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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 28, 2003 1-5197
------
PLYMOUTH RUBBER COMPANY, INC.
-----------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-1733970
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
104 Revere Street, Canton, Massachusetts 02021
---------------------------------------- ----------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (781) 828-0220
--------------
Securities registered pursuant to
Section 12(b) of the Act: Name of each exchange on
Title of each class Which registered
- --------------------------------- ------------------------
Class A Common Stock, par value $1 American Stock Exchange
Class B Common Stock, par value $1 American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes _X_ No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
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 February 11, 2004, was approximately
$524,000.
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 $0.01 ......... 810,586
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Class B common stock, par value $0.01 ......... 1,248,390
---------
Documents incorporated by reference:
Portions of the registrant's definitive Proxy Statement to be dated on or
about March 28, 2004 (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 32%, 33% and 33% of
the Company's net sales in 2003, 2002 and 2001, 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:
1
Estimated No. of
Market Competitors Competitor
----- ----------- ----------
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 390 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
2
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 28, 2003, management has accrued $392,000 as
a reserve against the Company's potential future liability in this matter, which
is net of approximately $334,000 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 $334,000 in the accompanying consolidated
financial statements as a reserve against the Company's potential future
liability in this matter, which is net of approximately $171,000 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 $683,000. 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 $224,000, and that amount has been accrued in the accompanying
consolidated 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
3
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 $278,000. It presently is estimated that the future costs in this
matter will total approximately $60,000, 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 57 1987
Joseph D. Hamilburg Chairman and Co - Chief Executive
Officer and Director 55 1998
Fiore D. DiGiovine VP - Mfg. Development 76 1987
Alan I. Eisenberg VP - Sales & Marketing 53 1988 & 1986
Sheldon S. Leppo VP - Research & Development 69 1970
Joseph J. Berns VP - Finance and Treasurer 57 1997 & 1998
Kevin H. White VP - Brite-Line Technologies 53 2002
David M. Kozol Clerk and Secretary 45 1998
Messrs. Maurice J. Hamilburg, Joseph D. Hamilburg, Fiore D. DiGiovine, Alan I.
Eisenberg, Sheldon S. Leppo, Joseph J. Berns and David M. Kozol have held their
present positions during each of the past five years.
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.
4
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 - 2003 Quarter - 2002
First............. $ 1.65 $ 1.35 $ 1.10 $ 0.85 First ........ $ 1.60 $ 1.20 $ 1.20 $ 0.75
Second............ 1.40 0.85 1.14 0.60 Second ....... 1.65 1.30 1.30 0.80
Third............. 1.40 1.10 0.65 0.40 Third ........ 2.20 1.30 2.15 1.00
Fourth............ 1.50 1.35 0.70 0.21 Fourth ....... 1.48 1.15 1.34 0.90
(b) Approximate Number of Equity Security Holders
As of February 24, 2004, 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................. 215
Class B non-voting common stock $1.00 par value............. 210
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 28, 2003. Details of the plans are discussed in Note 7 to
the Consolidated Financial Statements.
Number of securities Number of
to be issued upon Weighed average securities
exercise of exercise price of remaining available
outstanding options outstanding options for future issuance
----------------------- --------------------- ---------------------
Stock option plans approved by
Shareholders................... 515,665 $1.99 270,942
Stock option plans subject to
shareholder approval .......... -- -- --
----------------------- ---------------------
515,665 $1.99 270,942
======================= =====================
5
Item 6. Selected Financial Data
Fiscal Years
-----------------------------------------------------------------------
2003 2002 2001 2000 1999
--------- --------- ---------- ---------- -----------
SELECTED INCOME STATEMENT DATA:
Net Sales $ 65,873,000 $ 65,259,000 $ 66,498,000 $ 74,392,000 $78,038,000
Income (loss) from continuing
operations $ (2,815,000) $ 101,000 $ (2,899,000) $ (3,989,000) $ 3,122,000
Per Share Data:
Net income (loss) from continuing
operations per share (diluted) $ (1.37) $ 0.05 $ (1.42) $ (1.95) $ 1.42
Weighted average shares outstanding 2,058,976 2,105,857 2,042,411 2,041,481 2,198,480
SELECTED BALANCE SHEET DATA (AS OF YEAR END):
Total Assets $ 45,315,000 $ 46,246,000 $ 48,658,000 $ 51,461,000 $55,035,000
Long Term Liabilities $ 15,268,000 $ 16,817,000 $ 6,815,000 $ 6,318,000 $16,000,000
6
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Fiscal Year 2003 Compared with Fiscal Year 2002
Company Overview
There are certain key factors, which management believes have the largest impact
on the overall profit and loss of Plymouth Rubber Company:
(1) the level of sales has a large impact on profits. Since most of the
Company's costs (except for raw materials) are largely fixed in the short/medium
term, an increase or decrease in sales affects profit significantly.
(2) the variable margin on sales, which is determined by selling prices and the
cost of manufacturing and raw materials, has a large effect on profit. This
margin is, in turn, affected by a number of factors, which include purchase
prices of raw material, especially PVC resin, competition, both domestic and
international, competitive pricing, direct labor costs, internal production
methods and efficiencies, among others.
(3) given the magnitude of the Company's fixed cost structure, increases or
decreases have a large impact on profits. There are a number of large fixed or
semi-fixed cost components, which include salaries, indirect labor, and
benefits, utilities, equipment maintenance and repair, and insurance. Thus
changes in rates or usage of these cost components can have a large effect on
profit.
Overall Summary of 2003 Financial Results
For fiscal 2003, sales increased only slightly from 2002, with an increase at
Plymouth Tapes and a decrease at Brite-Line, although this is an improvement
compared to sales decreases in the previous three years. Management believes
that increased sales levels are a critical component of improved profitability.
Costs in 2003, both variable and fixed, increased significantly in 2003 compared
to 2002, resulting in a loss in 2003 compared to 2002, which was approximately a
break even year. The largest unfavorable cost factors were increased PVC resin
prices, health and business insurance cost increases, and utility rate
increases, and there were a number of other smaller items as well. There was
some favorable offset resulting from lower direct, indirect, and salaried labor
costs, beginning in August 2003, as management imposed salary reductions for all
domestic employees, and other factors. There was also some offsetting income
from discontinued operations.
Sales and Margins
Sales increased 0.9% to $65,873,000 in 2003 from $65,259,000 in 2002, benefiting
from a 10.2% increase in sales during the fourth quarter of 2003, compared to
the fourth quarter of 2002. Sales at Plymouth Tapes increased 2.6% to
$57,712,000 in 2003 from $56,237,000 in 2002. Sales in the automotive markets
decreased approximately 1.6% compared to 2002, despite higher demand in the
fourth quarter, while sales in all other markets also increased approximately
4.2% from 2002, due largely to increases in the retail and contractor industrial
markets. This latter increase results in part from the marketing and sales
investments made during the last two years. Sales at Brite-Line Technologies
decreased 9.5% to $8,161,000 in 2003, from $9,022,000 in 2002, due in large part
to delays in highway construction spending.
Gross margin decreased $2,609,000, or 19.3%, to $10,921,000 in 2003 from
$13,530,000 in 2002. Gross margin, as a percentage of sales, decreased to 16.6%
in 2003 from 20.7% in 2002. Plymouth Tapes' gross margin decreased $1,943,000,
or 18.1%, to $8,785,000 in 2003 from $10,728,000 in 2002. Gross margin, as a
percentage of sales, decreased to 15.2% in 2003 from 19.1% in 2002. The two
major factors driving this decrease were: higher raw material costs for 2003,
primarily for PVC resins, which accounted for approximately $1,000,000 of
unfavorable margin, or 1.7% of sales; and increased rates for utilities and
fuel, which accounted for approximately $700,000 of unfavorable margin, or 1.2%
of sales. Other contributing factors to the reduction in gross margin were
increases in health and business insurance, and lower production yields. At
Brite-Line Technologies, gross margin decreased $666,000, or 23.8%, to
7
$2,136,000 in 2003 from $2,802,000 in 2002 and, as a percentage of sales,
decreased to 26.2% in 2003 from 31.1% in 2002. The two major factors driving
this decrease were lower production levels, which translated into higher
unabsorbed manufacturing cost, and higher purchase prices for raw materials.
