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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, 1997 1-5197
PLYMOUTH RUBBER COMPANY, INC.
-----------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-1733970
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
104 Revere Street, Canton, Massachusetts 02021
---------------------------------------- -----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (781) 828-0220
---------------
Securities registered pursuant to
Section 12(b) 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
504 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definite proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
---
The aggregate market value of the registrant's voting stock held by
non-affiliates of the registrant at January 29, 1998, was approximately
$1,824,000.
- ----------
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the close of the period covered by this report.
Class A common stock, par value $1 ........ 810,586
---------
Class B common stock, par value $1 ........ 1,234,334
---------
Documents incorporated by reference:
Portions of the registrant's definitive Proxy Statement to be dated on or
about March 25, 1998 (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. (the "Company") manufactures and supplies rubber
and vinyl products to a broad range of markets, including the electrical supply
industry, electric utilities, automotive and other Original Equipment
Manufacturers (OEM) and to highway striping contractors. These products, which
include electrical insulating tapes, automotive harness tapes, and industrial
tapes and films, are sold either through sales personnel employed by the Company
and/or through distributors and/or commissioned sales representatives. On
October 4, 1996, LB Acquisition Corporation, a wholly owned subsidiary of the
Company, acquired certain assets of Brite-Line Industries, Inc. out of
foreclosure from Brite-Line's senior secured creditors. LB Acquisition
Corporation, which was renamed Brite-Line Technologies, Inc., produces and
markets rubber based highway marking tapes from its Denver, Colorado facility.
On January 3, 1997, Plymouth Rubber Europa, S.A., a wholly-owned subsidiary of
the Company, acquired 100% of the outstanding shares of Cintas Adhesivas Nunez,
S.A., a privately owned company, located in Porrino, Spain. Plymouth Rubber
Europa, S.A. produces and markets vinyl and cloth-based insulating tapes from
its facility in Porrino, Spain.
The Company purchases raw materials from a variety of industry sources.
Principal raw materials include resin, 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 suppliers in Canada and
China. 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 and are not deemed of major importance to future
activities.
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 are granted in recognition of local
customs and practices for such terms.
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 has also supplied part of PED's tape requirements for Europe and South
America. In 1995, the Company was awarded a three-year "global" contract, which
has been extended through 1999, as sole source of PVC (vinyl) harness tapes to
PED. General Motors accounted for approximately 33%, 36% and 36% of the
Company's net sales in 1997, 1996 and 1995, respectively. As General Motors
constitutes approximately one-third of the Company's sales, the loss of the
account would have a material adverse effect on the Company. The Company is
diversifying its automotive tapes business by adding new customers in the United
States and abroad, and by developing new tapes for harnessing, as well as other
products for other markets.
The following table sets forth information with regard to competition in the
worldwide markets from which the Company derives its largest volume of sales:
Estimated
No. of Dominant or
Market Competitors Major Competitors
------ ----------- -----------------
Electrical Tapes 15 3M
Automotive Tapes Numerous None
Industrial Tapes & Films Numerous None
Highway Striping Tapes 6 3M
The Company is subject to various Federal, state and local environmental
protection regulations. To date, compliance with these regulations has not had a
significant effect upon the capital expenditures, earnings or competitive
position of the continuing operations of the Company. Refer to Item 3. Legal
Proceedings and Note 12 of the Notes To Consolidated Financial Statements for a
discussion of environmental liabilities associated with past operations.
With the exception of Plymouth Rubber Europa, S.A., (see Note 3 of the Notes to
Consolidated Financial Statements) the Company has no manufacturing operations
in foreign countries; products sold to foreign customers are either exported
from the United States or are shipped from inventories maintained in foreign
countries. The Company's export sales from the United States were approximately
15% of total sales in 1997, 14% in 1996, and 12% in 1995.
The Company employs approximately 475 people.
Item 2. Properties
Substantially all the manufacturing, administrative and principal sales
facilities are owned by the Company 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, (see Note 3 of the Notes to Consolidated Financial Statements).
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
The United States Environmental Protection Agency (EPA) has asserted three (3)
outstanding claims against the Company under the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"), pursuant to which EPA is
seeking to recover from the Company and other "generators" the costs associated
with the clean-up of certain sites used by licensed disposal companies hired by
the Company as independent contractors for the disposal and/or reclamation of
hazardous waste materials. In one case, in respect to the Superfund site known
as Re-Solve, Inc., of Dartmouth, Massachusetts, the Company entered into a
Consent Decree, which required a total payment by the Company of $100,000 plus
interest over a period of five years in full settlement of the EPA claim. The
Company has now made all payments, including all accrued interest, and has no
further payment obligation in this matter.
With respect to the second assertion against the Company under CERCLA, a General
Notice of Potential Liability was sent to 1,659 Potentially Responsible Parties
("PRP") including the Company, in June, 1992, relative to a Superfund Site known
as Solvent Recovery Service of New England ("SRS") at a location in Southington,
Connecticut, concerning shipments to the site which occurred between June 1,
1956, and January 25, 1974. The EPA has attributed a 1.74% share of the
aggregate waste volume to the Company. The Company believes that this
attribution may be overstated by failing to account for the portion of the gross
waste volume actually returned to the Company. The first phase of a remediation
program is estimated to cost $3.6 million. The Company is a participant in the
performing PRP group. The Administrative Order on Consent for Removal Action and
Remedial/Feasibility study was entered on or about February 6, 1997. Phase II of
the clean-up and the Remedial Investigation/Feasibility Study ("RI/FS"), is
projected to cost $2.1 million. The most currently available estimate is that
the total cost of the clean up for the PRP's will range from approximately $38
million to $48 million. Based on all available information as well as its prior
experience, management believes the amount accrued of $526,000, which is net of
approximately $200,000 in total payments made by the Company, in the
accompanying consolidated financial statements as of November 28, 1997, is
reasonable in relation to the Company's attributed share of total estimated
aggregate cost. This amount is subject to adjustment for future developments
that may arise from the long-range nature of this EPA case, legislative changes,
insurance coverage, the uncertainties associated with the ultimate outcome of
the Record of Decision ("ROD"), the 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. No actions have been filed by the
EPA against the Company. Therefore, while the Company is participating in the
PRP Group, it is impossible to determine the Company's total ultimate liability
and/or responsibility at this time.
On January 25, 1994, the Company received a notification of an additional
Superfund Site, Old Southington Landfill, (the "OSL Site") regarding which the
EPA asserts that the Company is a PRP. The OSL Site is related to the SRS Site
in that, the EPA alleges, after receipt and processing of various hazardous
substances from PRP's, the owners and/or operators of the SRS Site shipped the
resultant contaminated soil from the SRS Site to the OSL Site. Since the Company
is alleged to have shipped materials to the SRS Site, the EPA alleges that the
Company is also a PRP of the OSL Site. In addition, there were three (3) direct
shippers to the site, the Town of Southington, General Electric, and Pratt &
Whitney, as well as other transporters and/or users. Based on EPA's asserted
volume of shipments to SRS during that time period, the EPA has attributed 4.89%
of waste volume of all SRS customers to the Company; no attempt has been made by
EPA to adjust the waste volume for the distillation done by SRS prior to
shipment to OSL. An ROD was issued in September, 1994 for the first Phase of the
clean-up. In a mediated settlement, the transshipper PRP's were ultimately
assessed a total share of the first phase of the clean up, as well as settlement
of past costs including orphan shares, in the amount of $2.5 million. Subsequent
to year-end on or about December 20, 1997, the Company executed the Consent
Decree and paid $140,180 in full settlement of the first phase. The settlement
of the second phase continues to be mediated; though the allocation among the
parties and scope of the remedy for the second phase has not been agreed upon,
total costs are estimated at between $10 and $50 million. The Company has been
notified that 21 parties of which the Company is one will likely be precluded
from participating in an early mediated settlement for the second phase on a "de
minimis" basis. Therefore, should the Company choose to continue to participate
in the PRP Group for the second phase, it is probable its payment to obtain a
complete release will be greater than a de minimis parties' settlement. Based on
all available information as well as its prior experience, management believes a
reasonable estimate of its liability is $477,000 and has accrued this amount in
the accompanying consolidated financial statements as of November 28, 1997. This
amount includes the first phase settlement of $140,180 subsequently paid, and is
subject to future developments that may arise from the long-range nature of this
EPA case, legislative changes, insurance coverage, the uncertainties associated
with the ultimate outcome of the second remedial phase, if any, and the 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. No actions have been currently filed by the EPA against the Company.
Therefore, while the Company intends to vigorously defend this matter, it is
impossible to determine the Company's total liability and/or responsibility at
this time.
In addition, in the process of preparing to eliminate the use of certain
underground storage tanks located at the Company's manufacturing facility, the
Company determined that some soil contamination had occurred in a small
localized area near the tanks in question. In accordance with Massachusetts
requirements, the Company notified the Massachusetts Department of Environmental
Protection ("DEP") of the foregoing and on or about September 9, 1994, the DEP
issued a Notice of Responsibility, RTN No. 3-11520, pursuant to M.G.L. c. 21E.
According to the preliminary information obtained by an independent Licensed
Site Professional ("LSP"), the contamination of the soil appears to be confined
to a small area and does not pose an environmental risk to the surrounding
property or community. Remediation action is in process. It is expected that
such assessment and remediation will take up to two years to complete and that
the remaining costs for same will not exceed the additional sum of $276,000,
which has been provided for in the accompanying financial statements.
On or about January 21, 1997, the Company received a Notice of Responsibility
from the DEP pursuant to M.G.L. c. 21E concerning the certain sites identified
as The Ledge, 757-782 State Road, Dartmouth: RTN No. 4-0234; and Ridge Hill
Road, Freetown: RTN No. 4-0086. The letter indicates that drums containing
hazardous materials, some of which may have contained the Company's wastes, were
discovered at both sites in April 1979, and that response actions were
undertaken at both sites between 1979 and 1981 by the DEP. On information and
belief, the company which disposed of these drums is H&M Drum to whom the
Company shipped wastes between 1977 to 1979. The DEP has issued at least ten
notices to PRP's and the Company believes additional notices will be sent. In
compliance with DEP requests and statutory requirements, the Company has hired a
LSP to perform certain technical services at the sites. Recent sampling of
existing wells at the Freetown site contained no finding of any volatile organic
chemicals. Sampling at the Dartmouth site still remains to be done. Until
additional data is gathered, the extent of the problem and remedial action
required, if any, cannot be determined. Further, the total number of PRP's is
not yet known. Accordingly, at the current time, the Company is not able to
estimate its portion of any liability ultimately arising from this site.
Therefore, as of November 28, 1997, no reserves have been provided in the
accompanying Financial Statements.
Pursuant to the Company's compliance with EPA and Massachusetts regulations
concerning the upgrade or replacement of underground storage tanks by December
22, 1998, the Company arranged for the testing of the area adjacent to three
underground storage tanks. A limited amount of solvent was found in the soil in
the vicinity of the tanks; however, additional sampling is required. The Company
notified the DEP of its test results, and on November 19, 1997, the DEP issued a
written response, notifying the Company of its responsibility, RTN No. 3-15347,
under M.G.L. c.21E as an unclassified site for response and remedial action. The
Company has several options under the law to protect, remove or replace the
tanks and plans to take whatever remedial action is deemed appropriate. The
Company is in the process of determining the costs associated with each of these
alternatives and has hired an LSP to perform initial site investigation
activities.
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 Chief Executive Officer 51 1987
Fiore D. DiGiovine VP - Mfg. Development 70 1987
Alan I. Eisenberg VP - Sales & Marketing 48 1988 & 1986
Sheldon S. Leppo VP - Research & Development 64 1970
Joseph J. Berns VP - Finance 51 1997
William F. Mansell VP - Manufacturing 41 1997
Joel A. Kozol Clerk and Secretary 68 1980
Deborah A. Kream Assistant Clerk/Secretary 40 1992
Messrs. Maurice J. Hamilburg, Fiore D. DiGiovine, Sheldon S. Leppo and Alan I.
Eisenberg have held their present positions during each of the past five years.
Mr. Joseph J. Berns joined the Company in August, 1997. From 1987 to 1997, he
served as Vice President - Finance for Cooley Incorporated, a manufacturer of
coated fabrics.
Mr. William F. Mansell joined the Company in September, 1997. From 1991 to 1997
he served as Operations Manager and Center of Excellence leader for the Advanced
Polymer Division of the Furon Company, a manufacturer of high performance
plastics.
Mr. Kozol, for more than five years, has been a senior partner in the law firm
of Friedman & Atherton, which firm serves as the Company's counsel. Ms. Kream
joined the Company as Corporate Counsel in 1992 and has served as the Company's
General Counsel since 1995.
PART II
Item 5. Market for the Registrant's Common Stock and Related Security Holder
Matters
(a) Price Range of Common Stock
The following table sets forth the reported high and low prices for Plymouth
Class A and Class B common stock, which shares are listed and traded on the
American Stock Exchange.
