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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 27, 1998 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 registrants knowledge, in definite proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. X
-------
The aggregate market value of the registrant's voting stock held by
non-affiliates of the registrant at January 22, 1999, was approximately
$2,149,000.
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 . . . . . 1,275,014
Documents incorporated by reference:
Portions of the registrant's definitive Proxy Statement to be dated on or
about March 26, 1999 (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, the Company acquired certain assets of Brite-Line Industries,
Inc. Brite-Line Technologies, Inc. ("Brite-Line") 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 resins, plasticizers, synthetic and natural
rubber, and textiles. There are a number of alternate suppliers of materials.
The primary sources of natural rubber are domestic suppliers with operations in
Southeast Asia; in addition, textiles are acquired from 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.
Because products are manufactured for inventory as well as to order for specific
customers, both the order backlog and the inventory turnover vary significantly
from market to market. In general, on a Company wide basis, the backlog is
equivalent to approximately one month's sales volume. The Company grants various
payment terms in accordance with the standards dictated by individual markets;
however, extended payment terms generally are not granted with the exception of
certain foreign markets where payment terms may consider local customs and
practices.
The markets served by the Company are highly competitive. Competition comprises
a number of domestic and foreign companies, some of which have larger sales
organizations and substantially greater resources than the Company. In general,
the Company regards itself as having an average competitive position in the
industry, although, based on available market information, it is believed that
the Company is a significant factor in, and has captured significant shares of
the markets for friction, rubber and vinyl tape products. The estimated number
of competitors varies from market to market. The Company relies upon product
design, product quality, price and service to maintain its competitive position
in the markets served and no single product accounts for a predominant amount of
the Company's total sales volume. Since 1988, the Company has been the primary
source of PVC (vinyl) harness tapes for the North American wire harness
operations of the Delphi Packard Electric Division ("PED") of General Motors,
and has also supplied part of PED's tape requirements for Europe and South
America. In 1995, the Company was awarded a three-year agreement, which has been
extended through December 1999, as sole source of PVC (vinyl) harness tapes to
PED. PED accounted for approximately 29%, 33% and 36% of the Company's net sales
in 1998, 1997 and 1996, respectively. As PED 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 shipped from inventories maintained in foreign
countries. The Company's export sales from the United States were approximately
11% of total sales in 1998, 15% in 1997, and 14% in 1996.
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
ENVIRONMENTAL
Claims under CERCLA
The Company has been named as a Potentially Responsible Party ("PRP") by the
United States Environmental Protection Agency ("EPA") in two ongoing claims
under the Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"). These CERCLA claims involve attempts by the EPA to recover the costs
associated with the cleanup of two Superfund Sites in Southington,
Connecticut--the Solvent Recovery Service of New England Superfund Site ("SRS
Site") and the Old Southington Landfill Superfund Site ("OSL Site"). SRS was an
independent and licensed solvent recycler/disposal company. The EPA asserts that
SRS, after receiving and processing various hazardous substances from PRP's,
shipped some resultant sludges and wastewater from the SRS Site to the OSL Site.
The Company received a PRP notification regarding the SRS Site in June, 1992.
The EPA originally attributed a 1.74% share of the aggregate waste volume at the
SRS Site to the Company. Remedial action is ongoing at the Site, and the Company
is a participant in the performing PRP group. Largely because of "orphaned
shares," the Company recently has been contributing approximately 2.05% toward
the performing PRP group's expenses. Based upon the investigations and remedial
actions conducted at the Site to date, including the recently completed
phytoremediation study, it is presently estimated that the total cost of the
cleanup at the Site will range from approximately $25 million to $50 million. In
the accompanying consolidated financial statements as of November 27, 1998,
management has accrued $511,000 as a reserve in this matter (which is net of
approximately $215,000 in payments made to date by the Company).
The Company received a PRP notification regarding the OSL Site in January, 1994.
In addition to numerous "SRS transshipper" PRP's (such as the Company), EPA has
named a number of other PRP's who allegedly shipped waste materials directly to
the OSL Site. Based on EPA's asserted volume of shipments to SRS, EPA originally
attributed 4.89% of the "SRS transshipper" PRP's waste volume at the OSL Site to
the Company, which is an undetermined fraction of the total waste volume at the
Site. A Record of Decision ("ROD") was issued in September, 1994 for the first
phase of the cleanup and, in December, 1997, following mediation, the Company
contributed $140,180 (toward a total contribution by the "SRS transshipper"
PRP's of approximately $2.5 million) in full settlement of the first phase. At
present, neither the remedy for the second phase of the cleanup (groundwater)
nor the allocation of the costs thereof among the PRP's has been determined. It
has been estimated that the total costs of the second phase may range from $10
million to $50 million. Management has accrued $337,000 in the accompanying
consolidated financial statements as a reserve against the Company's potential
future liability in this matter.