Expenses
Selling, general and administrative expenses in 2003 increased $147,000, 1.2%,
to $11,917,000 from $11,770,000 in 2002. Selling, general and administrative
expenses, as a percentage of sales, increased slightly to 18.1% in 2003 from
18.0% in 2002. At Plymouth Tapes, selling, general and administrative expenses
in 2003 increased $149,000, or 1.5%, to $10,230,000 from $10,081,000 in 2002.
Selling, general and administrative expenses, as a percentage of sales,
decreased slightly to 17.7% in 2003 from 17.9% in 2002. The major increases were
higher freight costs of $333,000, a $221,000 increase in advertising to support
new sales strategies in the retail and contractor industrial markets, and a
$145,000 increase in salaries and fringe benefits, partially offset by a
$186,000 absence of a freight loss which occurred in 2002, a $173,000 absence of
a 2002 loss in cash surrender value of officer life insurance, and a $141,000
reduction in deferred compensation expense. At Brite-Line Technologies, selling,
general and administrative expenses in 2003 were approximately level at
$1,687,000 compared to $1,689,000 in 2002, and, as a percentage of sales,
increased to 20.7% from 18.7% in 2002, because of the lower sales. Decreases in
salaries and fringe ($47,000) and professional fees ($53,000) were mostly offset
by an increase in bad debt expense $74,000 and travel expenses $33,000.
Interest expense in 2003 decreased 11.8% to $1,787,000 from $2,026,000 in 2002,
because of lower interest rates and lower average balances on the revolving line
of credit, lower average balances on term debt, and lower fees. Other income was
$29,000 in 2003, primarily due to foreign exchange gains, compared to $242,000
in 2002, which included $64,000 of foreign exchange gains, a $131,000 gain on
the sale of equipment, and $43,000 of miscellaneous income.
Resulting Profit/Loss
The pre-tax loss from continuing operations for 2003 was $2,754,000, compared to
a pre-tax loss of $24,000 in 2002. The after-tax loss from continuing operations
for 2003 was $2,815,000, compared to an after-tax profit of $101,000 in 2002. In
accordance with the Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (FAS109), a full valuation allowance was recorded
for any tax benefits generated from the Company's domestic operations in 2003,
as they could not be carried back to recover taxes paid and may not be offset by
the reversal of future taxable differences. The Company's liquidity situation at
November 28, 2003 also provides significant negative evidence regarding its
ability to generate sufficient taxable income in the future to realize any
deferred tax benefit. A $61,000 tax expense was recorded in 2003 for the
Company's Spanish subsidiary. 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 expense was recorded for the Company's
Spanish subsidiary.
Income from discontinued operations, net of tax of 0, was $511,000 in 2003,
compared to zero in 2002, due to a reduction in product warranty reserves for a
roofing business that was discontinued in 1984. Management believes that this
reserve, which was last charged with a claim in fiscal 1998, is no longer
required, due to the expirations of warranties and a lack of claim activity. The
net loss for 2003 was $2,304,000 compared to the $101,000 net profit in 2002.
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 13.8% of the Company's revenues in fiscal 2003.
The functional currency of this subsidiary was the Peseta and is the Euro in
2003. 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 2003 and 2002 and did not have any forward contracts outstanding at
the end of 2003 and 2002.
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 in 2001. The
largest decrease was in the contractor industrial and OEM markets, where sales
decreased 12.0% from 2001, largely because of the 2002 economic slowdown. Sales
in the automotive market
8
decreased 1.5%, which reflected 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
which drove this increase were (1) lower manufacturing spending, which was
approximately $700,000 favorable in 2002 compared to 2001, and (2) lower raw
material costs for 2002, primarily for PVC resins, which accounted 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 were incurred and recorded in both
Plymouth Tapes and Brite-Line Technologies. Certain of the selling, general and
administrative expenses recorded in Plymouth Tapes could have been considered as
incurred for the benefit of Brite-Line, but were not allocated to that segment.
These expenses included certain management, accounting, personnel and sales
services, and a limited amount of travel, insurance, directors' fees and other
expenses.
Selling, general and administrative expenses, as a percentage of sales,
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 $186,000 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 those 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 from continuing operations for 2002 was $24,000, compared to a
pre-tax loss from continuing operations 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.
Liquidity and Capital Resources
Debt Arrangements
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
9
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.
Cash Pension Contributions for Defined Benefit Plan
The Company received pension funding waivers from the Internal Revenue Service
for $855,000 in 2002 and $1,030,000 (of the $1,262,000 due) in 2003. These were
waivers for plan years ending November 30, 2001 and November 30, 2002, and were
conditioned on the Company satisfying the minimum funding requirements for the
plan years ending November 30, 2003 and November 30, 2004, and on the waiver
amount of $1,030,000 being secured, in a manner acceptable to the Pension
Benefit Guaranty Corporations (the "PBGC"), by September 10, 2004. The minimum
funding payment due in August 2004 is $1,533,000.
Overall Cash Position
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 Company's limited liquidity
under existing debt arrangements, its working capital deficit, the recent
history of losses, the pension payment due August 2004, and the overall risks
associated with achieving the 2004 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.
As of November 28, 2003, the Company had no 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 decreased from a negative $2,339,000 at
November 29, 2002 to a negative $4,350,000 at November 28, 2003, due to a
$2,119,000 increase in accounts payable and accrued expenses, a $717,000
increase in short term debt, a $232,000 increase in the current portion of long
term borrowings, a $60,000 decrease in prepaid and other current assets, and a
$27,000 decrease in cash, partially offset by a $734,000 increase in inventory
and a $410,000 decrease in accounts receivable.
For fiscal 2004, management's plan is to increase sales and control expenses to
improve profitability and provide additional cash from operating activities. The
plan also calls for working with a variety of potential lending sources to
acquire additional financing, as well as discussions with existing lenders and
others to restructure various obligations.
It is management's belief that cash flows generated from operations, and/or
additional financing, and/or a restructuring of existing debt and pension
obligations will be sufficient to meet the Company's liquidity needs during
fiscal 2004. Management also implemented a number of expense reductions during
the fourth quarter of 2003, including wage and salary reductions and the
deferral of certain personnel replacements or additions. 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 operating as a
going concern.
Cash provided by operating activities was $1,385,000 in 2003, compared to
$1,291,000 in 2002. The major factors contributing to cash provided by operating
activities were depreciation and amortization of $2,911,000, an increase in
10
accounts payable and accrued expenses of $2,149,000, a decrease in prepaid
expenses of $64,000, and a $17,000 increase in environmental reserves, partially
offset by a net loss of $2,304,000, a $511,000 decrease in warranty reserves
related to discontinued operations, an increase in inventory of $422,000, a
$337,000 decrease in pension obligation, a $113,000 increase in other assets, a
decrease in other liabilities of $64,000, and a $5,000 decrease in accounts
receivable. This cash provided by operating activities and additional short-term
borrowings of $411,000 were used pay off term debt and capital leases of
$1,535,000, and for capital expenditures of $308,000.
American Stock Exchange Compliance
On May 23, 2003, the Company received notification from the American Stock
Exchange (the "AMEX") that, as of the first quarter of fiscal 2003, the Company
was not in compliance with AMEX listing standards, due to shareholders' equity
being less than $2,000,000 and losses from continuing operations and/or net
losses in two of its three most recent fiscal years. In order to maintain the
listing of its common stock on AMEX, Plymouth was required to submit a plan by
June 23, 2003, subject to acceptance by AMEX, describing actions to be taken to
bring it into compliance with listing requirements within 18 months. On June 23,
2003 the Company submitted to the American Stock Exchange a plan describing the
program by which the Company will be brought back into compliance with AMEX's
listing standards by the end of November 2004. On August 25, 2003, AMEX accepted
this plan of compliance and granted an extension of time through November 2004
to regain compliance, subject to periodic review by AMEX during the extension
period. Failure to make progress consistent with these listing standards could
result in the Company's shares being delisted from AMEX.