Class A Class B
------- -------
High Low High Low
---- --- ---- ---
Quarter 1997
First .......... 8 3/16 6 5/8 7 3/4 6 5/8
Second ......... 6 3/4 4 1/8 6 3/4 3 1/2
Third .......... 6 1/2 5 5/8 5 1/4 4 1/4
Fourth ......... 6 1/16 5 5/8 4 7/8 4 1/8
Class A Class B
------- -------
High Low High Low
---- --- ---- ---
Quarter 1996
First ......... 10 1/8 8 3/4 10 1/2 8 7/8
Second ........ 9 3/16 8 5/8 9 3/16 8 5/8
Third ......... 8 11/16 7 7/8 9 7 3/4
Fourth ........ 8 5/16 7 8 7 1/8
(b) Approximate Number of Equity Security Holders
As of January 29, 1998, 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............ 300
Class B non-voting common stock $1.00 par value........ 250
(c) Dividends
The Company has not paid cash dividends on its common stock since its fiscal
year ended in 1970. Under the Company's loan agreements, it is prohibited from
paying any cash dividends with respect to its capital stock or purchasing or
redeeming any of its capital stock, without a waiver from its lender, so long as
any obligation under the loan agreements remains outstanding. In addition, a
payment of dividends will depend, among other factors, on earnings, capital
requirements and the working capital needs of the Company. At the present time,
the Company intends to follow a policy of retaining earnings in order to finance
the development of its business.
Item 6. Selected Financial Data (See Notes 2, 3, 4 and 6 of the Notes To
Consolidated Financial Statements)
SELECTED INCOME STATEMENT DATA:
Years Ended
-------------------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ------------ ----------- -------------
Net Sales $67,136,000 $57,181,000 $53,293,000 $51,045,000 $ 47,794,000
Royalties -- -- -- -- 40,000
Income from continuing operations $1,266,000 $1,872,000 $ 1,966,000 $ 2,512,000 $ 2,035,000
Per Share Data:
Income from continuing operations
(fully diluted) $ 0.58 $ 0.84 $ 0.88 $ 1.14 $ 0.95
Weighted average shares outstanding 2,174,769 2,226,008 2,244,636 2,202,466 2,149,325
SELECTED BALANCE SHEET DATA:
Total Assets $44,064,000 $34,750,000 $31,482,000 $28,398,000 $ 24,245,000
Long Term Liabilities $15,858,000 $11,439,000 $10,060,000 $10,935,000 $ 13,716,000
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations 1997 Compared with 1996
Sales increased for the seventh consecutive year, as 1997 sales at $67.1 million
were up over 17% from 1996 levels. The major contributors to the growth were the
October, 1996, and January, 1997, acquisitions, now operating as Brite-Line
Technologies, Inc., and Plymouth Rubber Europa, S.A., respectively, which
contributed to 15% of the growth. Plymouth Rubber's core business (parent
company without subsidiaries) sales were up 2% over 1996, as capacity
restrictions continued to limit production output in the Canton manufacturing
facility. In the core business, commitments to providing product to the
automotive market resulted in sales increases of over 15% in that market while
sales in the non-automotive OEM market decreased 31% and sales in other markets
were flat or down slightly from 1996 levels, due primarily to the capacity
restrictions. In February, 1997, the Company announced a $10 million capital
investment program to substantially increase the Company's manufacturing
capacity, reduce costs and improve productivity. The largest step in the
program, accounting for over half of the planned expenditure, is a new vinyl
calender and auxiliary equipment, scheduled to begin production in the second
quarter of 1998.
Cost of products sold as a percentage of sales improved to 76.2% in 1997 from
76.9% in 1996. Plymouth's core business cost of products sold to customers
improved from 76.9% in 1996 to 76.5% in 1997, as higher volumes and product cost
reductions were partially offset by higher plant maintenance expenses and higher
indirect labor and training costs, which are being incurred in preparation for
the Company's planned increase in manufacturing capacity. In addition,
Brite-Line's 73.6% cost of products sold also contributed to the improved
overall percentage. Europa's cost of products sold was 76.5%.
Selling expenses as a percentage of sales were 12.5% and 11.9% in 1997 and 1996,
respectively. The increase in 1997 was primarily due to the addition of
Brite-Line. Selling expenses for 1997 in Plymouth's core business were slightly
higher when compared with 1996 levels, as increased outside warehouse costs were
somewhat offset by lower advertising, commissions, and freight. General and
administrative expenses as a percentage of sales were 6.6% in 1997 as compared
to 6.2% in 1996. The consolidation of the Brite-Line and Europa subsidiaries was
the primary contributor to the increase in general and administrative expenses,
although some of Brite-Line's administrative functions were absorbed by the
parent company. Plymouth's core business also had increases in employee
recruiting, salaries, and 401K contributions to supplement the Company's
previously frozen pension plan, offset by lower employee incentive compensation.
Interest expense as a percentage of sales increased from 2.2% in 1996 to 2.3% in
1997 or a total increase of $251,000 from 1996. This increase reflects higher
loan volume due primarily to the financing of the two acquisitions, offset in
part by reduced interest rates. Other income, net increased from $73,000 in 1996
to $618,000 in 1997, due primarily to the sale of some unused real estate in
1997. Foreign currency exchange loss increased from $53,000 in 1996 to $214,000
in 1997, resulting from foreign currency denominated sales and from intercompany
receivables with the Plymouth Europa subsidiary, in combination with a
strengthening dollar and longer payment terms which are in accordance with local
customs.
As a result of the factors described above, income before tax increased from
$75,000 in 1996 to $1,982,000 in 1997. The effective tax rate in 1997 was 36.1%
of pre-tax income compared to a $1,797,000 tax benefit in 1996, due primarily to
a reduction in the Deferred Tax Valuation Allowance. As a result, net income was
$1,266,000 in 1997 and $1,872,000 in 1996.
Cash generated from operating activities was $2,101,000 in 1997 as compared to
$437,000 in 1996. Three major contributors to cash inflows were net income
($1,266,000), depreciation and amortization ($1,439,000), and a reduction in
inventory ($1,111,000) which occurred in Plymouth's core business
work-in-process and finished goods inventory, offset by inventory increases from
the two newly consolidated subsidiaries. The major operating use of cash was an
increase in accounts receivable ($1,478,000), which was also due in large part
to the additional new subsidiaries. During 1997, the Company used $5,771,000 in
proceeds from additional term debt, $2,814,000 from its revolving line of
credit, and $919,000 from the sale/lease back of certain new capital equipment
to (1) fund the cash portion of the purchase of Cintas Adhesivas Nunez, S.A.
(now operating as Plymouth Rubber Europa, S.A.) for $2,154,000, (2) increase its
investment in Brite-Line Technologies, Inc. by $497,000, (3) purchase $7,615,000
of capital equipment, the largest item being the new vinyl calendering line, and
(4) reduce term debt by $1,654,000.
The U.S. dollar is the functional currency for substantially all of the
Company's consolidated operations. For these operations, all gains and losses
from currency transactions are included in income currently. The cumulative
translation effects for equity investments using functional currencies other
than the U.S. dollar are included in the cumulative translation adjustments in
stockholders' equity.
The Company operates a wholly-owned subsidiary in Spain which accounted for
approximately 6% of the Company's revenues in fiscal 1997. The functional
currency of this subsidiary is the peseta. Changes in the peseta exchange rate
could affect the reporting of the subsidiary's earnings in the Consolidated
Statement of Operations. From time to time, the U.S. Company enters into
purchase or sales contracts in currencies other than the U.S. dollar. The
Company's practice is to hedge those transactions which are of significant size.
The United States Environmental Protection Agency (EPA) has asserted three (3)
outstanding claims against the Company under the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"), pursuant to which EPA is
seeking to recover from the Company and other "generators" the costs associated
with the clean-up of certain sites used by licensed disposal companies hired by
the Company as independent contractors for the disposal and/or reclamation of
hazardous waste materials. In one case, in respect to the Superfund site known
as Re-Solve, Inc., of Dartmouth, Massachusetts, the Company entered into a
Consent Decree, which required a total payment by the Company of $100,000 plus
interest over a period of five years in full settlement of the EPA claim. The
Company has now made all payments, including all accrued interest, and has no
further payment obligation in this matter.
With respect to the second assertion against the Company under CERCLA, a General
Notice of Potential Liability was sent to 1,659 Potentially Responsible Parties
("PRP") including the Company, in June, 1992, relative to a Superfund Site known
as Solvent Recovery Service of New England ("SRS") at a location in Southington,
Connecticut, concerning shipments to the site which occurred between June 1,
1956, and January 25, 1974. The EPA has attributed a 1.74% share of the
aggregate waste volume to the Company. The Company believes that this
attribution may be overstated by failing to account for the portion of the gross
waste volume actually returned to the Company. The first phase of a remediation
program is estimated to cost $3.6 million. The Company is a participant in the
performing PRP group. The Administrative Order on Consent for Removal Action and
Remedial/Feasibility study was entered on or about February 6, 1997. Phase II of
the clean-up and the Remedial Investigation/Feasibility Study ("RI/FS"), is
projected to cost $2.1 million. The most currently available estimate is that
the total cost of the clean up for the PRP's will range from approximately $38
million to $48 million. Based on all available information as well as its prior
experience, management believes the amount accrued of $526,000, which is net of
approximately $200,000 in total payments made by the Company, in the
accompanying consolidated financial statements as of November 28, 1997, is
reasonable in relation to the Company's attributed share of total estimated
aggregate cost. This amount is subject to adjustment for future developments
that may arise from the long-range nature of this EPA case, legislative changes,
insurance coverage, the uncertainties associated with the ultimate outcome of
the Record of Decision ("ROD"), the 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. No actions have been filed by the
EPA against the Company. Therefore, while the Company is participating in the
PRP Group, it is impossible to determine the Company's total ultimate liability
and/or responsibility at this time.
On January 25, 1994, the Company received a notification of an additional
Superfund Site, Old Southington Landfill, (the "OSL Site") regarding which the
EPA asserts that the Company is a PRP. The OSL Site is related to the SRS Site
in that, the EPA alleges, after receipt and processing of various hazardous
substances from PRP's, the owners and/or operators of the SRS Site shipped the
resultant contaminated soil from the SRS Site to the OSL Site. Since the Company
is alleged to have shipped materials to the SRS Site, the EPA alleges that the
Company is also a PRP of the OSL Site. In addition, there were three (3) direct
shippers to the site, the Town of Southington, General Electric, and Pratt &
Whitney, as well as other transporters and/or users. Based on EPA's asserted
volume of shipments to SRS during that time period, the EPA has attributed 4.89%
of waste volume of all SRS customers to the Company; no attempt has been made by
EPA to adjust the waste volume for the distillation done by SRS prior to
shipment to OSL. An ROD was issued in September, 1994 for the first Phase of the
clean-up. In a mediated settlement, the transshipper PRP's were ultimately
assessed a total share of the first phase of the clean up, as well as settlement
of past costs including orphan shares, in the amount of $2.5 million. Subsequent
to year-end on or about December 20, 1997, the Company executed the Consent
Decree and paid $140,180 in full settlement of the first phase. The settlement
of the second phase continues to be mediated; though the allocation among the
parties and scope of the remedy for the second phase has not been agreed upon,
total costs are estimated at between $10 and $50 million. The Company has been
notified that 21 parties of which the Company is one will likely be precluded
from participating in an early mediated settlement for the second phase on a "de
minimis" basis. Therefore, should the Company choose to continue to participate
in the PRP Group for the second phase, it is probable its payment to obtain a
complete release will be greater than a de minimis parties' settlement. Based on
all available information as well as its prior experience management believes a
reasonable estimate of its liability is $477,000 and has accrued this amount in
the accompanying consolidated financial statements as of November 28, 1997. This
amount includes the first phase settlement of $140,180 subsequently paid, and is
subject to future developments that may arise from the long-range nature of this
EPA case, legislative changes, insurance coverage, the uncertainties associated
with the ultimate outcome of the second remedial phase, if any, and the 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. No actions have been currently filed by the EPA against the Company.
Therefore, while the Company intends to vigorously defend this matter, it is
impossible to determine the Company's total liability and/or responsibility at
this time.
In addition, in the process of preparing to eliminate the use of certain
underground storage tanks located at the Company's manufacturing facility, the
Company determined that some soil contamination had occurred in a small
localized area near the tanks in question. In accordance with Massachusetts
requirements, the Company notified the Massachusetts Department of Environmental
Protection ("DEP") of the foregoing and on or about September 9, 1994, the DEP
issued a Notice of Responsibility, RTN No. 3-11520, pursuant to M.G.L. c. 21E.
According to the preliminary information obtained by an independent Licensed
Site Professional ("LSP"), the contamination of the soil appears to be confined
to a small area and does not pose an environmental risk to the surrounding
property or community. Remediation action is in process. It is expected that
such assessment and remediation will take up to two years to complete and that
the remaining costs for same will not exceed the additional sum of $276,000,
which has been provided for in the accompanying financial statements.
On or about January 21, 1997, the Company received a Notice of Responsibility
from the DEP pursuant to M.G.L. c. 21E concerning the certain sites identified
as The Ledge, 757-782 State Road, Dartmouth: RTN No. 4-0234; and Ridge Hill
Road, Freetown: RTN No. 4-0086. The letter indicates that drums containing
hazardous materials, some of which may have contained the Company's wastes, were
discovered at both sites in April 1979, and that response actions were
undertaken at both sites between 1979 and 1981 by the DEP. On information and
belief, the company which disposed of these drums is H&M Drum to whom the
Company shipped wastes between 1977 to 1979. The DEP has issued at least ten
notices to PRP's and the Company believes additional notices will be sent. In
compliance with DEP requests and statutory requirements, the Company has hired a
LSP to perform certain technical services at the sites. Recent sampling of
existing wells at the Freetown site contained no finding of any volatile organic
chemicals. Sampling at the Dartmouth site still remains to be done. Until
additional data is gathered, the extent of the problem and remedial action
required, if any, cannot be determined. Further, the total number of PRP's is
not yet known. Accordingly, at the current time, the Company is not able to
estimate its portion of any liability ultimately arising from this site.
Therefore, as of November 28, 1997, no reserves have been provided in the
accompanying Financial Statements.
