April 2002, the
FASB issued Statement No. 145 (FAS 145), Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. FAS 145 rescinds FAS 4, Reporting Gains and Losses from
Extinguishment of Debt, FAS 44, accounting for Intangible Assets of Motor
Carriers, and FAS 64 (an amendment of FAS 4), Extinguishments of Debt Made
to Satisfy Sinking-Fund Requirements. FAS 145 eliminates the requirement
that gains and losses from the extinguishment of debt be aggregated and, if
material, classified as an extraordinary item, net of the related income
tax effect. However, an entity would not be prohibited from classifying
such gains and losses as extraordinary items so long as they are both
unusual in nature and infrequent in occurrence. This provision will be
effective for fiscal years beginning after December 15, 2002. FAS 145 also
amends FAS 13, Accounting for Leases, to eliminate an inconsistency between
the required accounting for sale-leaseback transactions and the required
accounting for certain lease modifications that have economic effects that
are similar to sale-leaseback transactions. The amendment to FAS 13 and
other technical amendments will be effective for all transactions occurring
and financial statements issued after May 15, 2002. The Company is in the
process of assessing the impact of the adoption of FAS 145.
U. ACCOUNTING FOR COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES--In June
2002, the FASB issued Statement No. 146 (FAS 146), Accounting for Costs
Associated with Exit or Disposal Activities, which eliminates Emerging
Issues Task Force (EITF) Issue No. 94-3, Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring). FAS 146 applies to
costs associated with an exit activity including:(a) termination benefits
provided to current employees that are involuntarily terminated under the
terms of a benefit arrangement that is not an ongoing benefit arrangement
or an individual deferred compensation contract (one-time termination
benefit); (b) costs to terminate a contract that is not a capital lease;
and (c) costs to consolidate facilities or relocate employees. FAS 146
requires that these liabilities be recognized and measured initially at
fair value in the period in which the liability is incurred. If fair value
cannot be reasonably estimated, the liability shall be recognized initially
in the period in which fair value can be reasonably estimated. The
provisions on FAS 146 will be effective for the Company prospectively for
exit or disposal activities initiated after December 31, 2002. The Company
is in the process of assessing the impact of the adoption of FAS 146.
V. ACCOUNTING FOR STOCK BASED COMPENSATION--On December 31, 2002, the
Financial Accounting Standards Board (FASB or the Board) issued Statement
of Financial Accounting Standards No. 148, Accounting for Stock-Based
Compensation -- Transition and Disclosure -- an amendment of FAS 123 (FAS
148). As the title of the standard implies, it is fairly limited in its
scope, however it will have implications for all entities that issue
stock-based compensation to their employees. This Statement amends FASB
Statement No. 123, Accounting for Stock-Based Compensation, to provide
alternative methods of transition for a voluntary change to the fair value
based method of accounting for stock-based employee compensation. In
addition, this Statement amends the disclosure requirements of Statement
123 to require prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. This
Statement permits two additional transition methods for entities that adopt
the preferable method of accounting for stock-based employee compensation.
Both of those methods avoid the ramp-up effect arising from prospective
application of the fair value based method. In addition, to address
concerns raised by some constituents about the lack of comparability caused
by multiple transition methods, this Statement does not permit the use of
the original Statement 123 prospective method of transition for changes to
the fair value based method made in fiscal years beginning after December
15, 2003. . The Company is in the process of assessing the impact of the
adoption of FAS 148.
W. FINANCIAL ACCOUNTING STANDARDS BOARD INTERPRETATION NO. 45--In November
2002, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 45 (FIN 45), Guarantor's Accounting and Disclosure
Requirements for Guarantee, Including Indirect Guarantees of Indebtedness
of Others (an interpretation of FASB Statements No. 5, 57, and 107 and
rescission of FASB Interpretation No. 34). FIN 45 clarifies the
requirements of the FASB Statement No. 5 (FAS 5), Accounting for
Contingencies, relating to a guarantor's accounting for, and disclosure of,
the issuance of certain types of guarantees. FIN 45 requires that upon
issuance of a guarantee, the guarantor must recognize a liability for the
fair value of the obligation it assumes under that guarantee. Many
guarantees are embedded in purchase or sales agreements, service contracts,
joint venture agreements, or other commercial agreements and the guarantor
in many of those arrangements does not receive separately identifiable
up-front payment (e.g., a premium) for issuing the guarantee. Prior to FIN
45, many guarantors did not recognize an initial liability for such
embedded guarantees. Now, however, they are required to recognize a
liability at fair value upon issuance of the guarantees, regardless of
whether they receive a separate premium for doing so. The Interpretation is
intended to improve the comparability of financial reporting by requiring
identical accounting for guarantees issued with a separately identified
premium and guarantees issued without a separately identified premium. For
guarantees issued or modified after December 31, 2002, significant new
disclosure requirements are effective beginning with 2002 calendar year-end
financial statements, including a requirement to disclose the maximum
amount of future payments that an entity might need to make under a
guarantee and a reconciliation of during the period in their product
warranty liabilities. The Company is in the process of assessing the impact
of the adoption of FIN 45.
NOTE 2 -- GOING CONCERN, BORROWING ARRANGEMENTS AND FINANCING COMMITMENTS
GOING CONCERN
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 $2,339,000, the funding requirement for the defined benefit plan of
$1,262,000 for the plan year ending November 30, 2002, the lack of sales
growth, and the overall risks associated with the fiscal 2003 plan 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 uncertainty.