On December 31, 2003, the Company received notification from the AMEX that the
Company's Class A Common Stock and Class B Common Stock are each subject to
delisting for having aggregate publicly held market values of less than
$1,000,000 for more than 90 consecutive days. In order for the Company to
maintain the listings of its Common Stock, it was to submit a plan, subject to
acceptance by AMEX, by January 26, 2004 advising the AMEX of actions to bring it
into compliance with continued listing standards by March 10, 2004. The Company
has been considering the feasibility of such a plan of compliance and has asked
AMEX for an extension of time to submit a compliance plan or pursue alternatives
to continued AMEX listing.
A summary of the Company's cash requirements related to its outstanding long
term debt, future minimum lease payments, and estimated pension funding
requirements are as follows:
Estimated
Operating Pension
Lease Funding
Fiscal Year: Long Term Debt Commitments Requirements Total
---------------- ---------------- ---------------- ----------------
2004.............. $ 1,768,000 $ 577,000 $ 1,580,000 $ 3,925,000
2005.............. 5,874,000 463,000 1,500,000 7,837,000
2006 ............. 685,000 262,000 1,500,000 2,447,000
2007 ............. 710,000 -- 1,820,000 2,530,000
2008 ............. 308,000 -- 1,130,000 1,438,000
Thereafter ....... -- -- -- --
----------- ----------- ----------- ------------
Total................. $ 9,345,000 $ 1,302,000 $ 7,530,000 $ 18,177,000
=========== =========== =========== ============
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.
11
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 $725,000 as of November 28, 2003 to cover future
environmental expenditures related to these claims, which is net of $505,000
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
28, 2003 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 $277,000 as of November 28, 2003 to cover estimated future
environmental cleanup expenditures, which is net of $961,000 payments made to
date. Actual future costs may be different from the amount accrued for as of
November 28, 2003.
Impact of New Accounting Pronouncements
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. At
November 28, 2003, the Company had no guarantees falling in the scope of FIN 45.
The Company will apply the provisions required by FIN 45 in future periods if
any guarantees are formed.
12
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. During the first quarter of
fiscal 2003 the Company adopted the additional disclosure provisions of FAS 148.
In January 2003, the FASB issued FIN 46, "Consolidation of Variable Interest
Entities, an Interpretation of ARB No. 51." The primary objective of the
Interpretation is to provide guidance on the identification of, and financial
reporting for, entities over which control is achieved through means other than
voting rights. Such entities are known as variable-interest entities (VIEs).
Although the FASB's initial focus was on special-purpose entities (SPEs), the
final guidance applies to a wide range of entities. FIN 46 applies to new
entities that are created after the effective date, as well as applies to
existing entities. The FIN is effective to preexisting entities as of the
beginning of the first interim period beginning after June 15, 2003, and to any
new entities beginning February 1, 2003. Once it goes into effect, FIN 46 will
be the guidance that determines (1) whether consolidation is required under the
"controlling financial interest" model of Accounting Research Bulletin No. 51
(ARB51), Consolidated Financial Statements, or other existing authoritative
guidance, or, alternatively, (2) whether the variable-interest model under FIN
46 should be used to account for existing and new entities. The Company will
apply the consolidation requirement of FIN 46 in future periods if it should
own any interest in any variable interest entity.
In April 2003, the FASB issued Statement of Financial Accounting Standards No.
149, "Amendment of Statement 133 on Derivative Instruments and Hedging
Activities" (FAS 149). This Statement amends and clarifies financial accounting
and reporting for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities under FAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. FAS No. 149 is effective for
contracts entered into or modified and for hedging relationships designated
after June 30, 2003. At November 28, 2003, the Company had no financial
instruments falling within the scope of FAS No. 149.
In May 2003, the FASB issued Statement of Financial Accounting Standards No.
150, "Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity" (FAS 150). FAS 150 establishes standards for how an
issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. It requires that an issuer
classify a financial instrument that is within its scope as a liability (or an
asset in some circumstances). Many of those instruments were previously
classified as equity. This Statement is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003. The
adoption of FAS 150 did not have a material effect on the Company's financial
statements.
In December 2003, the FASB issued Statement of Financial Accounting Standards
No. 132 (revised 2003), Employers' Disclosures about Pensions and Other
Postretirement Benefits. The provisions of that Statement do not change the
measurement and recognition provisions of FASB Statements No. 87, Employers'
Accounting for Pensions, No. 88, Employers' Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination Benefits, and
No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions.
Statement 132(R) replaces FASB Statement No. 132, Employers' Disclosures about
Pensions and Other Postretirement Benefits, and adds among other things
additional disclosure pertaining to plan assets, benefit obligations, key
assumptions and measurement dates. The effective dates of the pronouncement for
domestic plans are fiscal years ending after December 15, 2003.
13
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 28, 2003, the carrying value of Company's debt totaled $23.4 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 28, 2003, the Company had fixed rate debt of $8.7 million and
variable rate debt of $14.7 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 $147,000. The earnings and cash flows impact for the next
year resulting from a one percentage point increase in interest rates would be
approximately $147,000, holding other variables constant.
14
Item 8. Financial Statements and Supplementary Data
PLYMOUTH RUBBER COMPANY, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
PAGE
Report of Independent Auditors................................................................. 16
Consolidated Balance Sheet at November 28, 2003 and November 29, 2002.......................... 17 - 18
Consolidated Statement of Operations and Retained Earnings (Deficit) for each of the
three years in the period ended November 28, 2003........................................... 19
Consolidated Statement of Comprehensive Income (Loss) for each of the three years
in the period ended November 28, 2003....................................................... 20
Consolidated Statement of Cash Flows for each of the three years in the
period ended November 28, 2003.............................................................. 21
Notes to Consolidated Financial Statements..................................................... 22 - 42
Reserves (Schedule II)......................................................................... 46
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.
15
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
Plymouth Rubber Company, Inc.
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of
Plymouth Rubber Company, Inc. and its subsidiaries at November 28, 2003 and
November 29, 2002, and the results of their operations and their cash flows for
each of the three years in the period ended November 28, 2003 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 include any adjustments that might result from the outcome of
this uncertainty.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 13, 2004
16
PLYMOUTH RUBBER COMPANY, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
November 28, November 29,
2003 2002
---------------- ----------------
Cash..................................................... $ 10,000 $ 37,000
Accounts receivable, less allowance for
doubtful accounts of $447,000 and $397,000 at
November 28, 2003 and November 29, 2002,
respectively.............................................. 11,776,000 11,366,000
Inventories:
Raw materials....................................... 3,952,000 3,481,000
Work in process..................................... 2,472,000 1,799,000
Finished goods...................................... 5,951,000 6,361,000
---------------- ----------------
Total inventories................................... 12,375,000 11,641,000
---------------- ----------------
Prepaid expenses and other current assets................. 924,000 984,000
---------------- ----------------
Total current assets................................ 25,085,000 24,028,000
---------------- ----------------
PLANT ASSETS:
Land................................................... 637,000 551,000
Buildings.............................................. 6,494,000 6,371,000
Machinery and equipment................................ 41,559,000 40,697,000
Construction in progress............................... 4,000 8,000
---------------- ----------------
48,694,000 47,627,000
Less: Accumulated depreciation........................ (29,360,000) (26,199,000)
---------------- ----------------
Total plant assets, net.............................. 19,334,000 21,428,000
---------------- ----------------
Other long-term assets.................................. 896,000 790,000
---------------- ----------------
$ 45,315,000 $ 46,246,000
================ ================
The accompanying notes
are an integral part of these Consolidated Financial Statements.
17
PLYMOUTH RUBBER COMPANY, INC.