Pursuant to the Company's compliance with EPA and Massachusetts regulations
concerning the upgrade or replacement of underground storage tanks by December
22, 1998, the Company arranged for the testing of the area adjacent to three
underground storage tanks. A limited amount of solvent was found in the soil in
the vicinity of the tanks; however, additional sampling is required. The Company
notified the DEP of its test results, and on November 19, 1997, the DEP issued a
written response, notifying the Company of its responsibility, RTN No. 3-15347,
under M.G.L. c.21E as an unclassified site for response and remedial action. The
Company has several options under the law to protect, remove or replace the
tanks and plans to take whatever remedial action is deemed appropriate. The
Company is in the process of determining the costs associated with each of these
alternatives and has hired an LSP to perform initial site investigation
activities.
Year 2000
Management has assembled a task force and is in the process of completing its
assessment of the impact of the Year 2000 problem on its operational and
financial reporting systems and has developed a plan to correct critical systems
before they fail. Management expects to have addressed most issues pertaining to
the year 2000 issue by the beginning of fiscal 1999.
The Company is also assessing the possible effects of Year 2000 issues on its
significant vendors and customers. At the current time, management believes the
Year 2000 issue will not materially impact its results of operations, liquidity
and capital resources.
Impact of New Accounting Pronouncements
The Financial Accounting Standards Board issued Statement #128 (Earnings Per
Share) in February, 1997. Adoption of FAS #128 is required in its fiscal 1998
financial statements. The Company does not anticipate that this statement will
have any significant impact on its financial statements.
The Financial Accounting Standards Board issued Statement #130 (Reporting
Comprehensive Income) in June, 1997. The Company is required to adopt this
statement in its fiscal 1999 financial statements.
The Financial Accounting Standards Board issued Statement #131 (Disclosure About
Segments of an Enterprise and Related Information) in June, 1997. The Company is
currently assessing the impact of this statement and will adopt this statement
in its fiscal 1999 financial statements, if required.
1996 Compared with 1995
Sales increased for the sixth consecutive year, as 1996 sales at $57,181,000
were up 7% from 1995, despite the three week strike at General Motors in March,
1996. Significant sales increases continued to be achieved for Domestic
Automotive and Export markets, which increased 12% and 28%, respectively,
compared to a 14% and 35% increase, respectively, for fiscal year 1995 over
1994. Sales to other markets declined, due to capacity restrictions. The
Automotive and Export increases continued to reflect trends toward more complex
electrical systems and motor vehicles and toward larger vehicles, especially
trucks and utility vehicles.
Operating income at $1,317,000, inclusive of a $26,000 loss from the two month
operation of the Company's subsidiary, Brite-Line Technologies, Inc., which
began operations in early October, 1996, and exclusive of the $1,571,000
non-cash charge to amortize an intangible asset (Unrecognized Net Obligation at
Transition) pertaining to the Company's decision to freeze future employee
benefits in the Defined Benefit Pension Plan, was down 12% from 1995, which was
up 6% from 1994 ($187,000). This reduction reflects a 4% increase in gross
profit, which was more than offset by a 10% increase in selling, general and
administrative expenses. The gross profit increase was primarily attributable to
higher sales volume, as the increase in manufacturing direct labor and overhead
put in place to service the 1996 and subsequent year's anticipated volume,
offset moderately decreased material costs and volume oriented cost reductions,
and resulted in a 23% gross margin, down 0.7 percentage points from the prior
year. The 1995 operating income included a $165,000 gain, net of reserves, from
the settlement of an insurance claim.
Selling expenses increased 17% over 1995, which increased 12% over 1994, to
serve both current and expected volume increases in the expanded Domestic Auto
and Export markets. The increased expense reflects moderately higher salaries,
fringe benefits, and significantly higher freight and selling expenses to
support the Export markets. General & Administrative expenses, exclusive of a
$165,000 increase in environmental reserves, a $60,000 insurance settlement, and
a $147,000 recovery from a lawsuit in fiscal 1996, and a $250,000 recovery
from an insurance settlement in 1995, decreased 7% reflecting increased bad
debts and travel expense offset by reduced depreciation, professional fees, and
computer equipment rental.
Income from continuing operations before taxes of $75,000 was down from
$1,945,000 in 1995, which benefited from a $250,000 insurance settlement.
Exclusive of the $250,000 settlement in 1995, the $1,571,000 intangible asset
amortization, the $165,000 environmental charge and the $207,000 settlements in
1996, income before taxes was down $91,000, (5% from the prior year), as the
adjusted Operating and Other Income shortfell the prior year, offset in part by
a 10% ($139,000) reduction in Interest expense. Reduced Interest expense was
attributable to reduced interest rates as a result of (1) a decrease in the
prime rate and the replacement of the Company's primary lender on June 6, 1996,
and (2) 230 basis points on the $3.6 million term loan refinanced on December
29, 1995 with a new lender.
Net income at $1,872,000 was down $1,251,000 from 1995, which included a
$1,431,000 recapture of Deferred Tax Valuation Allowance, which resulted in a
$42,000 tax provision. Net income for 1996 includes a $1,873,000 benefit from a
reduction in the Deferred Tax Valuation Allowance, which resulted in a tax
benefit of $1,797,000.
A deferred tax asset and a related valuation allowance was established on
December 1, 1995 based on estimates of future taxable income through fiscal
2000. During fiscal 1996, the valuation allowance was reduced by $1,873,000 to
$171,000 based on estimates of future taxable income beyond fiscal 2000. The net
deferred tax asset as of November 29, 1996 was $4,774,000 (see Note 4 to
Consolidated Financial Statements).
In fiscal 1996, cash from operating activities was $437,000 as compared to
$1,412,000 for 1995, as cash provided by net income, exclusive of the deferred
income tax benefit, amortization of the intangible asset, and the increased
environmental reserves, totaling $1,798,000, depreciation ($1,112,000), and the
reduction of prepaid expenses ($550,000), exceeded the outflow used to expand
inventory ($591,000), expand accounts receivable ($1,122,000), and to reduce
accounts payable, other liabilities and pension obligations. In accordance with
the Company's agreement with its primary lender, all cash receipts were applied
against the revolving loan. Cash provided by operations, the $6,657,000 proceeds
from the term debt refinancing, and the increase in the revolving line of credit
generated by the June, 1996 refinancing, was used to finance $1,494,000 of net
additions to plant and equipment, and to repay debt and reduce capital lease
obligations.
On October 4, 1996, LB Acquisition Corporation, a wholly-owned subsidiary of the
Company, acquired certain assets of Brite-Line Industries, Inc. out of
foreclosure from Brite-Line's senior secured creditors for a cost of $150,000,
plus a $2,100,000 guarantee of Brite-Line Industries' accounts receivable. LB
Acquisition Corporation was renamed Brite-Line Technologies, Inc., which
produces and markets rubber based highway marking tapes from its Denver,
Colorado facility.
Included in the purchased assets are inventories, machinery and equipment, and
intangibles including patents, trademarks, trade names, and state municipal
product approvals. The total purchase price of $708,000, inclusive of the
accounts receivable guarantee shortfall, the $150,000 cash payment, and
acquisition costs, has been recorded on the acquiring Company's balance sheet as
inventory valued at $401,000, plus fixed assets valued at $307,000.
Liquidity and Capital Resources
During 1997, Plymouth Rubber initiated a $10 million capital expansion program,
including a new calender and associated equipment, which will substantially
increase its vinyl tape production capacity. At the end of fiscal 1996 and the
beginning of fiscal 1997, the Company also invested in new subsidiaries
(Brite-Line Technologies, Inc., and Plymouth Rubber Europa, S.A.), which it
considers to be strategic opportunities. In connection with these investments,
the Company has increased its debt from approximately 63% of total
capitalization in 1996 to approximately 71% in 1997. In addition, the
inefficiencies of operating under capacity constraints have put some pressure on
operating margins.
Despite these considerations, the Company was in compliance with all of its
financial covenants as of November 28, 1997. During 1998, however, several of
these covenants will become more restrictive. Based upon current projections,
the Company may not meet certain of these covenants during 1998. With respect to
this, management is currently negotiating with the applicable lender to revise
these covenants. Should less restrictive financial covenants not be negotiated
prior to the end of the first quarter of 1998, a portion of the Company's
long-term debt may be classified on its balance sheet as current at that time.
At November 28, 1997, long-term debt subject to such potential reclassification
was approximately $5,512,000.
As of November 28, 1997, because of collateral limitations and after
consideration of the letter of credit related to a final payment on the purchase
of the new vinyl calender and auxiliary equipment and to a guarantee of
80,000,000 pesetas (approximately $577,000) on a term-loan agreement with a
Spanish Bank syndicate, the Company had approximately $1,000,000 of unused
borrowing capacity, under its $15 million line of credit with its primary
lender.
In the opinion of management, anticipated cash flow from operations, unused
capacity under existing borrowing agreements, and additional funds generated
from one or more of the following anticipated financing arrangements: (i) the
sale and leaseback of capital equipment, (ii) refinancing of certain existing
capital equipment, and (iii) a capital expenditure line of credit, will provide
sufficient funds to meet expected needs during fiscal 1998, including necessary
working capital expansion to support anticipated revenue growth, investments in
capital equipment and to service its indebtedness. Although management expects
to be able to accomplish its plans, there is no assurance that it will be able
to do so. Failure to accomplish these plans could have an adverse impact on the
Company's liquidity and financial position.
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, forecasted or estimated. The applicable risks and
uncertainties include general economic and industry conditions that affect all
international businesses, as well as matters that are specific to the Company
and the markets it serves. General risks that may impact the achievement of such
forecast include: compliance with new laws and regulations, significant raw
material price fluctuations, currency exchange rate fluctuations, limits on the
repatriation of funds and political uncertainty. Specific risks to the Company,
include: risk of recession in the economies in which its products are sold, the
concentration of a substantial percentage of the Company's sales with a few
major automotive customers, competition in pricing and continued globalization
of the automotive supply base resulting in new competition in certain locations.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data required by this item are set
forth on pages 15 to 40 herein.
Item 9. Disagreement on Accounting and Financial Disclosure
None
PART III
Item 10. Directors and Executive Officers of the Registrant
To the extent not included in Part I hereof, the information required by this
item is hereby incorporated by reference from the Company's definitive proxy
statement pursuant to Regulation 14A, which proxy statement involves the
election of Directors and is expected to be filed with the Commission within 120
days after the close of the fiscal year ended November 28, 1997.
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, 1997.
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, 1997.
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, 1997.
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K
(a)1. Financial statements filed as part of this report are listed in the index
appearing on page 15.
(a)2. Financial statement schedules required as part of this report are listed
in the index appearing on page 15.
(a)3. Exhibits required as part of this report are listed in the index appearing
on pages 42 - 44.
(b) None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
PLYMOUTH RUBBER COMPANY, INC.
(Registrant)
By /s/ JOSEPH J. BERNS
--------------------------
Joseph J. Berns
Vice President - Finance and Treasurer
Date: February 26, 1998
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, 1998.
/s/ MAURICE J. HAMILBURG President and Director
- ---------------------------------- (Principal Executive Officer)
Maurice J. Hamilburg
/s/ JOSEPH D. HAMILBURG Director
- ----------------------------------
Joseph D. Hamilburg
/s/ SUSAN Y. FRIEDMAN Director
- ----------------------------------
Susan Y. Friedman
/s/ JANE H. GUY Director
- ----------------------------------
Jane H. Guy
/s/ MELVIN L. KEATING Director
- ----------------------------------
Melvin L. Keating
/s/ JAMES M. OATES Director
- ----------------------------------
James M. Oates
/s/ DUANE E. WHEELER Director
- ----------------------------------
Duane E. Wheeler
/s/ JOSEPH J. BERNS Vice President - Finance and Treasurer
- ---------------------------------- (Principal Financial Officer and
Joseph J. Berns Principal Accounting Officer)
PLYMOUTH RUBBER COMPANY, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
PAGE
----
Report of Independent Accountants ........................................ 16
Consolidated Balance Sheet at November 28, 1997 and November 29, 1996 .... 17-18
Consolidated Statement of Operations and Retained Earnings (Deficit)
for each of the three years in the period ended November 28, 1997 ..... 19
Consolidated Statement of Cash Flows for each of the three years in the
period ended November 28, 1997 ........................................ 20-21
Notes to Consolidated Financial Statements ............................... 22-40
Reserves (Schedule II) ................................................... 41
The financial statement schedules should be read in conjunction with the
financial statements. Schedules not included with this financial data have been
omitted because they are not applicable or the required information is shown in
the financial statements or notes thereto.
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
PLYMOUTH RUBBER COMPANY, INC.
In our opinion, the consolidated financial statements listed in the accompanying
index appearing on page 15 present fairly, in all material respects, the
financial position of Plymouth Rubber Company, Inc. and its subsidiaries at
November 28, 1997 and November 29, 1996, and the results of their operations and
their cash flows for each of the three years in the period ended November 28,
1997, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
January 30, 1998
PLYMOUTH RUBBER COMPANY, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
November 28, November 29,
1997 1996
------------ ------------
Cash .......................................... $ 12,000 $ --
Accounts receivable, less allowance for
doubtful accounts of $314,000 and
$195,000 at November 28, 1997 and
November 29, 1996, respectively .............. 10,033,000 7,563,000
Inventories:
Raw materials .............................. 3,772,000 3,730,000
Work in process ............................ 1,472,000 1,962,000
Finished goods ............................. 5,208,000 5,633,000
------------ ------------
10,452,000 11,325,000
------------ ------------
Deferred tax assets, net ...................... 1,689,000 1,972,000
Prepaid expenses and other current assets ..... 873,000 744,000
------------ ------------
Total current assets ....................... 23,059,000 21,604,000
------------ ------------
PLANT ASSETS:
Land ........................................ 605,000 121,000
Buildings ................................... 6,008,000 5,136,000
Machinery and equipment ..................... 22,778,000 21,966,000
Construction in progress .................... 5,999,000 530,000
------------ ------------
35,390,000 27,753,000
Less: accumulated depreciation .............. (18,049,000) (17,937,000)
------------ ------------
Total plant assets, net ................... 17,341,000 9,816,000
------------ ------------
OTHER ASSETS:
Deferred tax assets, net ..................... 2,346,000 2,802,000
Other long-term assets ....................... 1,318,000 528,000
------------ ------------
Total other assets ........................ 3,664,000 3,330,000
------------ ------------
$ 44,064,000 $ 34,750,000
============ ============
The accompanying Notes to Consolidated Financial Statements
are an integral part of these Financial Statements.