It is management's belief that cash flows generated from operations and
available incremental borrowings will be sufficient to meet the Company's
liquidity needs during fiscal 2003. Management has also identified a number of
additional expense reductions possible in 2003, including the deferral of
certain planned personnel replacements or additions, the deferral of certain
planned marketing expenses, reduced product costs through materials
substitutions, and decreased usage of certain operating supplies. 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. Failure to accomplish these plans could have an adverse
impact on the Company's liquidity, financial position, and ability to continue
operations.
BORROWING ARRANGEMENTS AND FINANCING COMMITMENTS
In November 2002 the Company completed the restructuring of its term debt.
Under the revised agreements, the term debt lenders (1) reduce principal
payments from approximately $9.2 million to $4.1 million for the period April
1, 2002 through September 20, 2005; (2) establish the maturity dates of the
remaining debt of approximately $4.5 million on October 1, 2005, and $1.3
million between October 1, 2005 and May 1, 2008; (3) eliminate all financial
covenants; (4) waive existing defaults; and (5) rescind prior demands for
accelerated payments. As part of the restructuring, the Company entered into
Mortgage and Assignment of Leases and Rents, Security Agreement, Trademark
Security Agreement and Patent Security Agreement (the "Security Agreements")
with its lenders to secure performance of its obligations. Under the Security
Agreements, the Company granted its (term debt) lenders (1) a subordinated
mortgage on its manufacturing facility in Canton, Massachusetts and (2)
security interests in all of its patents, trademarks, intangibles, accounts,
fixtures, products and proceeds.
The restructured term debt agreements contain a provision beginning for the
fiscal year ending November 2003 and continuing for each fiscal year
thereafter, for annual payments of 25% of "Free Cash Flow". Free Cash Flow
means the amount obtained by subtracting (a) the sum of (1) interest expense,
(2) principal payments of debt paid, (3) non-financed capital expenditures, (4)
federal and state income tax payments, (5) pension contributions payments, (6)
environmental payments against reserves, from (b) EBITDA. Payments of Free Cash
Flow are to be shared by the term debt lenders and are to be applied to
outstanding principal on the term debt.
In addition, the revised agreement with the Company's primary term debt lender
contains a provision, which allows for extended principal payments of the
approximately $4.5 million due October 1, 2005. This provision requires that
the Company demonstrate to the lender that (1) the senior lien priority of the
mortgage on the Company's real property is limited to $2.0 million; and (2)
that the appraised fair market value of the real property subject to the
mortgage is not less that $2.5 million. If these conditions are satisfied to
the lender satisfaction, then the $4.5 million of principal due October 1, 2005
will have extended maturity dates from April 1, 2006 to April 1, 2011.
The revolving line of credit and term debt of the Company consisted of the following as of:
November 29, November 30,
2002 2001
---------------- ----------------
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 29, 2002,
the Company had approximately $1,200,000 in borrowing availability on its
revolving line of credit. The interest rate at November 29, 2002 was
5.25 % ........................................................................ $10,741,000 $10,980,000
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 29, 2002 was 5.25 % ............................. 1,200,000 1,550,000
Short-term borrowings with three Spanish Banks and a German Bank with
interest rates ranging from 4.30% to 6.25% at November 29, 2002. Principal
amount 1,381,000 euros (approximately $1,373,000) at November 29, 2002 ........ 1,373,000 937,000
----------- -----------
$13,314,000 $13,467,000
=========== ===========
Term debt, in the original principal amount of $2,228,000, with interest at
9.50%, due May 2008, secured by a first interest in certain equipment ......... $ 2,228,000 $ --
Term debt, in the original principal amount of $3,710,000, with interest at
8.04%, due October 2005, secured by a first interest in certain equipment ..... 1,705,000 1,790,000
Term debt, in the original principal amount of $4,050,000, with interest at
8.54%, due October 2005, secured by a first interest in certain equipment ..... 2,414,000 2,485,000
Term debt, in the original principal amount of $550,000, with interest at
8.75%, due October 2005, secured by a first interest in certain equipment ..... 420,000 431,000
Term debt, in the original principal amount of $1,469,979, with interest at
9.56%, due October 2005, secured by a first interest in certain equipment ..... 1,264,000 1,291,000
Term debt, in the original amount of $1,104,077, with interest at 8.98%,
due October 2005, secured by a first interest in certain equipment ............ 978,000 999,000
Term debt, in the original principal amount of $450,000, with due interest at
7.75%, due October 2005, secured by a first interest in certain equipment ..... 180,000 268,000
Term debt, in the original principal amount of 1,502,000 euros, due April 2007,
secured by a first interest in real property. With interest at the one-year
Madrid inter-bank market rate (MIBOR) plus 1.25%, adjusted
quarterly. The interest rate at November 29, 2002 was 5.25% ................... 672,000 733,000
Term debt, in the original principal amount of $1,339,000, with interest at
7.1%, due April 2004, secured by a first interest in certain equipment ........ -- 794,000
Term debt, in the original principal amount of $868,000, with interest at
8.39%, due November 2004, secured by a first interest in certain equipment .... -- 618,000
Term debt, in the original principal amount of $810,250, with interest at
9.11 %, due June 2005, secured by a first interest in certain equipment ....... -- 676,000
Term debt, in the original principal amount of $161,313, with interest at
9.05%, due September 2005, secured by a first interest in certain equipment ... -- 139,000
Term debt, in the original principal amount of 225,000 euros with interest
at 8.0% due January 2002 ...................................................... -- 72,000
Capital lease obligations (see Note 9) ........................................ 647,000 756,000
----------- -----------
10,508,000 11,052,000
Less current portion .......................................................... 1,536,000 10,222,000
----------- -----------
$ 8,972,000 $ 830,000
=========== ===========
During the fiscal year, one of the Company's debt lenders was acquired by
another financial institution. As a result, at the year ended November 29, 2002
a single term note has replaced four individual term notes.