CONSOLIDATED BALANCE SHEET -- (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
November 28, November 29,
2003 2002
---------------- ----------------
CURRENT LIABILITIES:
Revolving line of credit............................... $ 14,031,000 $ 13,314,000
Trade accounts payable................................. 9,098,000 7,035,000
Accrued expenses....................................... 4,538,000 4,482,000
Current portion of long-term borrowings................ 1,768,000 1,536,000
---------------- ----------------
Total current liabilities........................... 29,435,000 26,367,000
---------------- ----------------
LONG-TERM LIABILITIES:
Borrowings............................................. 7,577,000 8,972,000
Pension obligation..................................... 5,486,000 5,115,000
Deferred tax liability................................. 143,000 119,000
Other.................................................. 2,062,000 2,611,000
---------------- ----------------
Total long-term liabilities......................... 15,268,000 16,817,000
---------------- ----------------
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, $0.01 par
value, 1,500,000 shares authorized,
810,586 shares issued and outstanding..................... 8,000 8,000
Class B non-voting common stock, $0.01 par
value, 3,500,000 shares authorized, 1,281,304
shares issued and 1,248,390 shares outstanding ........... 13,000 13,000
Paid-in capital .......................................... 11,154,000 11,154,000
Retained earnings (deficit)............................... (6,531,000) (4,227,000)
Accumulated other comprehensive loss:
Cumulative translation adjustment..................... 61,000 (171,000)
Minimum pension liability, net of tax................. (3,908,000) (3,530,000)
---------------- ----------------
797,000 3,247,000
Less: Treasury stock at cost (32,914 shares) ........... (185,000) (185,000)
---------------- ----------------
612,000 3,062,000
---------------- ----------------
$ 45,315,000 $ 46,246,000
================ ================
The accompanying notes
are an integral part of these Consolidated Financial Statements.
18
PLYMOUTH RUBBER COMPANY, INC.
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
Year Ended
--------------------------------------------------------
November 28, November 29, November 30,
2003 2002 2001
--------------- --------------- ---------------
Revenues:
Net sales........................................ $ 65,873,000 $ 65,259,000 $ 66,498,000
--------------- --------------- ---------------
Costs and Expenses:
Cost of products sold............................. 54,952,000 51,729,000 54,802,000
Selling, general and administrative............... 11,917,000 11,770,000 12,382,000
--------------- --------------- ---------------
66,869,000 63,499,000 67,184,000
--------------- --------------- ---------------
Operating income (loss).............................. (996,000) 1,760,000 (686,000)
Interest expense..................................... (1,787,000) (2,026,000) (2,298,000)
Foreign currency exchange gain (loss)................ 28,000 64,000 (25,000)
Other income, net.................................... 1,000 178,000 99,000
--------------- --------------- ---------------
Loss from continuing operations before income taxes.. (2,754,000) (24,000) (2,910,000)
Provision for (benefit from) income taxes............ 61,000 (125,000) (11,000)
--------------- --------------- ---------------
Income (loss) from continuing operations............. (2,815,000) 101,000 (2,899,000)
Income from discontinued operations, net of tax...... 511,000 -- --
--------------- --------------- ---------------
Net income (loss).................................... (2,304,000) 101,000 (2,899,000)
Retained earnings (deficit) at beginning of year..... (4,227,000) (4,328,000) (1,311,000)
Treasury stock issued................................ -- -- (118,000)
--------------- --------------- ---------------
Retained earnings (deficit) at end of year........... $ (6,531,000) $ (4,227,000) $ (4,328,000)
=============== =============== ===============
PER SHARE DATA:
BASIC EARNINGS (LOSS) PER SHARE:
Income (loss) from continuing operations.......... $ (1.37) $ 0.05 $ (1.42)
Income from discontinued operations............... 0.25 -- --
--------------- --------------- ---------------
Net income (loss)................................. $ (1.12) $ 0.05 $ (1.42)
=============== =============== ===============
Weighted average number of shares outstanding..... 2,058,976 2,058,976 2,042,411
=============== =============== ===============
DILUTED EARNINGS (LOSS) PER SHARE:
Income (loss) from continuing operations.......... $ (1.37) $ 0.05 $ (1.42)
Income from discontinued operations............... 0.25 -- --
--------------- --------------- ---------------
Net income (loss)................................. $ (1.12) $ 0.05 $ (1.42)
=============== =============== ===============
Weighted average number of shares outstanding .... 2,058,976 2,105,857 2,042,411
=============== =============== ===============
The accompanying notes
are an integral part of these Consolidated Financial Statements.
19
PLYMOUTH RUBBER COMPANY, INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
Year Ended
-------------------------------------------------------
November 28, November 29, November 30,
2003 2002 2001
--------------- --------------- ---------------
Net income (loss)................................... $ (2,304,000) $ 101,000 $ (2,899,000)
--------------- --------------- ---------------
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments......... 232,000 108,000 12,000
Minimum pension liability adjustment............. (378,000) (1,296,000) (2,234,000)
--------------- --------------- ---------------
Other comprehensive income (loss) ................... (146,000) (1,188,000) (2,222,000)
--------------- --------------- ---------------
Comprehensive income (loss).......................... $ (2,450,000) $ (1,087,000) $ (5,121,000)
=============== =============== ===============
The accompanying notes
are an integral part of these Consolidated Financial Statements.
20
PLYMOUTH RUBBER COMPANY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended
-------------------------------------------------------
November 28, November 29, November 30,
2003 2002 2001
--------------- --------------- ---------------
CASH FLOWS RELATING TO OPERATING ACTIVITIES:
Net income (loss) ........................................ $(2,304,000) $ 101,000 $(2,899,000)
Adjustments to reconcile net income (loss), to
net cash provided by operating activities:
Depreciation and amortization ......................... 2,911,000 2,973,000 3,053,000
Gain on disposal of plant assets ...................... -- (131,000) --
Provision for environmental reserves .................. 17,000 72,000 89,000
Income from discontinued operations ................... (511,000) -- --
Amortization of deferred compensation ................. -- -- 38,000
Other ................................................. -- -- 24,000
Changes in assets and liabilities:
Accounts receivable ................................... (5,000) 1,488,000 (2,930,000)
Inventory ............................................. (422,000) (866,000) 3,371,000
Prepaid expenses and other current assets ............. 64,000 (210,000) 150,000
Other assets .......................................... (113,000) (26,000) (39,000)
Trade accounts payable ................................ 1,834,000 (2,565,000) 1,590,000
Accrued expenses ...................................... 315,000 239,000 568,000
Other liabilities ..................................... (64,000) (103,000) 22,000
Pension obligation .................................... (337,000) 319,000 95,000
----------- ----------- -----------
Net cash provided by operating activities ................. 1,385,000 1,291,000 3,132,000
----------- ----------- -----------
CASH FLOWS RELATING TO INVESTING ACTIVITIES:
Capital expenditures .................................... (308,000) (376,000) (644,000)
Proceeds from sale of plant assets ...................... -- 131,000 --
Sale/leaseback of plant assets .......................... -- 60,000 --
----------- ----------- -----------
Net cash used in investing activities ..................... (308,000) (185,000) (644,000)
----------- ----------- -----------
CASH FLOWS RELATING TO FINANCING ACTIVITIES:
Net (decrease )increase in revolving line of credit ..... 411,000 35,000 (338,000)
Payments of term debt ................................... (1,189,000) (869,000) (1,677,000)
Payments on capital leases .............................. (346,000) (180,000) (461,000)
----------- ----------- -----------
Net cash used in financing activities ..................... (1,124,000) (1,014,000) (2,476,000)
----------- ----------- -----------
Effect of exchange rate changes on cash ................... 20,000 (62,000) (9,000)
----------- ----------- -----------
Net change in cash ........................................ (27,000) 30,000 3,000
Cash at the beginning of the year ......................... 37,000 7,000 4,000
----------- ----------- -----------
Cash at the end of the year ............................... $ 10,000 $ 37,000 $ 7,000
=========== =========== ===========
Supplemental Disclosure of Cash Flow Information
Cash paid for interest................................ $ 1,818,000 $ 2,042,000 $ 2,157,000
=========== =========== ===========
Cash paid for income taxes............................ $ 69,000 $ 44,000 $ 16,000
=========== =========== ===========
The accompanying notes
are an integral part of these Consolidated Financial Statements.
21
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 FAS No. 144. 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 $0.1 million and $0.8
million of fully depreciated plant assets in 2003 and 2002, 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.