PLYMOUTH RUBBER COMPANY, INC.
CONSOLIDATED BALANCE SHEET -- (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
November 28, November 29,
1997 1996
------------ ------------
CURRENT LIABILITIES:
Revolving line of credit ...................... $ 8,221,000 $ 5,189,000
Trade accounts payable ........................ 6,034,000 5,626,000
Accrued expenses .............................. 3,212,000 3,664,000
Current portion of long-term borrowings ....... 2,138,000 1,538,000
Current portion of product warranties ......... 160,000 106,000
------------ ------------
Total current liabilities .................. 19,765,000 16,123,000
------------ ------------
LONG-TERM LIABILITIES:
Borrowings .................................... 9,874,000 5,430,000
Pension obligation ............................ 3,358,000 3,647,000
Product warranties ............................ 516,000 678,000
Other ......................................... 2,110,000 1,684,000
------------ ------------
Total long-term liabilities ................ 15,858,000 11,439,000
------------ ------------
COMMITMENTS AND CONTINGENCIES
(Notes 2 and 12)
STOCKHOLDERS' EQUITY:
Preferred stock $10 par value, authorized
500,000 shares; no shares issued and
outstanding ................................... -- --
Class A voting common stock, $1 par
value, 1,500,000 shares
authorized, 810,586 shares issued and
outstanding at November 28, 1997
and November 29, 1996 ......................... 810,000 810,000
Class B non-voting common stock $1 par
value, 3,500,000 shares authorized,
1,234,334 shares issued and outstanding at
November 28, 1997 and 1,192,003 shares issued
and outstanding at November 29, 1996 .......... 1,234,000 1,192,000
Paid in capital ................................. 9,067,000 9,086,000
Retained earnings (deficit) ..................... (2,282,000) (3,548,000)
Cumulative translation adjustment ............... (91,000) --
Pension liability adjustment, net of tax ........ (145,000) (162,000)
Deferred compensation ........................... (152,000) (190,000)
------------ ------------
8,441,000 7,188,000
------------ ------------
$ 44,064,000 $ 34,750,000
============ ============
The accompanying Notes to Consolidated Financial Statements
are an integral part of these Financial Statements.
PLYMOUTH RUBBER COMPANY, INC.
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
Year Ended
-------------------------------------------
November 28, November 29, December 1,
1997 1996 1995
------------ ------------ -----------
Revenues:
Net sales ..................................... $ 67,136,000 $ 57,181,000 53,293,000
------------ ------------ -----------
Costs and Expenses:
Cost of products sold ......................... 51,191,000 43,964,000 40,621,000
Selling, general and administrative ........... 12,854,000 10,329,000 9,395,000
Pension curtailment loss ...................... -- 1,571,000 --
------------ ------------ -----------
64,045,000 55,864,000 50,016,000
------------ ------------ -----------
Operating income ................................. 3,091,000 1,317,000 3,277,000
Interest expense ................................. (1,513,000) (1,262,000) (1,401,000)
Foreign currency exchange loss ................... (214,000) (53,000) (18,000)
Other income, net ................................ 618,000 73,000 87,000
------------ ------------ -----------
Income from continuing operations before income
taxes ........................................... 1,982,000 75,000 1,945,000
Provision (benefit) for income taxes ............. 716,000 (1,797,000) (21,000)
------------ ------------ -----------
Income from continuing operations ................ 1,266,000 1,872,000 1,966,000
Discontinued operations, net of taxes ............ -- -- 1,157,000
------------ ------------ -----------
Net income ....................................... 1,266,000 1,872,000 3,123,000
Retained earnings (deficit) at beginning of year . (3,548,000) (4,577,000) (6,234,000)
Less stock dividends ............................. -- (843,000) (1,466,000)
------------ ------------ -----------
Retained earnings (deficit) at end of year ....... $ (2,282,000) $ (3,548,000) (4,577,000)
============ ============ ===========
PER SHARE DATA:
PRIMARY EARNINGS PER SHARE:
Income from continuing operations ............. $ 0.58 $ 0.84 $ 0.89
Income from discontinued operations ........... -- -- 0.52
------------ ------------ -----------
Net income .................................... $ 0.58 $ 0.84 $ 1.41
============ ============ ===========
Weighted average number of shares outstanding . 2,174,769 2,226,008 2,219,145
============ ============ ===========
FULLY DILUTED EARNINGS PER SHARE:
Income from continuing operations ............. $ 0.58 $ 0.84 $ 0.88
Income from discontinued operations ........... -- -- 0.51
------------ ------------ -----------
Net income .................................... $ 0.58 $ 0.84 $ 1.39
============ ============ ===========
Weighted average number of shares outstanding . 2,174,769 2,226,008 2,244,636
============ ============ ===========
The accompanying Notes to Consolidated Financial Statements
are an integral part of these Financial Statements.
PLYMOUTH RUBBER COMPANY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended
------------------------------------------
November 28, November 29, December 1,
1997 1996 1995
----------- ----------- -----------
CASH FLOWS RELATING TO OPERATING ACTIVITIES:
Net Income ......................................... $ 1,266,000 $ 1,872,000 $ 3,123,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization .................... 1,439,000 1,112,000 1,051,000
Deferred income tax expense (benefit) ............ 593,000 (1,878,000) (454,000)
Curtailment loss ................................. -- 1,571,000 --
Provision for environmental reserves ............. 202,000 233,000 100,000
Amortization of deferred compensation ............ 38,000 38,000 38,000
Gain on sale of land ............................. (539,000) -- --
Changes in assets and liabilities:
Accounts receivable .............................. (1,478,000) (1,122,000) 74,000
Inventory ........................................ 1,111,000 (591,000) (2,111,000)
Prepaid expenses ................................. (125,000) 550,000 105,000
Other assets ..................................... (94,000) (272,000) 181,000
Accounts payable ................................. 672,000 (505,000) 1,152,000
Accrued expenses ................................. (380,000) (168,000) 115,000
Product warranties ............................... (108,000) (90,000) (126,000)
Other liabilities ................................ 404,000 (113,000) (113,000)
Pension obligation ............................... (900,000) (200,000) (566,000)
----------- ----------- -----------
Net cash provided by operating activities ............ 2,101,000 437,000 2,569,000
----------- ----------- -----------
CASH FLOWS RELATING TO INVESTING ACTIVITIES:
Capital expenditures ............................... (7,615,000) (1,935,000) (1,712,000)
Sale/leaseback of plant assets ..................... 919,000 441,000 223,000
Proceeds from sale of land ......................... 539,000 -- --
Acquisition of Cintas Adhesivas Nunez, S.A.,
less cash acquired of $90,000 .................... (2,154,000) -- --
Acquisition of certain assets of Brite-Line
Industries, Inc. .................................. (497,000) (211,000) --
----------- ----------- -----------
Net cash used in investing activities ................ (8,808,000) (1,705,000) (1,489,000)
----------- ----------- -----------
The accompanying Notes to Consolidated Financial Statements
are an integral part of these Financial Statements.
PLYMOUTH RUBBER COMPANY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS -- (Continued)
Year Ended
------------------------------------------
November 28, November 29, December 1,
1997 1996 1995
----------- ----------- -----------
CASH FLOWS RELATING TO FINANCING ACTIVITIES:
Net increase in revolving line of credit ........... $ 2,814,000 $ 858,000 $ 69,000
Proceeds from term debt ............................ 5,771,000 6,657,000 --
Payments of term debt .............................. (1,654,000) (4,459,000) (1,022,000)
Payments of revolving line of credit classified
as non-current ................................... -- (1,717,000) --
Payments on capital leases ......................... (223,000) (160,000) (160,000)
Proceeds from insurance financing .................. 157,000 198,000 191,000
Payments on insurance financing .................... (170,000) (187,000) (249,000)
Proceeds from exercises of options ................. 23,000 78,000 91,000
----------- ----------- -----------
Net cash provided by (used in) financing activities .. 6,718,000 1,268,000 (1,080,000)
----------- ----------- -----------
Effect of exchange rate changes on cash .............. 1,000 -- --
----------- ----------- -----------
Net change in cash ................................... 12,000 -- --
Cash at the beginning of the period .................. -- -- --
----------- ----------- -----------
Cash at the end of the period ........................ $ 12,000 $ -- $ --
=========== =========== ===========
Supplemental Disclosure of Cash Flow Information
Cash paid for interest ............................... $ 1,632,000 $ 1,249,000 $ 1,410,000
=========== =========== ===========
Cash paid for income taxes ........................... $ 171,000 $ 422,000 $ 169,000
=========== =========== ===========
The accompanying Notes to Consolidated Statements
are an integral part of these Financial Statements.
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 -- Summary of Significant Accounting Policies
A. The Company -- Plymouth Rubber Company, Inc. manufactures and supplies
rubber and vinyl products to a broad range of markets, including the
electrical supply industry, utilities, automotive and other Original
Equipment Manufacturers and highway striping contractors.
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. Plant Assets -- Plant assets are stated at cost. Additions, renewals and
betterments of plant assets, unless of relatively minor amounts, are
capitalized. Maintenance and repairs are charged to expense as incurred.
Depreciation and amortization are provided on the straight-line method
based upon the estimated useful lives of 15-45 years for buildings and
3-14 years for machinery and equipment. The cost and related accumulated
depreciation of fully depreciated and disposed of assets are removed from
the accounts. The Company wrote off approximately $2.7 million and
approximately $2.0 million of fully depreciated and disposed of plant
assets in 1997 and 1996, respectively.
E. Environmental Matters -- Environmental expenditures that relate to current
operations or to an existing condition caused by past operations are
expensed. Liabilities are recorded without regard to possible recoveries
from third parties, including insurers, when environmental assessments
and/or remediation efforts are probable and the costs can be reasonably
estimated (see Note 12). During October, 1996, the American Institute of
Certified Public Accountants issued Statement of Position #96-1,
Environmental Remediation Liabilities (SOP #96-1). SOP #96-1 provides
guidance on the timing, accrual and measurement of environmental
liabilities and was required for the Company for fiscal 1997. Adoption of
SOP #96-1 did not materially affect the Company's environmental
liabilities and related disclosures.
F. Retirement Plans -- The Company provides certain pension and health
benefits to retired employees. Pension costs are accounted for in
accordance with Financial Accounting Standards Board Statement (FAS) #87
(Employers' Accounting for Pensions). Unrecognized pension gains and
losses are amortized on a straight line basis over ten years. The cost of
postretirement health benefits is accrued during the employees' active
service period in accordance with FAS #106 "Employers' Accounting for
Postretirement Benefits Other than Pensions". In August, 1996 the Company
elected to freeze its Defined Benefit Pension Plan, which resulted in the
recognition of a curtailment loss in accordance with FAS#88 (Employers'
Accounting for Settlements and Curtailments of Defined Benefit Pension
Plans and for Termination Benefits)(see Note 6).
G. Income Taxes -- The Company reports income taxes using the asset and
liability approach, which requires the recognition of deferred tax assets
and liabilities for the expected future tax consequences of temporary
differences between the financial statement carrying amounts and the tax
bases of the Company's assets and liabilities (see Note 4).
H. Earnings Per Share -- All per share calculations are computed based on the
weighted average number of common shares outstanding during the year,
adjusted for the impact of the Company's stock dividends, stock option
plans and outstanding stock warrants (see Note 7). In February, 1997, the
Financial Accounting Standards Board issued Statement of Financial
Accounting Standard No. 128 ("FAS 128"), Earnings Per Share. FAS 128,
which is effective for both interim and annual periods ending after
December 15, 1997, requires the disclosure of basic and diluted earnings
per share as well as certain other disclosures. Basic and diluted earnings
per share, as computed under the
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 -- Summary of Significant Accounting Policies (Continued)
new standard, are not materially different from the Company's current
presentation of primary and fully diluted earnings per share,
respectively, and accordingly, proforma disclosure is not presented
herein.
I. Reclassifications and Change in Manner of Presentation -- Certain
reclassifications of prior year balances have been made to conform to the
current presentation. In addition, in fiscal 1995, the Company presented
certain recoveries ($1,157,000 net of tax) from previously discontinued
operations as other income included in continuing operations. In the
current year the Company has changed the manner in which these recoveries
are presented and has shown them as part of discontinued operations in the
fiscal 1995 Consolidated Statement of Operations and Retained Earnings
(Deficit).
J. Fair Value of Financial Instruments -- The carrying amounts reported in
the accompanying consolidated balance sheets for cash, accounts
receivable, and accounts payable approximate fair values because of the
immediate or short-term maturities of these financial instruments. The
carrying amount of the Company's fixed rate long-term debt also
approximates fair value based on current rates for similar debt.
K. Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the consolidated financial statements and the reported amounts of
revenues and expenses during the period. Actual results could differ from
those estimates.