Maturities of long-term obligations in the next five years are: 2003 -
$1,536,000; 2004 - $1,630,000; 2005 - $5,771,000; 2006 - $606,000; 2007 -
$663,000; and thereafter - $302,000.
NOTE 3 -- INCOME TAXES
Income (loss) before taxes consists of the following:
Year Ended
---------------------------------------------------
November 29, November 30, December 1,
2002 2001 2000
------------ ------------ -----------
U.S. ................ $(263,000) $(2,869,000) $(2,413,000)
Foreign.............. 239,000 (41,000) 126,000
--------- ----------- -----------
Total $ (24,000) $(2,910,000) $(2,287,000)
========= =========== ===========
The provision (benefit) for income taxes consists of the following:
Year Ended
---------------------------------------------------
November 29, November 30, December 1,
2002 2001 2000
------------ ------------ -----------
Current:
Federal ............... $(187,000) $ -- $ (658,000)
State ................. -- -- (66,000)
Foreign ............... 62,000 (11,000) 48,000
--------- ----------- -----------
(125,000) (11,000) (676,000)
--------- ----------- -----------
Deferred:
Federal ............... -- -- 1,787,000
State ................. -- -- 591,000
--------- ----------- -----------
-- -- 2,378,000
--------- ----------- -----------
Total ................... $(125,000) $ (11,000) $ 1,702,000
========= =========== ===========
The components of the net deferred tax asset (liability) are as follows:
November 29, November 30,
2002 2001
------------ ------------
Deferred tax assets:
Pension obligations .................... $ 2,673,000 $ 1,995,000
Federal and state NOL carryforwards .... 1,746,000 1,754,000
Environmental reserves ................. 455,000 455,000
AMT credit carryfoward ................. 246,000 433,000
Postretirement benefits ................ 435,000 410,000
State investment tax credit (ITC)
carryforwards ........................ 357,000 382,000
Other reserves ......................... 1,176,000 882,000
------------ ------------
Total gross deferred tax assets ........ 7,088,000 6,311,000
Valuation allowance .................... (5,226,000) (4,471,000)
------------ ------------
1,862,000 1,840,000
Deferred tax liability:
Plant assets ........................... (1,981,000) (1,947,000)
------------ ------------
Net deferred tax asset (liability) $ (119,000) $ (107,000)
============ ============
In accordance with the Statement of Financial Accounting Standard 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 $755,000
and $2,004,000 in 2002 and 2001, respectively. Such an increase was deemed
necessary as the net deferred tax asset balance at November 29, 2002 and
November 30, 2001 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 29, 2002 and November 30,
2001 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 29, 2002, November 30, 2001, and December 1, 2000, is as follows:
Year Ended
---------------------------------------------------
November 29, November 30, December 1,
2002 2001 2000
------------ ------------ -----------
Tax (benefit) computed at
statutory rate ........ $ (8,000) $ (989,000) $ (778,000)
State income taxes, net
of federal income tax
benefit ............... (333,000) (154,000) (166,000)
Expired federal investment
tax credit ............ -- -- 327,000
Recovery of federal tax
credit ................ (187,000) -- --
State investment tax
credit ................ (25,000) -- --
Valuation allowance ..... 435,000 1,127,000 2,387,000
Rate differential
attributable to foreign
operations ............ (19,000) 1,000 5,000
Other ................... 12,000 4,000 (73,000)
--------- ----------- -----------
$(125,000) $ (11,000) $ 1,702,000
========= =========== ===========
Effective income tax rate (520.8)% (0.4)% (74.4)%
During 2002 and 2001, the Company recorded a $3,530,000 and $2,234,000 minimum
pension liability and a full valuation allowance on the related deferred tax
asset of $1,386,000 and $877,000. These amounts are included in Other
Comprehensive Income (Loss) for the year ended November 29, 2002 and November
30, 2001, respectively.