22
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 1 -- Summary of Significant Accounting Policies -- (Continued)
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 -- The Company's stock option plans
are accounted for in accordance with Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB No. 25"). The Company
uses the disclosure requirements of Statement of Financial Accounting
Standard No. 123, "Accounting for Stock-Based Compensation" ("FAS 123").
Under APB No. 25, the Company does not recognize compensation expense on
stock options granted to employees, because the exercise price of each
option is equal to the market price of the underlying stock on the date of
the grant. If the Company had elected to recognize compensation cost based
on the fair value of the options granted at grant date as prescribed by FAS
148, which the Company adopted during the first quarter of fiscal 2003, the
Company's net loss and loss per share would have been reduced to the
following pro forma amounts:
Year Ended
-----------------------------------------------------
November 28, November 29, November 30,
2003 2002 2001
--------------- --------------- ---------------
Net income (loss), as reported ........... $ (2,304,000) $ 101,000 $ (2,899,000)
Deduct: Total stock-based employee
compensation determined under fair value
method for all awards, net of related
tax effects ............................ (138,000) (192,000) (135,000)
--------------- --------------- -------------
Net income (loss), pro forma ............. $ (2,442,000) $ (91,000) $ (3,034,000)
=============== =============== =============
Earnings per share:
Basic EPS, as reported ................. $ (1.12) $ 0.05 $ (1.42)
=============== =============== =============
Basic EPS, pro forma ................... $ (1.19) $ (0.04) $ (1.49)
=============== =============== =============
Diluted EPS, as reported ............... $ (1.12) $ 0.05 $ (1.42)
=============== =============== =============
Diluted EPS, pro forma ................. $ (1.19) $ (0.04) $ (1.49)
=============== =============== =============
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 2003. Shares under the option plans that were
excluded from the computation of diluted earnings per share at November 28,
2003, November 29, 2002, and November 30, 2001 due to their antidilutive
effect.
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 13.8% of the
Company's revenues in fiscal 2003. 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 $2,733,000, $2,409,000 and $2,603,000 in 2003, 2002 and 2001,
respectively.
23
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 1 -- Summary of Significant Accounting Policies -- (Continued)
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 28, 2003, and November 29, 2002.
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 28, 2003, the Company had
unamortized goodwill of approximately $481,000, which is subject to the
provisions of FAS 142.
R. 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. FAS 121 did not
address the accounting for a segment of a business accounted for as a
discontinued operation under APB 30, as a result 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 adoption of FAS 144
did not have a material effect on Company's consolidated financial
statements.
24
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 1 -- Summary of Significant Accounting Policies -- (Continued)
S. 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. During the first quarter of fiscal 2003 the Company adopted the
additional disclosures provisions of FAS 148.
T. 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 At November 28, 2003, the Company had no
guarantees falling in the scope of FIN 45. The Company will apply the
provisions required by FIN 45 in future periods if any guarantees are
formed.
U. Financial Accounting Standards Board Interpretation No. 46 -- In January
2003, the FASB issued FIN 46, "Consolidation of Variable Interest Entities,
an Interpretation of ARB No. 51." The primary objective of the
Interpretation is to provide guidance on the identification of, and
financial reporting for, entities over which control is achieved through
means other than voting rights. Such entities are known as variable-interest
entities (VIEs). Although the FASB's initial focus was on special-purpose
entities (SPEs), the final guidance applies to a wide range of entities. FIN
46 applies to new entities that are created after the effective date, as
well as applies to existing entities. The FIN is effective to preexisting
entities as of the beginning of the first interim period beginning after
June 15, 2003, and to any new entities beginning February 1, 2003. Once it
goes into effect, FIN 46 will be the guidance that determines (1) whether
consolidation is required under the "controlling financial interest" model
of Accounting Research Bulletin No. 51 (ARB51), Consolidated Financial
Statements, or other existing authoritative guidance, or, alternatively, (2)
whether the variable-interest model under FIN 46 should be used to account
for existing and new entities. The Company will apply the consolidation
requirement of FIN 46 in future periods if it should own any interest in
any variable interest entity.
25
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 1 -- Summary of Significant Accounting Policies -- (Continued)
V. Derivative Instruments and Hedging Activities -- In April 2003, the FASB
issued Statement of Financial Accounting Standards No. 149, "Amendment of
Statement 133 on Derivative Instruments and Hedging Activities" (FAS
149). This Statement amends and clarifies financial accounting and reporting
for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives) and
for hedging activities under FAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. FAS No. 149 is effective for contracts
entered into or modified and for hedging relationships designated after June
30, 2003. At November 28, 2003, the Company had no financial instruments
falling within the scope of FAS No. 149.
W. Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity --In May 2003, the FASB issued Statement of Financial
Accounting Standards No. 150, "Accounting for Certain Financial Instruments
with Characteristics of both Liabilities and Equity" (FAS 150). FAS 150
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity.
It requires that an issuer classify a financial instrument that is within
its scope as a liability (or an asset in some circumstances). Many of those
instruments were previously classified as equity. This Statement is
effective for financial instruments entered into or modified after May 31,
2003, and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003. The adoption of FAS 150 did not have a
material effect on the Company's financial statements.
X. Pensions and Other Postretirement Benefits -- In December 2003, the FASB
issued Statement of Financial Accounting Standards No. 132 (revised 2003),
Employers' Disclosures about Pensions and Other Postretirement Benefits. The
provisions of that Statement do not change the measurement and recognition
provisions of FASB Statements No. 87, Employers' Accounting for Pensions,
No. 88, Employers' Accounting for Settlements and Curtailments of Defined
Benefit Pension Plans and for Termination Benefits, and No. 106, Employers'
Accounting for Postretirement Benefits Other Than Pensions. Statement 132(R)
replaces FASB Statement No. 132, Employers' Disclosures about Pensions and
Other Postretirement Benefits, and adds among other things additional
disclosure pertaining to plan assets, benefit obligations, key assumptions
and measurement dates. The effective dates of the pronouncement for domestic
plans are fiscal years ending after December 15, 2003.
26
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
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 Company's limited liquidity
under existing debt arrangements, its working capital deficit, the recent
history of losses, the pension payment due August 2004, and the overall risks
associated with achieving the 2004 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.
As of November 28, 2003, the Company had no 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 decreased from a negative $2,339,000 at
November 29, 2002 to a negative $4,350,000 at November 28, 2003, due to a
$2,119,000 increase in accounts payable and accrued expenses, a $717,000
increase in short term debt, a $232,000 increase in the current portion of long
term borrowings, a $60,000 decrease in prepaid and other current assets, and a
$27,000 decrease in cash, partially offset by a $734,000 increase in inventory
and a $410,000 decrease in accounts receivable.
For fiscal 2004, management's plan is to increase sales and control expenses to
improve profitability and provide additional cash from operating activities. The
plan also calls for working with a variety of potential lending sources to
acquire additional financing, as well as discussions with existing lenders and
others to restructure various obligations.
It is management's belief that cash flows generated from operations, and/or
additional financing, and/or a restructuring of existing debt and pension
obligations will be sufficient to meet the Company's liquidity needs during
fiscal 2004. Management also implemented a number of expense reductions during
the fourth quarter of 2003, including wage and salary reductions and the
deferral of certain personnel replacements or additions. 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 operating as a
going concern.
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. For fiscal 2003 there was no Free Cash Flow payment required.