L. Stock-Based Employee Compensation Plans -- Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation (FAS
123), became effective for fiscal years beginning after December 15, 1995.
As permitted under FAS 123, the Company has decided to continue accounting
for its stock-based compensation plans using the intrinsic value method
prescribed by Accounting Principals Board Opinion No. 25, Accounting for
Stock Issued to Employees (APB 25) (See Note 8).
M. Foreign Currencies -- Assets and liabilities recorded in foreign
currencies on the books of the Company's foreign subsidiary are translated
at the exchange rate on the balance sheet date. Translation adjustments
resulting from this process are charged or credited to equity. Revenues,
costs, and expenses are translated at average rates of exchange prevailing
during the year.
Note 2 -- Borrowing Arrangements and Financing Commitments
On January 29, 1997, the Company entered into a new loan agreement in the amount
of up to $4,550,000 with an equipment lender to finance the purchase of a vinyl
calender which was delivered in November, 1997, and is expected to be
operational in the second quarter of 1998. The Company borrowed $4,050,000 under
this agreement in January, 1997 to make a down payment on the equipment and to
pay down its revolving line of credit with its primary lender with the balance
of the funds. The Company opened a letter of credit, which reduced its
availability under the revolving line, as security for the balance of the
purchase price of the equipment. The new loan agreement called for interest only
payments at LIBOR plus 2.60% on the outstanding balance until conversion to a
term loan. On December 3, 1997 the Company converted the outstanding balance
into a ten year term loan bearing interest of 8.54%. The loan agreement calls
for monthly interest only payments of $28,823 beginning in January 1998 through
May 1998. Monthly principal and interest payments are $69,680 beginning June
1998 through May 2003. Thereafter, the monthly principal and interest payments
reduce to $20,644. The Company anticipates drawing the final $500,000 under this
loan agreement upon acceptance of the equipment in order to repay remaining
amounts due to the equipment vendor. This amount will also have a ten year
amortization and will bear interest at 2.55% over the ten year treasury bill
rate.
In January 1997, in connection with the purchase of Cintas Adhesivas Nunez S.A.
("CANSA")(See Note 3), payment of a portion of the purchase price in the amount
of 37,500,000 pesetas was deferred. This amount plus interest of 8.0%, is
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 2 -- Borrowing Arrangements and Financing Commitments (Continued)
payable in three annual installments of 12,500,000 pesetas, plus accrued
interest, beginning December 31, 1999. At November 28, 1997 the outstanding
balance of approximately $270,000 is included in Borrowings in the accompanying
Consolidated Balance Sheet.
On April 11, 1997, Plymouth Rubber Europa, S.A., a subsidiary of the Company,
entered a term loan arrangement with a Spanish Bank syndicate in the original
amount of 250,000,000 pesetas (approximately $1,721,000) due April, 2007,
secured by a first interest in real property and supported by a bank guarantee
in the amount of $500,000. The loan agreement calls for semi-annual principal
payments of 12,500,000 pesetas (approximately $86,000), and quarterly interest
payments. The outstanding balance bears interest at the one year Madrid
inter-bank market rate (MIBOR) plus 1.25%, adjusted quarterly.
The revolving line of credit and term debt of the Company consisted of the
following as of:
November 28, November 29,
1997 1996
----------- -----------
Short-term borrowings under a revolving line of credit, secured
by a first interest in accounts receivable, inventory, equipment
and other personal property with interest charged at prime plus
1/4%. At November 28, 1997, the Company had approximately
$1,000,000 in unused borrowing availability on its revolving line
of credit. The interest rate at November 28, 1997 was 8.75% .................. $ 8,221,000 $ 5,189,000
=========== ===========
Term debt, in the original principal amount of $3,000,000, due
June 2001, secured by a first interest in real property. Monthly
principal payments of $50,000 plus interest at prime plus 1/4%
are required. The interest rate at November 28, 1997 was 8.75% ............... $ 1,950,000 $ 2,800,000
Term debt, in the original principal amount of $3,657,000, due December,
2000, secured by a first interest in certain equipment. Monthly payments of
$75,094 including interest at 8.53% are required. ............................ 2,433,000 3,150,000
Term debt, in the original principal amount of $4,050,000, due
May, 2008, secured by a first interest in certain equipment.
Monthly payments will be interest only of $28,823 until June,
1998 when payments will be $69,680, including interest at 8.54%.
In June, 2003, the remaining debt will be amortized over five
years, giving a monthly payment of $20,644, including interest ............... 4,050,000 --
Term debt, in the original principal amount of 250,000,000 pesetas
(approximately $1,721,000), due April, 2007, secured by a first interest in
real property. Semi-annual principal payments of 12,500,000 pesetas
(approximately $86,000), with interest paid quarterly at the one year Madrid
inter-bank market rate (MIBOR) plus 1.25%, adjusted quarterly. The interest
rate at November 28, 1997, was 6.375% ........................................ 1,596,000 --
Term debt, in the principal amount of 37,500,000 pesetas
(approximately $270,000 at November 28, 1997) plus interest at
8.0%, payable in three annual installments of 12,500,000 pesetas,
plus accrued interest, beginning December 31, 1999 ........................... 270,000 --
Capital lease obligations (see Note 10) ...................................... 1,713,000 1,018,000
----------- -----------
12,012,000 6,968,000
Less current portion ......................................................... 2,138,000 1,538,000
----------- -----------
$ 9,874,000 $ 5,430,000
=========== ===========
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 2 -- Borrowing Arrangements and Financing Commitments (Continued)
The Company's revolving credit loan and long term debt agreements contain
various covenants which, among other things, prohibit cash dividends without the
consent of the lender and specify that the Company meet certain financial
requirements, including certain net worth, fixed charge and EBITDA coverage
ratios and minimum working capital levels. In addition, for borrowings
classified as short-term, the agreements contain certain subjective provisions
which would result in an event of default if the bank would deem itself
"insecure" for any reason. The short-term borrowings are also payable on demand.
The Company was in compliance with all of its financial covenants as of November
28, 1997. During 1998, however, several of these covenants will become more
restrictive. Based upon current projections, the Company may not meet certain of
these covenants during 1998. With respect to this, management is currently
negotiating with the applicable lender to revise these covenants. Should less
restrictive financial covenants not be negotiated prior to the end of the first
quarter of 1998, a portion of the Company's long-term debt may be classified on
its balance sheet as current at that time. At November 28, 1997, long-term debt
subject to such potential reclassification was approximately $5,512,000.
Maturities of long-term obligations in the next five years are: 1998 -
$2,138,000; 1999 - $2,515,000; 2000 - $2,690,000; 2001 - $1,380,000; and 2002
and thereafter - $3,289,000.
Note 3 - Acquisitions
On January 3, 1997, Plymouth Rubber Europa S.A., a newly-formed, wholly-owned
subsidiary of the Company, acquired 100 percent of the outstanding shares of
Cintas Adhesivas Nunez S.A., a privately owned company, located in Porrino,
Spain, for approximately 366,500,000 pesetas (approximately $2,900,000).
309,500,000 pesetas (approximately $2,449,000) were paid at closing, with funds
borrowed under the Company's existing line of credit. An additional 37,500,000
pesetas (approximately $297,000) will be payable in three annual installments,
plus interest, beginning December 31, 1999. An additional 19,462,000 pesetas
(approximately $154,000) was paid in April, 1997, reflecting the change in the
acquired company's equity from February 29, 1996 through December 31, 1996.
Plymouth Rubber Europa, S.A., refinanced a 250,000,000 pesetas (approximately
$1,721,000) loan through a Spanish bank in April, 1997, and repaid 219,500,000
pesetas (approximately $1,510,000) to the Company which, in turn, reduced its
borrowings made on the existing line of credit. Plymouth Rubber Europa, S.A.,
produces and markets vinyl and cloth-based insulating tapes from the facility in
Porrino, Spain.
The acquisition was recorded on the acquiring company's balance sheet as a
purchase valued at an estimated $2,900,000 plus acquisition costs of $200,000.
Cintas Adhesivas Nunez S.A. operates as a wholly-owned subsidiary of Plymouth
Rubber Europa S.A. The purchase price was allocated to assets acquired and
liabilities assumed based upon their respective fair market values at the date
of acquisition. The excess of purchase price over assets acquired and
liabilities assumed was approximately $1,020,000, and is being amortized on a
straight line basis over ten years. Amortization expense for the period ended
November 28,1997 was approximately $94,000.
The aggregate purchase price was allocated as follows:
Working capital ........................ $ 320,000
Plant assets ........................... 1,660,000
Goodwill ............................... 1,020,000
Other .................................. 100,000
----------
$3,100,000
==========
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 3 - Acquisitions -- (Continued)
On October 4, 1996, through its wholly owned subsidiary, LB Acquisition Corp.,
the Company acquired certain assets of Brite-Line Industries, Inc.
("Brite-Line") out of foreclosure from Brite-Line's senior secured creditors for
a cost of $150,000, paid with funds borrowed under the Company's existing line
of credit. In connection with the acquisition, the Company guaranteed $2,100,000
of Brite-Line accounts receivable. As of November 29, 1996, the Company
estimated that it would be required to pay $600,000 under this guarantee, and
had accrued this amount in Accounts Payable in the accompanying Consolidated
Balance Sheet. During 1997, the Company made net payments in the amount of
$497,000 to discharge its obligation under this agreement. LB Acquisition Corp.,
which was renamed Brite-Line Technologies, Inc., produces and markets
rubber-based highway marking tapes from the Denver, Colorado facility formerly
occupied by Brite-Line Industries, Inc.
The transaction was accounted for as a purchase. The aggregate purchase price
of $708,000, which included a shortfall on the accounts receivable guarantee of
$407,000, and transaction costs, relocation costs and severance pay related to
the acquisition, was allocated as follows:
Inventory .............................. $401,000
Plant assets ........................... 307,000
--------
$708,000
========
The following represents the unaudited pro forma consolidated results of
operations of the Company and the acquired businesses as if the acquisitions had
occurred at the beginning of each respective period, after giving effect to
certain pro forma adjustments. The unaudited pro forma information is presented
for informational purposes only and is not necessarily indicative of the results
of operations that actually would have been achieved had the acquisition been
consummated as of the respective dates.
Year Ended
---------------------------------------
November 28, November 29, December 1,
1997 1996 1995
----------- ----------- -----------
Revenue .............................. $67,446,000 $63,944,000 $59,383,000
Income from continuing operations .... $ 1,227,000 $ 833,000 $ 1,815,000
Net income ........................... $ 1,227,000 $ 833,000 $ 2,972,000
Earnings per share ................... $ 0.56 $ 0.37 $ 1.34
The Company's fiscal year ended on November 28, 1997, November 29, 1996 and
December 1, 1995. Brite-Line operated on a March 31 fiscal year end and CANSA
operated on a calendar year. The results of operations for the Company for the
year ended November 28, 1997, were combined with the results of operations of
CANSA for the month ended December 31, 1996, to determine the proforma results
of operations for the year ended November 28, 1997. The results of operations
for the Company for the year ended November 29, 1996, which included two months
of Brite-Line, were combined with the results of operations of Brite-Line for
the nine months ending July 31, 1996 (the last month of operations of
Brite-Line) and the results of operations of CANSA for the year ended December
31, 1996, to determine the pro forma results of operations for the year ended
November 29, 1996. The results of operations for the Company for the year ending
December 1, 1995 were combined with the results of operations of Brite-Line for
the twelve months end February 29, 1996, to determine the pro forma results
of operations for the year ended December 1, 1995. The unaudited revenues and
net loss of Brite-Line during the four-month over-lapping period ended February
29, 1996 were $1,254,000 and $(1,241,000), respectively.
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 4 - Income Taxes
Income from continuing operations before income taxes consist of the following:
Year Ended
---------------------------------------
November 28, November 29, December 1,
1997 1996 1995
----------- ----------- -----------
U.S ................................ $ 1,908,000 $ 75,000 $ 1,945,000
Foreign ............................ 74,000 -- --
----------- ----------- -----------
Total ............................... $ 1,982,000 $ 75,000 $ 1,945,000
=========== =========== ===========
The provision (benefit) for income taxes consists of the following:
Year Ended
---------------------------------------
November 28, November 29, December 1,
1997 1996 1995
----------- ----------- -----------
Current:
Federal .......................... $ 23,000 $ 36,000 $ 53,000
State ............................ 70,000 45,000 443,000
Foreign .......................... 30,000 -- --
----------- ----------- -----------
123,000 81,000 496,000
----------- ----------- -----------
Deferred:
Federal .......................... $ 560,000 $(1,483,000) $ (362,000)
State ............................ 33,000 (395,000) (92,000)
----------- ----------- -----------
593,000 (1,878,000) (454,000)
----------- ----------- -----------
Total ............................... $ 716,000 $(1,797,000) $ 42,000
=========== =========== ===========
The significant components of deferred taxes as follows:
Year Ended
---------------------------------------
November 28, November 29, December 1,
1997 1996 1995
----------- ----------- -----------
Deferred tax expense (benefit)
exclusive of the valuation
allowance component listed below .. $ 671,000 $ (5,000) $ 977,000
Decrease in the valuation
allowance ........................ (78,000) (1,873,000) (1,431,000)
----------- ----------- -----------
Total ............................... $ 593,000 $(1,878,000) $ (454,000)
=========== =========== ===========
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 4 - Income Taxes -- (Continued)
The components of the net deferred tax asset are as follows:
November 28, November 29,
1997 1996
----------- -----------
Deferred tax asset:
Pension obligations .............................. $ 1,622,000 $ 1,879,000
Federal net operating loss (NOL) carryforwards ... 573,000 1,058,000
Federal investment tax credit (ITC) carryforwards 331,000 409,000
Postretirement benefits .......................... 425,000 422,000
Environmental reserves ........................... 494,000 459,000
Other ............................................ 993,000 974,000
----------- -----------
Total gross deferred tax assets .................. 4,438,000 5,201,000
Valuation allowance .............................. (93,000) (171,000)
----------- -----------
4,345,000 5,030,000
Deferred tax liability:
Plant assets ..................................... (310,000) (256,000)
----------- -----------
Net deferred tax asset ..................... $ 4,035,000 $ 4,774,000
=========== ===========
The valuation allowance for deferred tax assets was reduced in 1997 by $78,000
and in 1996 by $1,873,000. The reduction in the valuation allowance during 1996
was based upon revised estimates of future taxable income and the ability to
significantly increase capital expenditures to provide the capacity required to
meet expected demand for insulating, automotive and industrial tapes and films.