Based on all available information as well as its prior experience, management
believes that its accruals in these two matters are reasonable. However, in each
case the reserved amount is subject to adjustment for future developments that
may arise from one or more of the following--the long range nature of the case,
legislative changes, insurance coverage, the joint and several liability
provisions of CERCLA, the uncertainties associated with the ultimate groundwater
remedy selected, and the Company's ability to successfully negotiate an outcome
similar to its previous experience in these matters.
Claims under Massachusetts General Laws, Chapter 21E
While in the process of eliminating the use of underground storage tanks at the
Company's facility in Canton, Massachusetts, the Company arranged for the
testing of the areas adjacent to the tanks in question--a set of five tanks in
1994 and a set of three tanks in 1997. The tests indicated that some localized
soil contamination had occurred. The Company duly reported these findings
regarding each location to the Massachusetts Department of Environmental
Protection ("DEP") in 1994 and 1997 respectively, and DEP issued Notices of
Responsibility under Massachusetts General Laws Chapter 21E to the Company for
each location (RTN No. 3-11520 and RTN No. 3-15347, respectively). The Company
has retained an independent Licensed Site Professional ("LSP") to perform
assessment and remediation work at the two locations. With regard to the first
matter (involving the set of five tanks), the LSP has determined that the soil
contamination appears to be confined to a small area and does not pose an
environmental risk to surrounding property or community. With regard to the
second matter (involving the set of three tanks), a limited amount of solvent
has been found in the soil in the vicinity of the tanks; however, additional
sampling is required. It presently is estimated that the combined future costs
to complete the assessment and remediation actions at the two locations will
total approximately $325,000, and that amount has been accrued in the
accompanying financial statements.
In January, 1997 the Company received a Chapter 21E Notice of Responsibility
from DEP concerning two sites located in Dartmouth, Massachusetts (RTN No.
4-0234) and Freetown, Massachusetts (RTN No. 4-0086), respectively. According to
DEP, drums containing oil and/or hazardous materials were discovered at the two
sites in 1979, which led to some cleanup actions by the DEP. DEP contends that
an independent disposal firm allegedly hired by the Company and other PRP's, H &
M Drum Company, was responsible for disposing of drums at the two sites. To
date, the DEP has issued Notices of Responsibility to approximately 100 PRP's. A
group of PRP's, including the Company, has retained an LSP to conduct
groundwater investigations at both sites. Those investigations are still in
progress, and until additional data is gathered, it is not possible to
reasonably estimate the extent of the problem, the costs of any cleanup that may
be required at either or both sites, or the Company's potential share of
liability or responsibility therefor. Accordingly, no reserve has been accrued
in the accompanying financial statements with respect to these two sites.
OTHER LITIGATION
The Company's subsidiary, Brite-Line Technologies, Inc., is both a defendant and
a counterclaim plaintiff in a patent infringement lawsuit which was initiated in
1998 in federal district court in Minnesota. The suit involves contrasting
claims by Brite-Line and the plaintiff (a competitor of Brite-Line in the
highway marking tapes business), that the other party has committed patent
infringement with respect to its specialty retroreflective pavement marking
tapes containing raised areas/protrusions. The particular Brite-Line products in
question, which were recently introduced to the market, are sold under the
Deltaline trademark. Brite-Line believes, upon advice of counsel, that it has
not infringed the plaintiff's patents. Brite-Line is vigorously defending
against the plaintiff's claims and is pursuing with equal vigor, its own patent
infringement claims against the plaintiff. The case is in the early stages of
discovery, so it is not possible at this time to reasonably estimate the dollar
amount, if any, that either party ultimately may recover from the other.
However, the plaintiff's sales of its challenged products have significantly
exceeded Plymouth's sales of Deltaline products.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the fiscal year covered by
this report to a vote of security holders, through the solicitation of proxies
or otherwise.