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
27
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 2 -- Going Concern, Borrowing Arrangements and Financing Commitments --
(Continued)
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 28, November 29,
2003 2002
---------------- ----------------
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 28, 2003,
the Company had approximately $0 in borrowing availability on its revolving line
of credit. The interest rate at November 28, 2003 was 5.0% .......................... $ 11,371,000 $ 10,741,000
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 28, 2003 was 5.0% ...................................... 600,000 1,200,000
Short-term borrowings with four Spanish Banks and a German Bank with
interest rates ranging from 3.08% to 5.25% at November 28, 2003. Principal
amount 1,729,000 euros (approximately $2,060,000) at November 28, 2003................ 2,060,000 1,373,000
----------------- ----------------
$ 14,031,000 $ 13,314,000
================= ================
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................. $ 2,054,000 $ 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............. 1,402,000 1,705,000
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............. 2,150,000 2,414,000
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............. 379,000 420,000
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............. 1,157,000 1,264,000
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.................... 900,000 978,000
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 ............ 125,000 180,000
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 28 2003 was 3.5%........................................ 626,000 672,000
Capital lease obligations (see Note 9)................................................ 552,000 647,000
----------------- ----------------
9,345,000 10,508,000
Less current portion.................................................................. 1,768,000 1,536,000
----------------- ----------------
$ 7,577,000 $ 8,972,000
================= ================
28
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 2 -- Going Concern, Borrowing Arrangements and Financing Commitments --
(Continued)
During the prior 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 replaced four individual term notes.
Maturities of long-term obligations in the next five years are: 2004 -
$1,768,000; 2005 - $5,874,000; 2006 - $685,000; 2007 - $710,000; 2008 -
$308,000; and thereafter - $0.
Note 3 -- Income Taxes
Income (loss) before taxes consists of the following:
Year Ended
----------------------------------------------------
November 28, November 29, November 30,
2003 2002 2001
--------------- -------------- ---------------
U.S. .................................... $ (2,488,000) $ (263,000) $ (2,869,000)
Foreign..................................
245,000 239,000 (41,000)
--------------- -------------- ---------------
Total $ (2,243,000) $ (24,000) $ (2,910,000)
=============== ============== ===============
The provision (benefit) for income taxes consists of the following:
Year Ended
----------------------------------------------------
November 28, November 29, November 30,
2003 2002 2001
--------------- --------------- --------------
Current:
Federal................................. $ -- $ (187,000) $ --
State................................... -- -- --
Foreign................................. 61,000 62,000 (11,000)
--------------- --------------- --------------
61,000 (125,000) (11,000)
--------------- --------------- --------------
Deferred:
Federal................................. -- -- --
State................................... -- -- --
--------------- --------------- --------------
-- -- --
--------------- --------------- --------------
Total $ 61,000 $ (125,000) $ (11,000)
=============== =============== ==============
29
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 3 -- Income Taxes -- (Continued)
The components of the net deferred tax asset (liability) are as follows:
November 28, November 29,
2003 2002
---------------- ----------------
Deferred tax assets:
Pension obligations....................................... $ 2,968,000 $ 2,673,000
Federal and state NOL carryforwards....................... 2,631,000 1,746,000
Environmental reserves.................................... 428,000 455,000
AMT credit carryfoward.................................... 246,000 246,000
Postretirement benefits................................... 464,000 435,000
State investment tax credit (ITC) carryforwards........... 389,000 357,000
Other reserves............................................ 870,000 1,176,000
---------------- ----------------
Total gross deferred tax assets........................... 7,996,000 7,088,000
Valuation allowance....................................... (6,124,000) (5,226,000)
---------------- ----------------
1,872,000 1,862,000
Deferred tax liability:
Plant assets.............................................. (2,015,000) (1,981,000)
---------------- ----------------
Net deferred tax asset (liability).................. $ (143,000) $ (119,000)
================ ================
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 $898,000 and
$755,000 in 2003 and 2002, respectively. Such an increase was deemed necessary
as the net deferred tax asset balance at November 28, 2003 and November 29, 2002
could not be carried back to recover taxes paid in previous years and will ot be
offset by the reversal of future taxable differences. Also, the Company's
liquidity situation at November 28, 2003 and November 29, 2002 provides
significant negative evidence regarding the ability to generate sufficient
taxable income in the future to recover these assets.
30
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 3 -- Income Taxes -- (Continued)
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 28, 2003, November 29, 2002, and November 30, 2001, is as follows:
Year Ended
-----------------------------------------------------
November 28, November 29, November 30,
2003 2002 2001
--------------- --------------- ---------------
Tax (benefit) computed at statutory rate... $ (763,000) $ (8,000) $ (989,000)
State income taxes, net of federal
income tax benefit...................... (15,000) (333,000) (154,000)
Recovery of federal tax credit............. -- (187,000) --
State investment tax credit................ 32,000 (25,000) --
Valuation allowance ....................... 751,000 435,000 1,127,000
Rate differential attributable to
foreign operations....................... (22,000) (19,000) 1,000
Other...................................... 78,000 12,000 4,000
--------------- --------------- ---------------
$ 61,000 $ (125,000) $ (11,000)
=============== =============== ===============
Effective income tax rate.................. 2.7% (520.8)% (0.4)%
During 2003 and 2002, the Company recorded a $3,908,000 and $3,530,000 minimum
pension liability and a full valuation allowance on the related deferred tax
asset of $1,535,000 and $1,386,000. These amounts are included in Other
Comprehensive Income (Loss) for the year ended November 28, 2003 and November
29, 2002, respectively.
Note 4 -- Accrued Expenses
The Company's accrued expenses consist of the following:
November 28, November 29,
2003 2002
---------------- ----------------
Accrued payroll and related benefits...................... $ 683,000 $ 972,000
Accrued pension contributions............................. 1,580,000 1,250,000
Other..................................................... 2,275,000 2,260,000
---------------- ----------------
$ 4,538,000 $ 4,482,000
================ ================
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 2003, 2002 and 2001, the Company did not accrue
for any profit sharing contribution.
31
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 5 -- Retirement and Other Benefit Plans -- (Continued)
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 28, November 29,
2003 2002
---------------- ----------------
Reconciliation of benefit obligation:
Benefit obligation at beginning of year................. $ 13,012,000 $ 12,996,000
Interest cost........................................... 720,000 757,000
Benefit payments........................................ (1,219,000) (1,215,000)
Actuarial loss.......................................... 627,000 474,000
---------------- ----------------
Benefit obligation at end of year....................... $ 13,140,000 $ 13,012,000
================ ================
Reconciliation of fair value of plan assets:
Fair value at beginning of year......................... $ 6,647,000 $ 8,247,000
Actual return on plan assets............................ 414,000 (385,000)
Employer contributions.................................. 232,000 --
Benefit payments........................................ (1,219,000) (1,215,000)
---------------- ----------------
Fair value at end of year............................... $ 6,074,000 $ 6,647,000
================ ================
Funded Status:
Funded status........................................... $ (7,066,000) $ (6,365,000)
Unrecognized loss....................................... 3,908,000 3,530,000
---------------- ----------------
Net amount recognized................................... $ (3,158,000) $ (2,835,000)
================ ================
Amounts recognized in the consolidated balance sheet:
Accrued pension cost.................................... $ (7,066,000) $ (6,365,000)
Accumulated other comprehensive loss.................... 3,908,000 3,530,000
---------------- ----------------
Net amount recognized................................... $ (3,158,000) $ (2,835,000)
================ ================
Net periodic pension expense for the pension plan for the years ended November
28, 2003, November 29, 2002 and November 30, 2001, is as follows:
Year Ended
-----------------------------------------------------
November 28, November 29, November 30,
2003 2002 2001
--------------- --------------- ---------------
Service cost............................... $ -- $ -- $ --
Interest cost.............................. 720,000 758,000 832,000
Expected return on assets.................. (533,000) (686,000) (730,000)
Amortization of net gain................... 367,000 248,000 (7,000)
--------------- --------------- ---------------
Net periodic pension expense $ 554,000 $ 320,000 $ 95,000
=============== =============== ===============
32
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 5 -- Retirement and Other Benefit Plans -- (Continued)
Key weighted-average assumptions used in the measurement of the Company's
defined benefit pension obligation are as follows:
2003 2002 2001
--------------- --------------- ---------------
Discount rate.............................. 5.25% 5.75% 6.00%
Long term rate of return on assets......... 8.75% 9.00% 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 28, November 29,
2003 2002
---------------- ----------------
Reconciliation of benefit obligation:
Benefit obligation at beginning of year................. $ 1,194,000 $ 807,000
Service cost............................................ 60,000 63,000
Interest cost........................................... 61,000 61,000
Benefit payments........................................ (52,000) (60,000)
Actuarial (gain) loss................................... (69,000) 323,000
---------------- ----------------
Benefit obligation at end of year....................... $ 1,194,000 $ 1,194,000
================ ================
Reconciliation of fair value of plan assets:
Fair value at beginning of year........................ $ -- $ --
Employer contributions.................................. 52,000 60,000
Benefit payments........................................ (52,000) (60,000)
---------------- ----------------
Fair value at end of year............................... $ -- $ --
================ ================
Funded Status:
Funded status........................................... $ (1,194,000) $ (1,194,000)
Unrecognized gain....................................... 90,000 158,000
---------------- ----------------
Accrued postretirement benefit cost..................... $ (1,104,000) $ (1,036,000)
================ ================
Amounts recognized in the consolidated balance sheet:
Accrued benefit obligation.............................. $ (1,104,000) $ (1,036,000)
---------------- ----------------
Net amount recognized................................... $ (1,104,000) $ (1,036,000)
================ ================
Key weighted-average assumptions used in the measurement of the Company's
postretirement benefit obligation are as follows:
33
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 5 -- Retirement and Other Benefit Plans -- (Continued)
2003 2002 2001
---------------- ---------------- ----------------
Discount rate.............................. 5.25% 5.75% 6.00%
For measurement purposes, a 10.0% annual rate of increase in the per capita cost
of covered health care benefits was assumed for 2003. The rate assumed decreased
gradually to 5.0% for 2010 and remains at that level thereafter.