NOTE 4 -- ACCRUED EXPENSES
The Company's accrued expenses consist of the following:
November 29, November 30,
2002 2001
------------ ------------
Accrued payroll and related benefits ... $ 972,000 $ 970,000
Accrued pension contributions .......... 1,250,000 1,497,000
Other .................................. 2,260,000 2,064,000
------------ ------------
$ 4,482,000 $ 4,531,000
============ ============
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 2002, 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 29, November 30,
2002 2001
------------ ------------
RECONCILIATION OF BENEFIT OBLIGATION:
Benefit obligation at beginning of year $ 12,996,000 $ 11,911,000
Interest cost ........................ 757,000 832,000
Benefit payments ..................... (1,215,000) (1,266,000)
Actuarial (gain) loss ................ 474,000 1,519,000
------------ ------------
Benefit obligation at end of year .... $ 13,012,000 $ 12,996,000
============ ============
RECONCILIATION OF FAIR VALUE OF PLAN
ASSETS:
Fair value at beginning of year ...... $ 8,247,000 $ 9,747,000
Actual return on plan assets ......... (385,000) (234,000)
Employer contributions ............... -- --
Benefit payments ..................... (1,215,000) (1,266,000)
------------ ------------
Fair value at end of year ............ $ 6,647,000 $ 8,247,000
============ ============
FUNDED STATUS:
Funded status ........................ $ (6,365,000) $ (4,749,000)
Unrecognized (gain) loss ............. 3,530,000 2,234,000
------------ ------------
Net amount recognized ................ $ (2,835,000) $ (2,515,000)
============ ============
AMOUNTS RECOGNIZED IN THE CONSOLIDATED
BALANCE SHEET:
Accrued pension cost ................. $ (6,365,000) $ (4,749,000)
Accumulated other comprehensive loss . 3,530,000 2,234,000
------------ ------------
Net amount recognized ................ $ (2,835,000) $ (2,515,000)
============ ============
Net periodic pension expense (income) for the pension plan for the years ended
November 29, 2002, November 30, 2001 and December 1, 2000, is as follows:
Year Ended
---------------------------------------------------
November 29, November 30, December 1,
2002 2001 2000
------------ ------------ -----------
Service cost ............ $ -- $ -- $ --
Interest cost ........... 758,000 832,000 847,000
Expected return on assets (686,000) (730,000) (845,000)
Amortization of net gain 248,000 (7,000) (160,000)
--------- ----------- -----------
Net periodic pension
expense (income) ...... $ 320,000 $ 95,000 $ (158,000)
========= =========== ===========
Key weighted-average assumptions used in the measurement of the Company's
defined benefit pension obligation are as follows:
2002 2001 2000
---- ---- ----
Discount rate.............................. 5.75% 6.00% 7.25%
Long term rate of return on assets......... 9.00% 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 29, November 30,
2002 2001
------------ ------------
RECONCILIATION OF BENEFIT OBLIGATION:
Benefit obligation at beginning of year $ 807,000 $ 747,000
Service cost ......................... 63,000 35,000
Interest cost ........................ 61,000 49,000
Benefit payments ..................... (60,000) (78,000)
Actuarial (gain) loss ................ 323,000 54,000
------------ ------------
Benefit obligation at end of year .... $ 1,194,000 $ 807,000
============ ============
RECONCILIATION OF FAIR VALUE OF PLAN
ASSETS:
Fair value at beginning of year ..... $ -- $ --
Employer contributions ............... 60,000 78,000
Benefit payments ..................... (60,000) (78,000)
------------ ------------
Fair value at end of year ............ $ -- $ --
============ ============
FUNDED STATUS:
Funded status ........................ $ (1,194,000) $ (807,000)
Unrecognized gain (loss) ............. 158,000 (165,000)
------------ ------------
Accrued postretirement benefit cost .. $ (1,036,000) $ (972,000)
============ ============
AMOUNTS RECOGNIZED IN THE CONSOLIDATED
BALANCE SHEET:
Accrued benefit obligation ........... $ (1,036,000) $ (972,000)
------------ ------------
Net amount recognized ................ $ (1,036,000) $ (972,000)
============ ============
Key weighted-average assumptions used in the measurement of the Company's
postretirement benefit obligation are as follows:
2002 2001 2000
---- ---- ----
Discount rate............... 5.75% 6.00% 7.25%
For measurement purposes, a 6.2% annual rate of increase in the per capita cost
of covered health care benefits was assumed for 2003. 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 29, November 30, December 1,
2002 2001 2000
------------ ------------ -----------
Service cost ............ $ 63,000 $ 35,000 $ 34,000
Interest cost ........... 61,000 49,000 51,000
Amortization of (gain) loss -- (10,000) (8,000)
--------- ----------- -----------
Net periodic postretirement
expense ............... $ 124,000 $ 74,000 $ 77,000
========= =========== ===========
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 .......................... $ 16,000 $ (13,000)
Effect on postretirement benefit obligation 104,000 (89,000)
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 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)
------- --------- --------- ---------- ---------- ---------
Balance at November 29, 2002......... 810,586 1,281,304 $ 810,000 $1,281,000 $9,084,000 $(185,000)
======= ========= ========= ========== ========== =========
Treasury stock includes 32,914 shares of Class B Common Stock at November 29,
2002 and November 30, 2001, 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 29, 2002
---------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
BASIS EPS
Income (loss) available to
common stockholders .............. $ 101,000 2,058,976 $ 0.05
======
Effect of dilutive stock options (a) -- 46,881
----------- ---------
DILUTED EPS
Income (loss) available to
common stockholders and
assumed conversions .............. $ 101,000 2,105,857 $ 0.05
=========== ========= ======
Year Ended November 30, 2001
----------------------------------------
(Loss) Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
BASIS EPS
Income (loss) available to
common stockholders .............. $(2,899,000) 2,042,411 $(1.42)
======
Effect of dilutive stock options (a)
-- --
----------- ---------
DILUTED EPS
Income (loss) available to
common stockholders and
assumed conversions ............. $(2,899,000) 2,042,411 $(1.42)
=========== ========= ======
Year Ended December 1, 2000
----------------------------------------
(Loss) Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
BASIS EPS
Income (loss) available to
common stockholders ............. $(3,989,000) 2,041,481 $(1.95)
======
Effect of dilutive stock options (a) -- --
----------- ---------
DILUTED EPS
Income (loss) available to
common stockholders and
assumed conversions ............. $(3,989,000) 2,041,481 $(1.95)
=========== ========= ======
(a) Options for 413,181, 380,729, and 335,520 shares of common stock were
outstanding at November 29 2002, November 30 2001 and December 1, 2000,
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. The period for granting options under this plan has expired.