The recognized deferred tax asset is based upon expected utilization of net
operating loss carryforwards and reversal of certain temporary differences. The
ultimate realization of the deferred tax asset will require aggregate taxable
income of approximately $10 million in future years. The Company has assessed
its past earnings history and trends, sales backlog, budgeted sales, and
expiration dates of carryforwards and has determined that it is more likely than
not that the net deferred tax asset will be realized. The remaining valuation
allowance is maintained against federal investment tax credits which will expire
in 1998 and are not expected to be utilized.
The Company has NOL carryforwards of approximately $1,687,000 at November 28,
1997. These carryforwards, along with their expiration dates, are as follows:
Year of
Expiration Amount
---------- ------
2003 791,000
2004 77,000
2005 502,000
2006 317,000
----------
$1,687,000
==========
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 4 - Income Taxes -- (Continued)
In addition, the Company has ITC carryforwards of $331,000, which expire during
the period 1998 through 2001. If certain substantial changes in the Company's
ownership should occur, there would be an annual limitation on the amount of NOL
carryforwards which could be utilized, and restrictions on the utilization of
ITC carryforwards. Approximately $78,000 of federal ITC carryforwards expired
and the associated deferred tax assets were written off in the current year
against the valuation allowance.
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, 1997, November 29, 1996, and December 1, 1995, is as follows:
Year Ended
---------------------------------------
November 28, November 29, December 1,
1997 1996 1995
----------- ----------- -----------
Tax computed at statutory rate ...... $ 674,000 $ 25,000 $ 661,000
State income taxes, net of U.S. .....
income tax benefit ............... 97,000 (99,000) 184,000
Valuation allowance reduction, net .. -- (1,707,000) (926,000)
Effect of foreign operations ........ (26,000) --
Other ............................... (29,000) (16,000) 60,000
----------- ----------- -----------
$ 716,000 $(1,797,000) $ (21,000)
=========== =========== ===========
Effective income tax rate ........... 36.1% (2,396.0)% 1.1%
=========== =========== ===========
Of the total reduction made to the deferred tax valuation allowance in fiscal
1995 approximately $505,000 pertained to the income from discontinued operations
of $1,157,000, which was net of tax of $63,000. Federal and state income taxes
on income from discontinued operations were calculated at the applicable rates
in effect for the Company at that time.
Note 5 - Accrued Expenses
The Company's accrued expenses consist of the following:
November 28, November 29,
1997 1996
----------- -----------
Accrued payroll and related benefits ......... $1,063,000 $ 1,464,000
Accrued pension contributions ................ 437,000 1,077,000
Other ........................................ 1,712,000 1,123,000
----------- -----------
$ 3,212,000 $ 3,664,000
=========== ===========
Note 6 - Retirement and Other Benefit Plans
The Company has a non-contributory, defined benefit pension plan and a
contributory, defined contribution profit sharing trust, covering substantially
all employees. The Company's defined benefit pension plan provides benefits for
stated amounts for each year of service through fiscal 1996 after which time
benefits have been frozen. The Company's funding policy for the pension plan is
to make contributions at least equal to the minimum required by the applicable
regulations. The Company's defined contribution profit sharing trust allocates
Company contributions based upon a combination of
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 6 - Retirement and Other Benefit Plans -- (Continued)
annual pay and employee elective deferral of pay. The Company may make a
discretionary contribution to the profit sharing trust. During 1997, 1996 and
1995, the Company accrued $242,000, $200,000, and $250,000 of profit sharing
expense, respectively.
Net periodic pension costs for the pension plan for the years ended November 28,
1997, November 29, 1996, and December 1, 1995 are as follows:
Year Ended
---------------------------------------
November 28, November 29, December 1,
1997 1996 1995
----------- ----------- -----------
Service cost-benefits earned
during the period ................. $ -- $ 138,000 $ 109,000
Interest on projected
benefit obligation ................ 948,000 960,000 1,019,000
Actual return on assets ............. (1,414,000) (1,521,000) (1,494,000)
Net amortization and deferral ....... 610,000 1,204,000 1,273,000
----------- ----------- -----------
Net periodic pension costs ...... $ 144,000 $ 781,000 $ 907,000
=========== =========== ===========
Assumptions used in determining net periodic cost:
Discount rate ........................ 7.25% 7.25% 8.50%
Long term rate of return on assets ... 9.00% 9.00% 9.00%
In August, 1996, the Company decided to curtail the non-contributory defined
benefit pension plan with respect to the earning of future benefits, effective
November 30, 1996. This curtailment resulted in the immediate recognition in the
third quarter of fiscal 1996 of the remaining unrecognized net obligation at
transition of $1,571,000.
The following table details the plan's funding status and the amounts recognized
in the accompanying financial statements, utilizing a discount rate of 6.75% at
November 28, 1997 and 7.25% at November 29, 1996.
November 28, November 29,
1997 1996
------------ ------------
Vested benefits .......................... $ 13,755,000 $ 13,464,000
Nonvested benefits ....................... 344,000 309,000
------------ ------------
Projected benefit obligation ............. 14,099,000 13,773,000
Plan assets at fair value ................ 10,304,000 9,049,000
------------ ------------
Projected benefit obligation in
excess of plan assets .................. 3,795,000 4,724,000
Unrecognized net actuarial losses ........ (241,000) (271,000)
Adjustment required to
recognize minimum
liability .............................. 241,000 271,000
------------ ------------
Accrued pension costs .................... $ 3,795,000 $ 4,724,000
============ ============
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 6 - Retirement and Other Benefit Plans -- (Continued)
The following table details the plan assets held at fair market value as of
November 28, 1997 and November 29, 1996:
November 28, November 29,
Assets 1997 1996
- ------ ----------- ----------
Common Stock ........................ $ 3,315,000 $6,150,000
Bonds ............................... 3,098,000 2,702,000
Cash ................................ 3,891,000 197,000
----------- ----------
$10,304,000 $9,049,000
=========== ==========
The Company, in accordance with FAS #87, had an adjusted minimum pension
liability of $271,000 at November 29, 1996, which represented the excess of
minimum accumulated net benefit obligation over previously recorded pension
liabilities. This amount has been adjusted to $241,000 as of November 28, 1997,
to reflect current valuations utilizing a discount rate of 6.75%. Also, as
provided for in FAS #87, a charge to stockholders' equity of $145,000, net of
$96,000 of deferred taxes, is recorded in Stockholders' Equity and Deferred
Taxes-noncurrent, respectively, in the accompanying Consolidated Balance Sheet.
In addition to pension benefits, the Company provides health insurance benefits
to disability retirees and employees who elect early retirement after age 62, on
a shared-cost basis. This coverage ceases when the employee reaches age 65 and
becomes eligible for Medicare. In addition, the Company provides certain limited
life insurance for retired employees. In accordance with FAS #106, "Employers'
Accounting for Postretirement Benefits Other than Pensions," the cost of these
benefits is accrued during the employees' active service period.
The components of net postretirement expense are as follows:
Year Ended
---------------------------------------
November 28, November 29, December 1,
1997 1996 1995
----------- ----------- -----------
Service cost ........................ $ 27,000 $ 27,000 $ 21,000
Interest cost ....................... 52,000 57,000 60,000
Amortization of gain or loss ........ (9,000) (4,000) (10,000)
----------- ----------- -----------
$ 70,000 $ 80,000 $ 71,000
=========== =========== ===========
The status of the Company's unfunded postretirement benefit obligation, which is
included in Other Liabilities in the accompanying Consolidated Balance Sheet, is
as follows:
November 28, November 29,
1997 1996
----------- -----------
Retirees ......................................... $ 367,000 $ 356,000
Fully eligible active plan
participants ................................... 65,000 47,000
Other active plan participants ................... 365,000 437,000
----------- -----------
Accumulated postretirement
benefit obligation ............................. 797,000 840,000
Unrecognized gain ................................ 198,000 148,000
----------- -----------
Accrued postretirement benefit
costs .......................................... $ 995,000 $ 988,000
=========== ===========
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 6 - Retirement and Other Benefit Plans -- (Continued)
In determining the Accumulated Projected Benefit Obligation (the "APBO"), the
weighed average discount rate was assumed to be 6.75%. The assumed health care
cost trend was 8.0% in 1997, declining gradually to 6.7% in 2000 and to 6.0% in
2005. A one percent increase in the assumed health care cost trend rate would
increase the service and interest cost components of net postretirement benefit
expense for 1997 by approximately $7,000, as well as increase the APBO at
November 28, 1997 by approximately $38,000.
Note 7 - Common Stock and Earnings Per Share
On June 11, 1996, the Company declared a 5% stock dividend on both Class A
(voting) and Class B (non-voting) common stock. The dividend was paid in Class B
shares on August 19, 1996 to shareholders of record as of June 24, 1996.
Retained earnings was charged for $843,000 based on a dividend value of $8.875
per share. Cash was paid in lieu of fractional shares using the closing price of
Class B common stock on June 10, 1996, and was less than $2,000. Stock option
and earnings per share information have been adjusted to reflect the stock
dividend paid.
On March 7, 1995, the Company declared a 10% stock dividend on both Class A
(voting) and Class B (non-voting) common stock. The dividend was paid in Class B
shares on May 23, 1995 to shareholders of record as of March 24, 1995. Retained
earnings has been charged for $1,466,000 based on a dividend value of $8.875 per
share. Cash was paid in lieu of fractional shares using the closing price of
Class B common stock on March 6, 1995, and was less than $1,000. Stock option
and earnings per share information have been adjusted to reflect the stock
dividend paid.
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
Class A Class B Class A Class B Capital
-------- ---------- --------- ----------- -----------
Balance at December 1, 1995 ............. 810,586 1,054,201 $ 810,000 $ 1,054,000 $ 8,303,000
Issuance of Class B common stock under
stock option plans .................... 44,484 44,500 49,500
Shares exchanged in connection
with exercise under stock
option plans .......................... (1,558) (1,500) (14,500)
5% stock dividend ....................... 94,876 95,000 748,000
-------- ---------- --------- ----------- -----------
Balance at November 29, 1996 ............ 810,586 1,192,003 810,000 1,192,000 9,086,000
Issuance of Class B common stock under
stock option plans .................... 60,564 60,000 57,000
Shares exchanged in connection
with exercise under stock
option plans .......................... (18,233) (18,000) (76,000)
-------- ---------- --------- ----------- -----------
Balance at November 28, 1997 ............ 810,586 1,231,334 $ 810,000 $ 1,234,000 $ 9,067,000
======== ========== ========= =========== ===========
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 7 - Common Stock and Earnings Per Share -- (Continued)
The per share data on the Statement of Operations and Retained Earnings
(Deficit) were determined as follows:
Common and Common Equivalent Shares (Primary Basis):
November 28, November 29, December 1,
1997 1996 1995
----------- ----------- -----------
Average shares outstanding .......... 2,025,991 1,994,835 1,935,654
Adjustment thereto (1) .............. 148,778 231,173 283,491
----------- ----------- -----------
Weighted average shares outstanding . 2,174,769 2,226,008 2,219,145
=========== =========== ===========
Common and Common Equivalent Shares (Fully Diluted Basis):
November 28, November 29, December 1,
1997 1996 1995
----------- ----------- -----------
Average shares outstanding .......... 2,025,991 1,994,835 1,935,654
Adjustment thereto (2) .............. 148,778 231,173 308,982
----------- ----------- -----------
Weighted average shares outstanding . 2,174,769 2,226,008 2,244,636
=========== =========== ===========
(1) Adjustment for options and warrants under the treasury stock method using
the average market value during the period.
(2) Same as (1) except using the market value at the end of the period, if
greater than the average market value during the period.
Note 8 - Stock Option and Stock Purchase Plans
On January 28, 1982, the Company established an incentive stock option plan
entitled "1982 Employee Incentive Stock Option Plan" (the "1982 Plan"). The 1982
Plan authorizes the granting of options to key employees and officers to
purchase an aggregate of 200,000 shares of the Company's Class B Common Stock.
The exercise price of options granted under the 1982 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 1982 Plan may
authorize variations, options under the 1982 Plan will generally be exercisable
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 five years from the date becoming
exercisable. The period for granting options under this plan has expired.
The Company established on June 29, 1992, an incentive stock option plan
entitled the "1992 Employee Stock Option Plan" (the "1992 Plan"). The 1992 Plan
authorizes the granting of options to key employees and officers to purchase an
aggregate of 225,000 shares of the Company's Class B Common Stock. The exercise
price of the options granted under the 1992 Plan may be no less than the fair
market value of the shares subject thereto on the date of grant. Although the
Board of Directors or Committee administering the 1992 Plan may authorize
variations, options under the 1992 Plan will generally be exercisable in annual
one-fourth increments, beginning one year from the date of grant, with an
additional one-fourth becoming exercisable at the end of each of the years
thereafter. The options are exercisable for ten years from the date of grant.