The components of net postretirement expense are as follows:
Year Ended
-----------------------------------------------------
November 28, November 29, November 30,
2003 2002 2001
--------------- --------------- ---------------
Service cost............................... $ 60,000 $ 63,000 $ 35,000
Interest cost.............................. 61,000 61,000 49,000
Amortization of (gain) loss................ -- -- (10,000)
--------------- --------------- ---------------
Net periodic postretirement expense........ $ 121,000 $ 124,000 $ 74,000
=============== =============== ===============
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. $ 15,000 $ (12,000)
Effect on postretirement benefit obligation............. 100,000 (86,000)
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 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)
Change in par value ................. (802,000) (1,268,000) 2,070,000
---------- ----------- ------------ ------------ ------------- -------------
Balance at November 28, 2003......... 810,586 1,281,304 $ 8,000 $ 13,000 $ 11,154,000 $ (185,000)
========== =========== ============ ============ ============= =============
In April 2003, the shareholders approved an amendment to the Company's Restated
Articles of Organization reducing the par value for Class A and Class B Common
Stock from $1.00 per share to $0.01 per share. Accordingly, the value for Class
A and Class B Common Stock and Paid in capital on the Condensed Consolidated
Balance Sheet, have been adjusted for this change in par value for all periods
presented.
34
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 6 -- Common Stock and Earnings (Loss) Per Share -- (Continued)
Treasury stock includes 32,914 shares of Class B Common Stock at November 28,
2003 and November 29, 2002, 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 28, November 29, November 30,
2003 2002 2001
--------------- ---------------- ---------------
Basis earnings (loss) per share
Net income (loss) from continuing operations ... $ (2,815,000) $ 101,000 $ (2,899,000)
Income from discontinued operations............. 511,000 -- --
--------------- ---------------- ---------------
Net income (loss) available to
common stockholders ........................... $ (2,304,000) $ 101,000 $ (2,899,000)
=============== ================ ===============
Weighted average shares......................... 2,058,976 2,058,976 2,042,411
=============== ================ ===============
Net income (loss) from continuing operations ... $ (1.37) $ 0.05 $ (1.42)
Income from discontinued operations ............ 0.25 -- --
--------------- ---------------- ---------------
Net income (loss) per share..................... $ (1.12) $ 0.05 $ (1.42)
=============== ================ ===============
Diluted earnings(loss) per share
Net income (loss) from continuing operations ... $ (2,815,000) $ 101,000 $ (2,899,000)
Income from discontinued operations............. 511,000 -- --
--------------- ---------------- ---------------
Net income (loss) available to
common stockholders ........................... $ (2,304,000) $ 101,000 $ (2,899,000)
=============== ================ ===============
Weighted average shares......................... 2,058,976 2,058,976 2,042,411
Effect of dilutive stock options................ -- 46,881 --
--------------- ---------------- ---------------
Diluted weighted average shares................. 2,058,976 2,105,857 2,042,411
=============== ================ ===============
Net income (loss) from continuing operations.... $ (1.37) $ 0.05 $ (1.42)
Net income from discontinued operations......... 0.25 -- --
--------------- ---------------- ---------------
Net income (loss) per share..................... $ (1.12) $ 0.05 $ (1.42)
=============== ================ ===============
(a) Options for 548,372, 413,181, and 380,729 shares of common stock were
outstanding at November 28, 2003, November 29, 2002 and November 30, 2001,
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 shares of common stock were
outstanding November 30, 2001, respectively, but were not included in
computing diluted earnings per share because of the net loss.
35
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
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 28
2003, there were 68,742 options available for grant under this plan.
The 1995 Director Plan authorizes the granting of options only to non-employee
directors to purchase an aggregate of 210,000 shares of the Company's Class B
Common Stock. The exercise price of the options granted under the 1995 Director
Plan may be no less than 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 28, 2003, there were no 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 28 2003, there were 118,200 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 28 2003, there
were 108,000 options available for grant under this plan.
36
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 7 -- Stock Option and Stock Purchase Plans -- (Continued)
A summary of the Company's stock option plans as of November 28, 2003, November
29, 2002, and November 30, 2001, and the changes during the years then ended on
those dates are presented below:
Weighted
Number of Average
Options Exercise Price
---------------- --------------
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
Options granted........................... -- --
Options exercised......................... -- --
Options expired........................... (75,635) 5.89
----------------
Outstanding at November 28, 2003.......... 515,665 1.99
================
Weighted
Number of Average
Options Exercise Price
---------------- ----------------
Exercisable at November 30, 2001.......... 215,564 $ 4.94
Exercisable at November 29, 2002.......... 250,000 $ 4.57
Exercisable at November 28, 2003.......... 376,765 $ 2.42
The following table summarizes information about all stock options outstanding
at November 28, 2003:
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 - 0.90 253,800 7 $ 0.82 114,900 $ 0.81
1.25 - 1.38 139,500 7 1.28 139,500 1.28
4.25 - 4.63 73,800 5 4.55 73,800 4.55
5.95 - 6.81 38,565 3 6.04 38,565 6.04
7.12 - 7.75 10,000 4 7.13 10,000 7.13
--------------- ---------------
515,665 376,765
=============== ===============
The options outstanding at November 28, 2003 expire at various times in 2004
through 2012.
37
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 7 -- Stock Option and Stock Purchase Plans -- (Continued)
The fair value of options at the date of grant was estimated using the
Black-Scholes model with the following weighted average assumptions:
2002
---------------
Expected life (years) ................... 10
Expected stock price volatility.......... 150%
Risk-free interest rate.................. 4.00%
At November 28, 2003 and November 29, 2002, 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 28, 2003 and at November
29, 2002. During 2003 and 2002, no shares were repurchased or issued throughout
the year. At November 28, 2003 and at November 29, 2002, 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.
38
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 8 -- Segment Information -- (Continued)
The table below presents information related to Plymouth Rubber's business
segments for each of the past three years.