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 29 2002, there were 26,242 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 29, 2002, there were 54,075 options available for grant under
this plan.
On February 3, 2002, the Company established an incentive stock option plan
entitled the "2002 Stock Incentive Plan" ("the 2002 Plan"). The 2002 Plan
authorizes the granting of options to key employees 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 2002 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 2002 Plan may authorize variations
from the standard terms, options under the 2002 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. At November 29 2002, there were 116,700 options available for grant
under this plan.
On April 26, 2002, the Company established a non-employee stock option plan
entitled the "2002 Non-Employee Director Plan" ("the 2002 Director Plan"). The
2002 Director Plan authorizes the granting of options to non-employee directors
to purchase an aggregate of 180,000 shares of the Company's Class B Common
Stock. The exercise price of the options granted under the 2002 Director 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
2002 Plan may authorize variations from the standard terms, options under the
2002 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. At November 29 2002,
there were 96,000 options available for grant under this plan.
A summary of the Company's stock option plans as of November 29, 2002, November
30, 2001, and December 1, 2000, and the changes during the years then ended on
those dates are presented below:
Weighted
Number of Average
Options Exercise Price
---------- --------------
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
Options granted ........................ 267,300 0.82
Options exercised ...................... -- --
Options expired ........................ (153,739) 2.21
--------
Outstanding at November 29, 2002 ....... 591,300 2.49
========
Weighted
Number of Average
Options Exercise Price
---------- --------------
Exercisable at December 1, 2000 ........ 300,170 $5.54
Exercisable at November 30, 2001 ....... 215,564 $4.94
Exercisable at November 29, 2002 ....... 250,000 $4.57
The following table summarizes information about all stock options outstanding
at November 29, 2002:
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
----------- ------------- ------------ ----------- ----------- ----------
$0.75 - 0.90 267,300 9 $0.82 -- $ --
1.25 - 1.38 142,000 8 1.28 71,000 1.28
4.25 - 4.63 73,800 6 4.55 73,800 4.55
5.95 - 6.81 58,200 3 6.25 55,200 6.25
7.12 - 7.75 50,000 2 7.42 50,000 7.42
---------- --------
591,300 250,000
========== ========
The options outstanding at November 29, 2002 expire at various times in 2003
through 2012.
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 29, November 30, December 1,
2002 2001 2000
------------ ------------ -----------
Net income (loss), as
reported .............. $ 101,000 $(2,899,000) $(3,989,000)
Net income (loss), pro
forma ................. (91,000) (3,034,000) (4,206,000)
Basic EPS, as reported .. 0.05
(1.42) (1.95)
Basic EPS, pro forma .... (0.04) (1.49) (2.06)
Diluted EPS, as
reported .............. 0.05 (1.42) (1.95)
Diluted EPS, pro
forma ................. $ (0.04) $ (1.49) $ (2.06)
The weighted average fair value of the options granted during the fiscal 2002
and 2001 was $ 0.81 and $1.23 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:
2002 2001
-----------------------
Expected life (years) ................... 10 10
Expected stock price volatility.......... 150 % 150 %
Risk-free interest rate.................. 4.00 % 4.00 %
At November 29, 2002 and November 30, 2001, 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 29, 2002 and at November
30, 2001. During 2002 and 2001, no shares were repurchased or issued throughout
the year. At November 29, 2002 and at November 30, 2001, 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 29, November 30, December 1,
2002 2001 2000
------------ ------------ -----------
Segment sales to
unaffiliated customers:
Plymouth Tapes ........ $56,237,000 $57,553,000 $66,591,000
Brite-Line Technologies 9,022,000 8,945,000 7,801,000
----------- ----------- -----------
Consolidated net sales $65,259,000 $66,498,000 $74,392,000
=========== =========== ===========
Segment income (loss):
Plymouth Tapes ........ $ 647,000 $(1,581,000) $ (833,000)
Brite-Line Technologies 1,113,000 895,000 888,000
----------- ----------- -----------
Consolidated operating
income (loss) ....... 1,760,000 (686,000) 55,000
Interest expense ...... (2,026,000) (2,298,000) (2,342,000)
Foreign currency
exchange gain (loss) . 64,000 (25,000) (110,000)
Other income, net ..... 178,000 99,000 110,000
----------- ----------- -----------
Consolidated income
(loss) before tax ... $ (24,000) $(2,910,000) $(2,287,000)
=========== =========== ===========
Depreciation and
amortization:
Plymouth Tapes ........ $ 2,889,000 $ 2,967,000 $ 2,717,000
Brite-Line Technologies 84,000 86,000 71,000
----------- ----------- -----------
Total depreciation and
amortization ........ $ 2,973,000 $ 3,053,000 $ 2,788,000
=========== =========== ===========
Assets:
Plymouth Tapes ........ $42,709,000 $44,559,000 $47,733,000
Brite-Line Technologies 3,537,000 4,099,000 3,728,000
----------- ----------- -----------
Total assets .......... $46,246,000 $48,658,000 $51,461,000
=========== =========== ===========
Year Ended
----------------------------------------------------
November 29, November 30, December 1,
2002 2001 2000
------------ ------------ -----------
Geographic information:
Net sales to unaffiliated customers:
United States ......... $53,477,000 $54,800,000 $62,385,000
Spain and Portugal .... 2,883,000 3,199,000 4,294,000
Other ................. 8,899,000 8,499,000 7,713,000
----------- ----------- -----------
Consolidated net sales $65,259,000 $66,498,000 $74,392,000
=========== =========== ===========
Long-lived assets:
United States ......... $19,846,000 $22,410,000 $24,658,000
Spain ................. 1,582,000 1,443,000 1,438,000
----------- ----------- -----------
Total long-lived assets $21,428,000 $23,853,000 $26,096,000
=========== =========== ===========
The Company has one customer, whose operations are primarily in the automotive
industry, which accounted for 33%, 33% and 31% of net sales in 2002, 2001, and
2000, respectively.