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 8 - Stock Option and Stock Purchase Plans -- (Continued)
Of the total options issued and outstanding under the 1992 Plan, 93,500 (with
exercise prices ranging from $2.17 to $2.38) were issued with variations from
the standard form. These options were originally only exercisable for five years
from the date of grant and could not be exercised unless the closing price of
the Company's Class B common stock on the American Stock Exchange had been no
less than $10.39 on each of at least twenty days in any consecutive sixty day
period during the twelve months immediately preceding the date of the exercise
and unless the average daily closing price of the Common Stock during the sixty
day period immediately prior to the date of exercise was not less than $10.39
(the "price hurdle").
During August 1993, modifications to certain terms were made to alter the
exercise provisions and the period of exercisability. The revised terms provide
for exercisability, in any event, after the tenth anniversary of grant. In
addition, the new terms provide for accelerated exercisability should the "price
hurdle" be attained. In conjunction with the above modifications, the Company
recorded deferred compensation of $317,000, with an offsetting increase to
Paid-in Capital, representing the difference between the fair market value at
the date of modification over the original option's exercise price. The deferred
compensation is being amortized against operations over the remaining time
period covering exercisability of the options.
On February 1, 1995, the Company established an incentive stock option plan
entitled the "1995 Employee Incentive Stock Option Plan" (the "1995 Employee
Plan") and a non-incentive stock option plan entitled the "1995 Non-employee
Directors Stock Option Plan" (the "1995 Director Plan").
The 1995 Employee Plan authorizes the granting of options to key employees and
officers to purchase an aggregate of 150,000 shares of the Company's Class B
Common Stock. The exercise price of the options granted under the 1995 Employee
Plan may be no less than fair market value of the shares subject thereto on the
date of grant. Although the Board of Directors or Committee administering the
1995 Employee Plan may authorize variations, options under the 1995 Employee
Plan will generally be exercised in annual one-fourth increments, beginning one
year from the date of grant, with an additional one-fourth becoming exercisable
at the end of each of the years thereafter. The options are exercisable for ten
years from the date of grant.
The 1995 Director Plan authorizes the granting of options only to non-employee
directors to purchase an aggregate of 120,000 shares of the Company's Class B
Common Stock. The exercise price of the options granted under the 1995 Director
Plan may be no less than fair market value of the shares subject thereto on the
date of grant. The 1995 Director Plan provided for automatic grant to each
current non-employee director of options to purchase 15,000 shares upon approval
by the stockholders and to any new non-employee director upon their appointment
or election. Although the Board of Directors or Committee administering the 1995
Director Plan may authorize variations, options under the 1995 Director Plan
will generally be exercised in annual one-third increments, beginning one year
from the date of grant, with an additional one-third becoming exercisable at the
end of each of the years thereafter. The options are exercisable for ten years
from the date of grant.
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 8 - Stock Option and Stock Purchase Plans -- (Continued)
A summary of the Company's stock option plans as of November 28, 1997, November
29, 1996, and December 1, 1995, and the changes during the years ending on those
dates are presented below:
Weighted
Average
Number of Exercise
Shares Price
--------- --------
Outstanding at December 2, 1994 ..................... 389,583 $ 2.46
Options granted ..................................... 69,300 7.68
Options exercised ................................... (29,250) 1.72
--------- --------
Outstanding at December 1, 1995 ..................... 429,633 3.35
Options granted ..................................... 17,325 8.69
Options exercised ................................... (44,484) 2.10
--------- --------
Outstanding at November 29, 1996 .................... 402,474 3.72
Options granted ..................................... 40,000 5.16
Options exercised ................................... (60,564) 1.95
Options expired ..................................... (2,417) 1.52
--------- --------
Outstanding at November 28, 1997 .................... 379,493 $ 4.17
========= ========
The following table summarizes information about all stock options outstanding
at November 28, 1997:
Weighted Weighted
Range Number of Average Number of Average
Year of Exercise Options Exercise Options Exercise
Expiration Price Outstanding Price Exercisable Price
----------- -------------- ----------- ---------- ----------- --------
1998 $ 1.51 33,039 $ 1.51 33,039 $ 1.51
2002 2.16 - 3.79 177,294 2.25 82,593 2.26
2004 5.95 42,735 5.95 31,187 5.95
2005 7.68 69,100 7.68 69,100 7.68
2006 8.69 17,325 8.69 5,775 8.69
2007 4.25 - 7.12 40,000 5.16 -- --
----------- -----------
379,493 221,694
=========== ===========
The options outstanding at November 28, 1997 expire at various times in 1998
through 2007.
In accordance with Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (FAS 123), the fair value of options
grants was estimated on the date of grant using the Black-Scholes option pricing
model with the following assumptions for the grants in 1997 (no employee grants
were made during fiscal 1995 or fiscal 1996); no dividend yield, risk-free
interest rate of 6.50%, expected option life of 10 years, and an expected
volatility factor of 26%. The proforma effect of these options on net income and
primary and fully diluted earnings per share was not material. As such the
impact is not necessarily indicative of the effects on reported net income of
future years.
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 8 - Stock Option and Stock Purchase Plans -- (Continued)
At November 28, 1997 and November 29, 1996, 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 shares are required
to be offered to the Company for repurchase at the original purchase price.
Repurchased shares totaled 3,720 at November 28, 1997 and November 29, 1996.
During 1997 and 1996 no shares were repurchased or issued. At November 28, 1997
and November 29, 1996, 30,452 shares were outstanding.
Note 9 - Significant Customer and Export Sales
The Company has one customer, whose operations are primarily in the automotive
industry, which accounted for 33%, 36% and 36% of net sales in 1997, 1996, and
1995, respectively. At November 28, 1997, accounts receivable included
approximately $2,164,000 due from this customer.
The Company conducts business in foreign countries both by exporting products
from the United States and through its wholly-owned subsidiary, Plymouth Rubber
Europa, S.A., located in Porrino, Spain. Products are exported to foreign
customers, primarily in Europe. Export sales from the United States were
approximately 15%, 14%, and 12% of total sales in 1997, 1996, and 1995,
respectively.
Note 10 - Leases
Included in Plant Assets in the accompanying Consolidated Balance Sheet is
leased property under capital leases as follows:
November 28, November 29,
1997 1996
----------- -----------
Machinery and equipment .......................... $ 3,132,000 $ 2,213,000
Less accumulated amortization .................... 1,283,000 1,123,000
----------- -----------
$ 1,849,000 $ 1,090,000
=========== ===========
The Company entered into agreements for the sale and lease back of certain
machinery and equipment in the aggregate amount of $919,000 and $874,000 in 1997
and 1996, respectively. The leases are for periods of 5 years, at the end of
which the Company has buy out options. The leases have been accounted for in
accordance with Statement of Financial Accounting Statements No. 13 "Accounting
for Leases". Amortization of the property under capital leases is included in
depreciation expense.
The following is a schedule by year of future minimum lease payments under
capital leases at November 28, 1997:
1998 ................................................... $ 539,000
1999.................................................... 531,000
2000.................................................... 460,000
2001.................................................... 298,000
2002.................................................... 227,000
-----------
Total minimum lease payments ........................... 2,055,000
Less: Amount representing interest ..................... 342,000
-----------
$ 1,713,000
===========
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 10- Leases -- (Continued)
Minimum annual rentals under noncancelable operating leases (which are
principally for equipment) are as follows:
1998.................................................... $ 443,000
1999.................................................... 451,000
2000.................................................... 353,000
2001.................................................... --
2002.................................................... --
Total rental expense for 1997, 1996 and 1995 was $1,231,100, $800,000, and
$631,000, respectively. Included in the total rental expense in each year are
the warehousing costs incurred at various locations. The cost of keeping
inventory at these warehouses is primarily determined on a usage basis.
Note 11 - Transactions with Related Parties
The Company has consulting agreements with two Directors of the Company, under
which they provide the Company with various consulting services. During 1997,
1996 and 1995, consulting fees of $151,400, $115,500, and $111,000,
respectively, were paid pursuant to these agreements.
Note 12 - Commitments and Contingencies
Litigation
In connection with its former roofing materials business, the Company issued
extended warranties as to the workmanship and performance of its products. Over
99% of these warranties had expired prior to the end of 1995, and the last of
the ten year warranties expired in 1996. (A small number of certain other, more
restrictive, and limited warranties continue thereafter.) The estimated costs of
these warranties were accrued at the time of sale, subject to subsequent
adjustment to reflect actual experience. Some warranty holders have filed claims
or brought suits currently aggregating approximately $721,000 against the
Company and others relating to alleged roof failures. The Company believes, upon
advice of counsel, that its warranty obligation under such warranties is limited
to the cost of the roofing materials and that the amounts of the claims are in
excess of its ultimate liability. The Company is vigorously defending against
these claims and believes that some are without merit and that the damages
claimed in others may not bear any reasonable relationship to the merits of the
claims or the real amount of damage, if any, sustained by the various claimants.
Management believes that the $676,000 reserve recorded at November 28, 1997 is
adequate provision for the Company's remaining warranty obligations.
The Company was the plaintiff in a legal action against one supplier of
materials previously used in the Company's discontinued roofing materials
business. The Company claimed substantial monetary damages based on the failure
of the subject materials to perform as expected. On or about September 11, 1995,
the legal action was settled for a cash payment of $825,000 by the defendant,
which resulted in an $804,000 gain (net of taxes of $21,000) that is included in
Discontinued Operations within the Statement of Operations and Retained
Earnings.
The Company was the plaintiff in a legal action against another party relating
to the Company's previously discontinued consumer products business. The Company
claimed monetary damages based on the Defendant's unfair competition and
interference with advantageous contracts resulting in lost sales and a
diminution in the sale price of the business the Company may have suffered. On
or about December 9, 1994, the Company reached agreement to settle its suit in
the amount of $395,000 which resulted in a $353,000 gain (net of taxes of
$42,000) that is included in Discontinued Operations within the Statement of
Operations and Retained Earnings.
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 12 - Commitments and Contingencies -- (Continued)
The Company is a defendant in several other lawsuits arising in the normal
course of business. Based upon advice of counsel, management believes that these
lawsuits will not have a material adverse effect on the Company's results of
operations or its financial position.
Environmental
The United States Environmental Protection Agency (EPA) has asserted three (3)
outstanding claims against the Company under the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"), pursuant to which EPA is
seeking to recover from the Company and other "generators" the costs associated
with the clean-up of certain sites used by licensed disposal companies hired by
the Company as independent contractors for the disposal and/or reclamation of
hazardous waste materials. In one case, in respect to the Superfund site known
as Re-Solve, Inc., of Dartmouth, Massachusetts, the Company entered into a
Consent Decree, which required a total payment by the Company of $100,000 plus
interest over a period of five years in full settlement of the EPA claim. The
Company has now made all payments, including all accrued interest, and has no
further payment obligation in this matter.
With respect to the second assertion against the Company under CERCLA, a General
Notice of Potential Liability was sent to 1,659 Potentially Responsible Parties
("PRP") including the Company, in June, 1992, relative to a Superfund Site known
as Solvent Recovery Service of New England ("SRS") at a location in Southington,
Connecticut, concerning shipments to the site which occurred between June 1,
1956, and January 25, 1974. The EPA has attributed a 1.74% share of the
aggregate waste volume to the Company. The Company believes that this
attribution may be overstated by failing to account for the portion of the gross
waste volume actually returned to the Company. The first phase of a remediation
program is estimated to cost $3.6 million. The Company is a participant in the
performing PRP group. The Administrative Order on Consent for Removal Action and
Remedial/Feasibility study was entered on or about February 6, 1997. Phase II of
the clean-up and the Remedial Investigation/Feasibility Study ("RI/FS"), is
projected to cost $2.1 million. The most currently available estimate is that
the total cost of the clean up for the PRP's will range from approximately $38
million to $48 million. Based on all available information as well as its prior
experience, management believes the amount accrued of $526,000, which is net of
approximately $200,000 in total payments made by the Company, in the
accompanying consolidated financial statements as of November 28, 1997, is
reasonable in relation to the Company's attributed share of total estimated
aggregate cost. This amount is subject to adjustment for future developments
that may arise from the long-range nature of this EPA case, legislative changes,
insurance coverage, the uncertainties associated with the ultimate outcome of
the Record of Decision ("ROD"), the 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. No actions have been filed by the
EPA against the Company. Therefore, while the Company is participating in the
PRP Group, it is impossible to determine the Company's total ultimate liability
and/or responsibility at this time.