Year Ended
---------------------------------------------
November 28, November 29, November 30,
2003 2002 2001
------------ ------------ ------------
Segment sales to unaffiliated customers:
Plymouth Tapes ....................... $ 57,712,000 $ 56,237,000 $ 57,553,000
Brite-Line Technologies .............. 8,161,000 9,022,000 8,945,000
------------ ------------ ------------
Consolidated net sales ............... $ 65,873,000 $ 65,259,000 $ 66,498,000
============ ============ ============
Segment income (loss):
Plymouth Tapes ....................... $ (1,445,000) $ 647,000 $ (1,581,000)
Brite-Line Technologies .............. 449,000 1,113,000 895,000
------------ ------------ ------------
Consolidated operating income
(loss) from continuing operations .. (996,000) 1,760,000 (686,000)
Interest expense ..................... (1,787,000) (2,026,000) (2,298,000)
Foreign currency exchange gain
(loss) from continuing operations .. 28,000 64,000 (25,000)
Other income, net .................... 1,000 178,000 99,000
------------ ------------ ------------
Consolidated loss from
continuing operations before tax ... $ (2,754,000) $ (24,000) $ (2,910,000)
============ ============ ============
Depreciation and amortization:
Plymouth Tapes ....................... $ 2,803,000 $ 2,889,000 $ 2,967,000
Brite-Line Technologies .............. 108,000 84,000 86,000
------------ ------------ ------------
Total depreciation and amortization .. $ 2,911,000 $ 2,973,000 $ 3,053,000
============ ============ ============
Assets:
Plymouth Tapes ....................... $ 41,936,000 $ 42,709,000 $ 44,559,000
Brite-Line Technologies .............. 3,379,000 3,537,000 4,099,000
------------ ------------ ------------
Total assets ......................... $ 45,315,000 $ 46,246,000 $ 48,658,000
============ ============ ============
Geographic information:
Net sales to unaffiliated customers:
United States ........................ $ 51,640,000 $ 53,477,000 $ 54,800,000
Spain and Portugal ................... 3,931,000 2,883,000 3,199,000
Other ................................ 10,302,000 8,899,000 8,499,000
------------ ------------ ------------
Consolidated net sales ............... $ 65,873,000 $ 65,259,000 $ 66,498,000
============ ============ ============
Long-lived assets:
United States ........................ $ 17,350,000 $ 19,846,000 $ 22,410,000
Spain ................................ 1,984,000 1,582,000 1,443,000
------------ ------------ ------------
Total long-lived assets .............. $ 19,334,000 $ 21,428,000 $ 23,853,000
============ ============ ============
The Company has one customer, whose operations are primarily in the automotive
industry, which accounted for 32%, 33% and 33% of net sales in 2003, 2002, and
2001, respectively.
39
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 9 -- Leases
Included in Plant Assets in the accompanying Consolidated Balance Sheet is
leased property under capital leases as follows:
November 28, November 29,
2003 2002
---------------- ----------------
Machinery and equipment $ 2,702,000 $ 2,832,000
Less: accumulated
amortization ........ 1,375,000 1,355,000
---------------- ----------------
$ 1,327,000 $ 1,477,000
================ ================
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 28, 2003:
2004............................................... $ 381,000
2005............................................... 90,000
2006............................................... 52,000
2007............................................... 32,000
Thereafter......................................... 7,000
-----------
Total minimum lease payments 562,000
Less: Amount representing interest 10,000
-----------
$ 552,000
===========
Minimum annual rentals under noncancelable operating leases (which are
principally for equipment) are as follows:
2004............................................... $ 577,000
2005............................................... 463,000
2006............................................... 262,000
2007............................................... --
2008............................................... --
Total rental expense for 2003, 2002 and 2001 was 966,000, $1,185,000, and
$1,071,000, 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 2003, 2002 and 2001,
consulting fees of $56,400, $56,400, and $51,700, respectively, were paid
pursuant to this agreement.
40
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
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 $725,000 as of November 28, 2003 to cover future
environmental expenditures related to these claims, which is net of $505,000
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
28, 2003 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 $277,000 as of November 28, 2003 to cover estimated future
environmental cleanup expenditures, which is net of $961,000 payments made to
date. Actual future costs may be different from the amount accrued for as of
November 28, 2003.
Note 12 -- Discontinued Operations
Income from discontinued operations, net of tax of was $511,000 in 2003, due to
a reduction in product warranty reserves for a roofing business that was
discontinued in 1984. Management believes that this reserve, which was last
charged with a claim in fiscal 1998, is no longer required, due to the
expirations of warranties and a lack of claim activity.
41
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 13 -- Unaudited Quarterly Financial Data
The following table presents the quarterly information for fiscal 2003 and 2002.
Quarter Ended
--------------------------------------------------------------------
February 28 May 30 August 29 November 28
-------------- --------------- -------------- ---------------
2003 (a)
Net sales ................... $ 13,543,000 $ 18,287,000 $ 15,970,000 $ 18,073,000
Gross profit ................. 1,772,000 3,498,000 2,245,000 3,406,000
Net income (loss)............ (1,380,000) (184,000) (1,118,000) 378,000
Earnings (loss) per share:
Basic ..................... $ (0.67) $ (0.09) $ (0.54) $ 0.18
Diluted .................... $ (0.67) $ (0.09) $ (0.54) $ 0.18
March 1 May 31 August 30 November 29
-------------- --------------- -------------- ---------------
2002 (b)
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)
(a) Sales in the first and third quarters of 2003 in Plymouth Tapes were
reduced due to normal seasonal fluctuations. In addition, sales for the
first quarter of 2003 for Brite-Line Technologies were reduced due to the
highly seasonal nature of the highway market segment. Net income for the
fourth quarter of 2003 includes $511,000 income from Discontinued
Operations.
(b) 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
42
Item 9. Disagreement on Accounting and Financial Disclosure
None
Item 9A. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. As of the end of the
period covered by this report, management 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) Changes in internal controls. There has been no change in our internal
controls over financial reporting during our most recent fiscal quarter that has
materially affected, or is reasonable likely to materially affect those
controls.
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 28, 2003.
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
28, 2003.
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
28, 2003.
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
28, 2003.
Item 14. Principal Accountant Fees and Services
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
28, 2003.
43
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 15.
(a)2. Financial statement schedules required as part of this report are listed
in the index appearing on page 15.
(a)3. Exhibits required as part of this report are listed in the index appearing
on pages 47 - 50.
(b) None
44
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
PLYMOUTH RUBBER COMPANY, INC.
(Registrant)
By /s/ JOSEPH J. BERNS
---------------------------------------
Joseph J. Berns
Vice President - Finance and Treasurer
Date: February 26, 2004
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.
/s/ MAURICE J. HAMILBURG President and Co-Chief Executive Officer and Director
- -------------------------------------
Maurice J. Hamilburg
/s/ JOSEPH D. HAMILBURG Chairman and Co-Chief Executive Officer and Director
- -------------------------------------
Joseph D. Hamilburg
/s/ C. GERALD GOLDSMITH Director
- -------------------------------------
C. Gerald Goldsmith
/s/ JANE H. GUY Director
- -------------------------------------
Jane H. Guy
/s/ MELVIN L. KEATING Director
- -------------------------------------
Melvin L. Keating
/s/ EDWARD PENDERGAST Director
- -------------------------------------
Edward Pendergast
/s/ DUANE E. WHEELER Director
- -------------------------------------
Duane E. Wheeler
/s/ JOSEPH J. BERNS Vice President - Finance and Treasurer (Principal
- ------------------------------------- Financial Officer and Principal Accounting Officer)
Joseph J. Berns
45
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 28, 2003........... $ 397,000 $ 130,000 $ (80,000) $ 447,000
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
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 28, 2003........... $ 630,000 $ 345,000 $ (454,000) $ 521,000
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
46
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.
47
PLYMOUTH RUBBER COMPANY, INC.
INDEX TO EXHIBITS
(Continued)
Exhibit
No. Description
- ------- -----------
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.
48
PLYMOUTH RUBBER COMPANY, INC.
INDEX TO EXHIBITS
(Continued)
Exhibit
No. Description
- ------- -----------
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.
49
PLYMOUTH RUBBER COMPANY, INC.
INDEX TO EXHIBITS
(Continued)
Exhibit
No. Description
- ------- -----------
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 Auditors.
24 Not Applicable.
27 Not Applicable.
28 Not Applicable.
29 Not Applicable.
31.1 Certification of President and Co-Chief Operating Officer Pursuant to
Rule 13a-14(a) to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chairman and Co-Chief Operating Officer Pursuant to
Rule 13a-14(a) to Section 302 of the Sarbanes-Oxley Act of 2002.
31.3 Certification of Vice President - Finance and Chief Financial Officer
Pursuant to Rule 13a-14(a) to Section 302 of the Sarbanes-Oxley Act
of 2002
32 Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
50