NOTE 9 -- LEASES
Included in Plant Assets in the accompanying Consolidated Balance Sheet is
leased property under capital leases as follows:
November 29, November 30,
2002 2001
------------ ------------
Machinery and equipment ................ $ 2,832,000 $ 3,174,000
Less: Accumulated amortization ........ 1,355,000 1,539,000
------------ ------------
$ 1,477,000 $ 1,635,000
============ ============
The Company entered into agreements for the sale and leaseback of certain
machinery and equipment in the aggregate amount of $60,000 in 2002. 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 29, 2002:
2003........................................... $ 390,000
2004........................................... 262,000
2005........................................... 20,000
2006........................................... 2,000
Thereafter..................................... --
-----------
Total minimum lease payments 674,000
Less: Amount representing interest 27,000
-----------
$ 647,000
===========
Minimum annual rentals under noncancelable operating leases (which are
principally for equipment) are as follows:
2003............................................... $ 556,000
2004............................................... 535,000
2005............................................... 296,000
2006............................................... 95,000
2007............................................... --
Total rental expense for 2002, 2001 and 2000 was $1,185,000, $1,071,000, and
$1,121,000, 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 2002, 2001 and
2000, consulting fees of $56,400, $51,700, and $51,700, respectively, were paid
pursuant to this agreement. In addition, the Company has a consulting agreement
with Kadeca Consulting Corporation, whose president is a Director of the
Company. In 2002, 2001 and 2000, consulting fees under this agreement were $0,
$0, and $14,100, 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 $774,000 as of November 29, 2002 to cover future
environmental expenditures related to these claims, which is net of $471,000
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 29, 2002 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 $310,000 as of November 29, 2002 to cover estimated future
environmental cleanup expenditures, which is net of $928,000 payments made to
date. Actual future costs may be different from the amount accrued for as of
November 29, 2002.
NOTE 12 -- UNAUDITED QUARTERLY FINANCIAL DATA
The following table presents the quarterly information for fiscal 2002 and
2001.
Quarter Ended
----------------------------------------------------
March 1 May 31 August 30 November 29
----------- ----------- ----------- -----------
2002 (a)
Net sales ................ $13,941,000 $17,854,000 $17,061,000 $16,403,000
Gross profit ............. 3,087,000 4,150,000 3,726,000 2,567,000
Net income (loss) ........ (127,000) 718,000 509,000 (999,000)
Earnings (loss) per share:
Basic .................. $ (0.06) $ 0.35 $ 0.25 $ (0.49)
Diluted ................ $ (0.06) $ 0.34 $ 0.23 $ (0.49)
March 2 June 1 August 31 November 30
----------- ----------- ----------- -----------
2001 (b)
Net sales ................ $15,017,000 $18,308,000 $16,074,000 $17,099,000
Gross profit ............. 1,192,000 3,766,000 4,074,000 2,664,000
Net income (loss) ........ (2,329,000) 121,000 151,000 (842,000)
Earnings (loss) per share:
Basic .................. $ (1.14) $ 0.07 $ (0.41) $ 0.06
Diluted ................ $ (1.14) $ 0.07 $ (0.41) $ 0.06
(a) Sales in the first and third quarters of 2002 in Plymouth Tapes were
reduced due to normal seasonal fluctuations. In addition, sales for the
first quarter of 2002 for Brite-Line Technologies were reduced due to the
highly seasonal nature of the highway market segment. Net loss for the
fourth quarter of 2002 was due to lower margins at Plymouth Tapes,
resulting from higher raw material and overhead costs. Net loss for the
first quarter of 2002 was also increased due to lower margins at Brite-Line
and lower margins on foreign sales.
(b) 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.
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 29, 2002.
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 29, 2002.
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 29, 2002.
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 29, 2002.
ITEM 14. CONTROLS AND PROCEDURES
(a) Disclosure controls and procedures. Within 90 days before filing this
report, we evaluated the effectiveness of the design and operation of our
disclosure controls and procedures. Our disclosure controls and procedures are
the controls and other procedures that we designed to ensure that we record,
process, summarize and report in a timely manner the information we must
disclose in reports that we file with or submit to the SEC. Our disclosure
controls and procedures include our internal controls. Maurice J. Hamilburg,
President and Co-Chief Executive Officer, Joseph D. Hamilburg, Chairman and
Co-Chief Executive Officer, and Joseph J. Berns, Vice President of Finance and
Chief Financial Officer supervised and participated in this evaluation. Based
on this evaluation, Maurice J. Hamilburg, Joseph D. Hamilburg, and Joseph J.