On January 25, 1994, the Company received a notification of an additional
Superfund Site, Old Southington Landfill, (the "OSL Site") regarding which the
EPA asserts that the Company is a PRP. The OSL Site is related to the SRS Site
in that, the EPA alleges, after receipt and processing of various hazardous
substances from PRP's, the owners and/or operators of the SRS Site shipped the
resultant contaminated soil from the SRS Site to the OSL Site. Since the Company
is alleged to have shipped materials to the SRS Site, the EPA alleges that the
Company is also a PRP of the OSL Site. In addition, there were three (3) direct
shippers to the site, the Town of Southington, General Electric, and Pratt &
Whitney, as well as other transporters and/or users. Based on EPA's asserted
volume of shipments to SRS during that time period, the EPA has attributed 4.89%
of waste volume of all SRS customers to the Company; no attempt has been made by
EPA to adjust the waste volume for the distillation done by SRS prior to
shipment to OSL. An ROD was issued in September, 1994 for the first Phase of the
clean-up. In a mediated settlement, the transshipper PRP's were ultimately
assessed a total share of the first phase of the clean up, as well as settlement
of past costs including orphan shares, in the amount of $2.5 million. Subsequent
to year-end on or about December 20, 1997, the Company executed the Consent
Decree and paid $140,180 in full settlement of the first phase. The settlement
of the second phase continues to be mediated, though the allocation among the
parties and scope of the remedy for the second phase has not been agreed
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 12 - Commitments and Contingencies -- (Continued)
Environmental (Continued)
upon, total costs are estimated at between $10 and $50 million. The Company has
been notified that 21 parties of which the Company is one will likely be
precluded from participating in an early mediated settlement for the second
phase on a "de minimis" basis. Therefore, should the Company choose to continue
to participate in the PRP Group for the second phase, it is probable its payment
to obtain a complete release will be greater than a de minimis parties'
settlement. Based on all available information as well as its prior experience,
management believes a reasonable estimate of its liability is $477,000 and has
accrued this amount in the accompanying consolidated financial statements as of
November 28, 1997. This amount includes the first phase settlement of $140,180
subsequently paid, and is subject to future developments that may arise from the
long-range nature of this EPA case, legislative changes, insurance coverage, the
uncertainties associated with the ultimate outcome of the second remedial phase,
if any, and the 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. No actions have been currently filed by the EPA
against the Company. Therefore, while the Company intends to vigorously defend
this matter, it is impossible to determine the Company's total liability and/or
responsibility at this time.
In addition, in the process of preparing to eliminate the use of certain
underground storage tanks located at the Company's manufacturing facility, the
Company determined that some soil contamination had occurred in a small
localized area near the tanks in question. In accordance with Massachusetts
requirements, the Company notified the Massachusetts Department of Environmental
Protection ("DEP") of the foregoing and on or about September 9, 1994, the DEP
issued a Notice of Responsibility, RTN No. 3-11520, pursuant to M.G.L. c. 21E.
According to the preliminary information obtained by an independent Licensed
Site Professional, the contamination of the soil appears to be confined to a
small area and does not pose an environmental risk to the surrounding property
or community. Remediation action is in process. It is expected that such
assessment and remediation will take up to two years to complete and that the
remaining costs for same will not exceed the additional sum of $276,000, which
has been provided for in the accompanying financial statements.
On or about January 21, 1997, the Company received a Notice of Responsibility
from the DEP pursuant to M.G.L. c. 21E concerning the certain sites identified
as The Ledge, 757-782 State Road, Dartmouth: RTN No. 4-0234; and Ridge Hill
Road, Freetown: RTN No. 4-0086. The letter indicates that drums containing
hazardous materials, some of which may have contained the Company's wastes, were
discovered at both sites in April 1979, and that response actions were
undertaken at both sites between 1979 and 1981 by the DEP. On information and
belief, the company which disposed of these drums is H&M Drum to whom the
Company shipped wastes between 1977 to 1979. The DEP has issued at least ten
notices to PRP's and the Company believes additional notices will be sent. In
compliance with DEP requests and statutory requirements, the Company has hired a
LSP to perform certain technical services at the sites. Recent sampling of
existing wells at the Freetown site contained no finding of any volatile organic
chemicals ("VOC's"). Sampling at the Dartmouth site still remains to be done.
Until additional data is gathered, the extent of the problem and or remedial
action required, if any, cannot be determined. Further, the total number of
PRP's is not yet known. Accordingly, at the current time, the Company is not
able to estimate its portion of any liability ultimately arising from the site.
Therefore, as of November 28, 1997, no reserves have been provided in the
accompanying Financial Statements.
Pursuant to the Company's compliance with EPA and Massachusetts regulations
concerning the upgrade or replacement of underground storage tanks by December
22, 1998, the Company arranged for the testing of the area adjacent to three
underground storage tanks. A limited amount of solvent was found in the soil in
the vicinity of the tanks; however, additional sampling is required. The Company
notified DEP of its test results, and on November 19, 1997, the DEP issued a
written response, notifying the Company of its responsibility, RTN No. 3-15347,
under M.G.L. c.21E as an unclassified site for response and remedial action. The
Company has several options under the law to protect, remove or replace the
tanks and plans to take whatever remedial action is deemed appropriate. The
Company is in the process of determining the costs associated with each of these
alternatives and has hired an LSP to perform initial site investigation
activities.
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 1997 and 1996.
Quarter Ended
February 28 May 30 August 29 November 28
------------- ------------- ------------- -------------
1997 (a)
Net sales ............ $ 15,284,000 $ 17,706,000 $ 16,396,000 $ 17,750,000
Gross profit ......... 3,796,000 3,904,000 3,919,000 4,326,000
Net income ........... 141,000 170,000 437,000 518,000
Earnings per share
Primary ............ $ 0.06 $ 0.08 $ 0.20 $ 0.24
1996 March 1 May 31 August 30 November 29(b)
------------- ------------- ------------- -------------
Net sales ............ $ 13,312,000 $ 14,566,000 $ 14,003,000 $ 15,300,000
Gross profit ......... 2,961,000 3,679,000 3,599,000 2,978,000
Net income ........... 305,000 619,000 904,000 44,000
Earnings per share
Primary ............ $ 0.14 $ 0.28 $ 0.40 $ 0.02
(a) Net income for fiscal 1997 includes a gain on the sale of land. The
pre-tax gain of $539,000 was recognized during the third and fourth
quarters of 1997 in accordance with the terms of the sales agreement which
included a contingency related to the sales price of the land. In
addition, net income during the first half of fiscal 1997 was reduced due
to the highly seasonal nature of Brite-Line's highway pavement marking`
business.
(b) Gross profit in the fourth quarter of fiscal 1996 was depressed due to the
Company's less favorable product mix, higher raw material costs, higher
plant maintenance expenses, and production inefficiencies related to
limitations on the Company's production capacity.
PLYMOUTH RUBBER COMPANY, INC.
ACCOUNTS RECEIVABLE
RESERVES
SCHEDULE II
Uncollectible
Accounts
Balance at Provision Charged to Balance
Beginning Allowances Charged Reserve, net at End
of Period Acquired to Income of recoveries of Period
--------- -------- --------- ------------- ---------
Deducted from assets:
Allowance for doubtful accounts
Year ended November 28, 1997 $ 195,000 $ 81,000 $ 63,000 $ (25,000) $ 314,000
Year ended November 29, 1996 174,000 -- 90,000 (69,000) 195,000
Year ended December 1, 1995 540,000 -- 4,000 (370,000) 174,000
PLYMOUTH RUBBER COMPANY, INC.
INDEX TO EXHIBITS
Exhibit
No. Description
- ------- -----------
(2) Not Applicable.
(3)(i) Restated Articles of Organization -- incorporated by reference to
Exhibit 3(i) of the Company's Annual Report on Form 10-K for the
year ended December 2, 1994.
(3)(ii) By Laws, as amended -- incorporated by reference to Exhibit (3)(ii)
of the Company's Annual Report on Form 10-K for the year ended
November 26, 1993.
(4)(i) Mortgage Note between Plymouth Rubber Company, Inc. and the Board of
Education of Charles County, Maryland, dated November 1, 1991 --
incorporated by reference to Exhibit (2) (xiii) to the report on
Form 10-Q for the Quarter Ended May 30, 1992.
(4)(ii) Promissory Note between Plymouth Rubber Company, Inc. and Foothill
Capital Corporation dated October 1, 1993 -- incorporated by
reference to Exhibit (2)(i) to the report on Form 8-K with cover
page dated October 1, 1993.
(4)(iii) Loan and Security Agreement between Plymouth Rubber Company, Inc.
and Foothill Capital Corporation dated October 1, 1993 --
incorporated by reference to Exhibit (2)(ii) to the report on Form
8-K with cover page dated October 1, 1993.
(4)(iv) Promissory Note between Plymouth Rubber Company, Inc. and General
Electric Capital Corporation dated December 29, 1995 -- incorporated
by reference to Exhibit (4)(viii) to the report on Form 10-Q for the
Quarter ended March 1, 1996.
(4)(v) 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)(vi) Demand Note between Plymouth Rubber Company, Inc. and LaSalle
National Bank dated June 6, 1996 -- incorporated by reference to
Exhibit (2)(i) to the report on Form 8-K with cover page dated June
6, 1996.
(4)(vii) Loan and Security Agreement between Plymouth Rubber Company, Inc.
and LaSalle National Bank dated June 6, 1996 -- incorporated by
reference to Exhibit (2)(ii) to the report on Form 8-K with cover
page dated June 6, 1996.
(4)(viii) Amendment to Master Security Agreement between Plymouth Rubber
Company, Inc. and General Electric Capital Corporation dated
February 19, 1997 -- incorporated by reference to Exhibit (4)(xi) to
the report on Form 10-Q for the quarter ended February 25, 1997.
(4)(ix) Master Security Agreement between Plymouth Rubber Company, Inc. and
General Electric Capital Corporation dated January 29, 1997 --
incorporated by reference to Exhibit (4)(xii) to the Company's
report on Form 10-Q for the quarter ended February 25, 1997.
(4)(x) Demand Note between Brite-Line Technologies, Inc. and LaSalle
National Bank dated February 28, 1997 -- incorporated by reference
to Exhibit (4)(xiii) to the Company's report on Form 10-Q for the
quarter ended May 30, 1997.
PLYMOUTH RUBBER COMPANY, INC.
INDEX TO EXHIBITS
(Continued)
Exhibit
No. Description
- ------- -----------
(4)(xi) Loan and Security Agreement between Brite-Line Technologies, Inc.
and LaSalle National Bank dated February 25, 1997 -- incorporated by
reference to Exhibit (4)(xiv) to the Company's report on Form 10-Q
for the quarter ended May 30, 1997.
(4)(xii) Continuing Unconditional Guaranty between Brite-Line Technologies,
Inc. LaSalle National Bank dated February 25, 1997 -- incorporated
by reference to Exhibit (4)(xv) to the Company's report on Form 10-Q
for the quarter ended May 30, 1997.
(4)(xiii) Amendment to Loan and Security Agreement between Plymouth Rubber
Company, Inc. and LaSalle National Bank dated May 7, 1997 --
incorporated by reference to Exhibit (4)(xvi) to the Company's
report on Form 10-Q for the quarter ended May 30, 1997.
(4)(xiv) Continuing Unconditional Guaranty between Plymouth Rubber Company,
Inc. and LaSalle National Bank dated March 20, 1997 -- incorporated
by reference to Exhibit (4)(xvii) to the Company's report on Form
10-Q for the quarter ended May 30, 1997.
(4)(xv) Public Deed which contains the loan guaranteed by mortgage and
granted between Plymouth Rubber Europa, S.A. and Caja de Ahorros
Municipal de Vigo, Banco de Bilbao, and Vizcaya y Banco de Comercio
dated April 11, 1997 -- incorporated by reference to Exhibit
(4)(xviii) to the Company's report on Form 10-Q for the quarter
ended May 30, 1997.
(4)(xvi) Corporate Guaranty between Plymouth Rubber Company, Inc. and Caja de
Ahorros Municipal de Vigo, Banco de Bilbao, and Vizcaya y Banco de
Comercio dated April 11, 1997 -- incorporated by reference to
Exhibit (4)(xix) to the Company's report on Form 10-Q for the
quarter ended May 30, 1997.
(9)(i) Voting Trust Agreement, as amended, relating to certain shares of
Company's common stock -- incorporated by reference to Exhibit (9)
of the Company's Annual Report on Form 10-K for the year ended
November 26, 1993.
(9)(ii) Voting Trust Amendment Number 6 -- incorporated by reference to
Exhibit 9(ii) of the Company's Annual Report on Form 10-K for the
year ended December 2, 1994.
(10)(i) 1982 Employee Incentive Stock Option Plan -- incorporated by
reference to Exhibit (10)(i) of the Company's Annual Report on Form
10-K for the year ended November 26, 1993.
(10)(ii) General Form of Deferred Compensation Agreement entered into between
the Company and certain officers -- incorporated by reference to
Exhibit (10)(ii) of the Company's Annual Report on Form 10-K for the
year ended November 26, 1993.
(10)(iii) 1992 Employee Incentive Stock Option Plan -- incorporated by
reference to Exhibit (10)(iv) of the Company's Annual Report on Form
10-K for the year ended November 26, 1993.
(10)(iv) 1995 Non-Employee Director Stock Option Plan -- incorporated by
reference to Exhibit (4.3) of the Company's Registration Statement
on Form S-8 dated May 4, 1995.
(10)(v) 1995 Employee Incentive Stock Option Plan -- incorporated by
reference to Exhibit (4.4) of the Company's Registration Statement
on Form S-8 dated May 4, 1995.
PLYMOUTH RUBBER COMPANY, INC.
INDEX TO EXHIBITS
(Continued)
Exhibit
No. Description
- ------- -----------
(10)(vi) Sales contract entered into between the Company and Kleinewefers
Kunststoffanlagen GmbH -- incorporated by reference to Exhibit
(10)(vi) of the Company's report on Form 10-Q for the quarter ended
February 28, 1997.
(11) Not Applicable.
(12) Not Applicable.
(13) Not Applicable.
(15) Not Applicable
(16) Not Applicable.
(18) Not Applicable.
(19) Not Applicable
(21) Brite-Line Technologies, Inc. (incorporated in Massachusetts) and
Plymouth Rubber Europa, S.A. (organized under the laws of Spain).
(22) Not Applicable.
(23) Consent of Independent Accountants.
(23) Not Applicable.
(24) Not Applicable.
(27) Financial data schedule for the year ended November 28, 1997.
(28) Not applicable.
(29) Not applicable.