Berns, concluded that, as of the date of their evaluation, our disclosure
controls and procedures were effective.
(b) Internal controls. Since the date of the evaluation described above, there
have not been any significant changes in our internal controls or in other
factors that could significantly affect those controls.
PART IV
ITEM 15. 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 14.
(A)2. Financial statement schedules required as part of this report are
listed in the index appearing on page 14.
(A)3. Exhibits required as part of this report are listed in the index
appearing on pages 48 - 51.
(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: February 26, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities on February 26, 2003.
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
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
SECTION 302 CERTIFICATIONS
I, Maurice J. Hamilburg, President and Co- Chief Executive Officer of
Plymouth Rubber Company, Inc., certify that:
1. I have reviewed this annual report on Form 10-K of Plymouth Rubber
Company, Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and
have identified for the registrant's auditors any material weaknesses
in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in
this annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: February 26, 2003 Maurice J Hamilburg
-----------------------------------
Maurice J. Hamilburg
President and Co-Chief Executive Officer
SECTION 302 CERTIFICATIONS - CONTINUED
I, Joseph D. Hamilburg, Chairman and Co- Chief Executive Officer of
Plymouth Rubber Company, Inc., certify that:
1. I have reviewed this annual report on Form 10-K of Plymouth Rubber
Company, Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and
have identified for the registrant's auditors any material weaknesses
in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in
this annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: February 26, 2003 Joseph D. Hamilburg
-----------------------------------
Joseph D. Hamilburg
Chairman and Co-Chief Executive Officer
SECTION 302 CERTIFICATIONS - CONTINUED
I, Joseph Berns, Vice President-Finance and Chief Financial Officer of
Plymouth Rubber Company, Inc., certify that:
1. I have reviewed this annual report on Form 10-K of Plymouth Rubber
Company, Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and
have identified for the registrant's auditors any material weaknesses
in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in
this annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: February 26, 2003 Joseph J. Berns
----------------------------------------
Joseph Berns, Vice President-Finance and
Chief Financial Officer
SCHEDULE II
PLYMOUTH RUBBER COMPANY, INC.
RESERVES
ACCOUNTS RECEIVABLE
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 29, 2002........... $422,000 $ 88,000 $ (113,000) $397,000
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
INVENTORY
Balance at Provision Amounts Balance
Beginning Charged Charged to at End
Deducted from assets: of Year to Income To Reserves of Year
------------- ------------ -------------- ------------
Inventory Reserves
Year ended November 29, 2002........... $408,000 $592,000 $ (370,000) $630,000
Year ended November 30, 2001........... $482,000 $453,000 $ (527,000) $408,000
Year ended December 1, 2000............ $989,000 $576,000 $(1,083,000) $482,000
PLYMOUTH RUBBER COMPANY, INC.
INDEX TO EXHIBITS
Exhibit
No. Description
------- -----------
2 Not Applicable.
3.1 Restated Articles of Organization -- incorporated by reference to
Exhibit 3.1 of the Company's Annual Report on Form 10-K for the
year ended December 2, 1994.
3.2 By Laws, as amended -- incorporated by reference to Exhibit 3.2 of
the Company's Annual Report on Form 10-K for the year ended
November 26, 1993.
4.1 Promissory Note between Plymouth Rubber Company, Inc. and General
Electric Capital Corporation dated December 29, 1995 --
incorporated by reference to Exhibit 4.8 to the report on Form 10-Q
for the Quarter ended March 1, 1996.
4.2 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.
4.3 Demand Note between Plymouth Rubber Company, Inc. and LaSalle
National Bank dated June 6, 1996 -- incorporated by reference to
Exhibit 2.1 to the report on Form 8-K with cover page dated June 6,
1996.
4.4 Loan and Security Agreement between Plymouth Rubber Company, Inc.
and LaSalle National Bank dated June 6, 1996 -- incorporated by
reference to Exhibit 2.2 to the report on Form 8-K with cover page
dated June 6, 1996.
4.5 Amendment to Master Security Agreement between Plymouth Rubber
Company, Inc. and General Electric Capital Corporation dated
February 19, 1997 -- incorporated by reference to Exhibit 4.6 to
the report on Form 10-Q for the quarter ended February 25, 1997.
4.6 Master Security Agreement between Plymouth Rubber Company, Inc. and
General Electric Capital Corporation dated January 29, 1997 --
incorporated by reference to Exhibit 4.12 to the Company's report
on Form 10-Q for the quarter ended February 25, 1997.
4.7 Demand Note between Brite-Line Technologies, Inc. and LaSalle
National Bank dated February 28, 1997 -- incorporated by reference
to Exhibit 4.13 to the Company's report on Form 10-Q for the
quarter ended May 30, 1997.
4.8 Loan and Security Agreement between Brite-Line Technologies, Inc.
and LaSalle National Bank dated February 25, 1997 -- incorporated
by reference to Exhibit 4.14 to the Company's report on Form 10-Q
for the quarter ended May 30, 1997.
4.9 Continuing Unconditional Guaranty between Brite-Line Technologies,
Inc. LaSalle National Bank dated February 25, 1997 -- incorporated
by reference to Exhibit 4.15 to the Company's report on Form 10-Q
for the quarter ended May 30, 1997.
4.10 Amendment to Loan and Security Agreement between Plymouth Rubber
Company, Inc. and LaSalle National Bank dated May 7, 1997 --
incorporated by reference to Exhibit 4.16 to the Company's report
on Form 10-Q for the quarter ended May 30, 1997.
4.11 Continuing Unconditional Guaranty between Plymouth Rubber Company,
Inc. and LaSalle National Bank dated March 20, 1997 -- incorporated
by reference to Exhibit 4.17 to the Company's report on Form 10-Q
or the quarter ended May 30, 1997.
4.12 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 4.18
to the Company's report on Form 10-Q for the quarter ended May 30,
1997.
4.13 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 4.19 to the Company's report on Form 10-Q for the quarter
ended May 30, 1997.
4.14 Promissory Note between Plymouth Rubber Company, Inc. and General
Electric Capital Corporation dated December 3, 1997 -- incorporated
by reference to Exhibit 4.14 to the Company's Annual Report on Form
10-K for the year ended November 27, 1998.
4.15 Promissory Note between Plymouth Rubber Company, Inc. and General
Electric Capital Corporation dated April 13, 1998 -- incorporated
by reference to Exhibit 4.15 to the Company's Annual Report on Form
10-K for the year ended November 27, 1998.
4.16 Promissory Note between Plymouth Rubber Company, Inc. and General
Electric Capital Corporation dated November 12, 1998 --
incorporated by reference to Exhibit 4.16 to the Company's Annual
Report on Form 10-K for the year ended November 27, 1998.
4.17 Promissory Note between Plymouth Rubber Company, Inc. and General
Electric Capital Corporation dated November 25, 1998 --
incorporated by reference to Exhibit 4.17 to the Company's Annual
Report on Form 10-K for the year ended November 27, 1998.
4.18 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 4.18 to
the Company's Quarterly Report on Form 10-Q for the quarter ended
February 26, 1999.
4.19 Amendment to Loan and Security Agreement between Brite-Line
Technologies, Inc., and LaSalle National Bank dated February 18,
1999 - incorporated by reference to Exhibit 4.19 to the Company's
Quarterly Report on Form 10-Q for the quarter ended February 26,
1999.
4.20 Promissory Note between Plymouth Rubber Company, Inc. and General
Electric Capital Corporation dated June 29, 1999 - incorporated by
reference to Exhibit 4.20 to the Company's Quarterly Report on Form
10-Q for the quarter ended August 27, 1999.
9.1 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.
9.2 Voting Trust Amendment Number 6 -- incorporated by reference to
Exhibit 9.2 of the Company's Annual Report on Form 10-K for the
year ended December 2, 1994.
10.1 1982 Employee Incentive Stock Option Plan -- incorporated by
reference to Exhibit 10.1 of the Company's Annual Report on Form
10-K for the year ended November 26, 1993.
10.2 General Form of Deferred Compensation Agreement entered into
between the Company and certain officers -- incorporated by
reference to Exhibit 10.2 of the Company's Annual Report on Form
10-K for the year ended November 26, 1993.
10.3 1992 Employee Incentive Stock Option Plan -- incorporated by
reference to Exhibit 10.4 of the Company's Annual Report on Form
10-K for the year ended November 26, 1993.
10.4 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.
10.5 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.
10.6 Sales contract entered into between the Company and Kleinewefers
Kunststoffanlagen GmbH -- incorporated by reference to Exhibit 10.6
of the Company's report on Form 10-Q for the quarter ended February
28, 1997
10.7 Second Modification Agreement between Plymouth Rubber Company, Inc.
and General Electric Capital Corporation -- incorporated by
reference to Exhibit 99.2 of the Company's Current Report on Form
8-K dated December 16, 2003
10.8 Security Agreement by and between Plymouth Rubber Company, Inc.,
General Electric Capital Corporation, The CIT Group/Equipment
Financing, Inc. and Banknorth, N.A. Corporation --incorporated by
reference to Exhibit 99.3 of the Company's Current Report on Form
8-K dated December 16, 2003.
10.9 Patent Security Agreement by and between Plymouth Rubber Company,
Inc., General Electric Capital Corporation, The CIT Group/Equipment
Financing, Inc. and Banknorth, N.A. --incorporated by reference to
Exhibit 99.4 of the Company's Current Report on Form 8-K dated
December 16, 2003.
10.10 Trademark Security Agreement by and between Plymouth Rubber
Company, Inc., General Electric Capital Corporation, The CIT
Group/Equipment Financing, Inc. and Banknorth, N.A. --incorporated
by reference to Exhibit 99.5 of the Company's Current Report on
Form 8-K dated December 16, 2003.
10.11 Modification Agreement between Plymouth Rubber Company, Inc. and
Banknorth Leasing Corporation --incorporated by reference to
Exhibit 99.6 of the Company's Current Report on Form 8-K dated
December 16, 2003.
10.12 Mortgage and Assignment of Leases and Rents by Plymouth Rubber
Company, Inc. to and for the benefit of General Electric Capital
Corporation, The CIT Group/Equipment Financing, Inc. and Banknorth,
N.A. --incorporated by reference to Exhibit 99.7 of the Company's
Current Report on Form 8-K dated December 16, 2003.
10.13 First Modification to Mortgage and Assignments of Leases and Rents
to and for the benefit of General Electric Capital Corporation, The
CIT Group/Equipment Financing, Inc. and Banknorth, N.A.
--incorporated by reference to Exhibit 99.8 of the Company's
Current Report on Form 8-K dated December 16, 2003
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.