EXECUTIVE OFFICERS OF THE COMPANY
Name Position/Officer Age (at last Birthday) Served Since
- ---- ---------------- ---------------------- ------------
Maurice J. Hamilburg President and Co - Chief Executive
Officer and Director 52 1987
Joseph D. Hamilburg Co - Chief Executive Officer and Director 50 1998
Fiore D. DiGiovine VP - Mfg. Development 71 1987
Alan I. Eisenberg VP - Sales & Marketing 48 1988 & 1986
Sheldon S. Leppo VP - Research & Development 64 1970
Joseph J. Berns VP - Finance and Treasurer 52 1997
William F. Mansell VP - Manufacturing 42 1997
David M. Kozol Clerk and Secretary 40 1998
Messrs. Maurice J. Hamilburg, Fiore D. DiGiovine, Sheldon S. Leppo and Alan
I. Eisenberg have held their present positions during each of the past five
years.
Mr. Joseph J. Berns joined the Company in August, 1997. From 1987 to 1997,
he served as Vice President - Finance for Cooley Incorporated, a manufacturer
of coated fabrics.
Joseph D. Hamilburg joined the Company in April, 1998. From 1989 to 1998,
he served as President of J.D.H. Enterprises, Inc., an international
consulting company. Mr. Hamilburg has been a Director of the Company since
1974.
Mr. 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 practicing attorney in the
law firm of Friedman & Atherton, which serves as the Company's counsel.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
(a) PRICE RANGE OF COMMON STOCK
The following table sets forth the reported high and low prices for Plymouth
Class A and Class B common stock, which shares are listed and traded on the
American Stock Exchange.
Class A Class B Class A Class B
--------------- ----------------- ------------- ---------------
High Low High Low High Low High Low
---- --- ---- --- ---- --- ---- ---
Quarter 1998 Quarter 1997
First ............. . 6 1/2 5 5 1/8 4 1/8 First ............. 8 3/16 6 5/8 7 3/4 6 5/8
Second ............ 7 1/4 5 9/16 7 1/4 4 11/16 Second ............ 6 3/4 4 1/8 6 3/4 3 1/2
Third ............. 8 1/8 6 3/8 7 3/16 6 1/16 Third ............. 6 1/2 5 5/8 5 1/4 4 1/4
Fourth ............ 7 6 6 5/8 5 7/8 Fourth ............ 6 1/16 5 5/8 4 7/8 4 1/8
(b) APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS
As of January 22, 1999, 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 ....... 250
Class B non-voting common stock $1.00 par value ... 300
(c) DIVIDENDS
The Company has not paid cash dividends on its common stock since its fiscal
year ended in 1970. Under the Company's loan agreements, it is prohibited from
paying any cash dividends with respect to its capital stock without a waiver
from its lender, so long as any obligation under the loan agreements remains
outstanding. In addition, a payment of dividends will depend, among other
factors, on earnings, capital requirements and the working capital needs of the
Company. At the present time, the Company intends to follow a policy of
retaining earnings in order to finance the development of its business.
ITEM 6. SELECTED FINANCIAL DATA (SEE NOTES 2, 3, 4 AND 6 OF THE NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS)
SELECTED INCOME STATEMENT DATA:
Years Ended
---------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
Net Sales $69,041,000 $67,136,000 $57,181,000 $53,293,000 $51,045,000
Income from continuing operations $ 1,838,000 $ 1,266,000 $ 1,872,000 $ 1,966,000 $ 2,512,000
Per Share Data:
Income from continuing operations
(diluted) $ 0.84 $ 0.58 $ 0.84 $ 0.88 $ 1.14
Weighted average shares outstanding 2,200,406 2,174,482 2,226,008 2,244,636 2,202,466
SELECTED BALANCE SHEET DATA:
Total Assets $50,701,000 $44,064,000 $34,750,000 $31,482,000 $28,398,000
Long Term Liabilities $16,919,000 $15,858,000 $11,439,000 $10,060,000 $10,935,000
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
1998 COMPARED WITH 1997
Sales increased for the eighth consecutive year, as 1998 sales at $69 million
were up 3% from 1997 levels. The major contributor was Brite-Line Technologies,
where sales increased by $3.6 million from last year, reflecting increased
business from both new and existing customers. Sales in Plymouth's tape business
(produced in Canton, Mass., and Porrino, Spain) decreased by $5.5 million and
3%, primarily because of capacity constraints, product mix, and because of
reduced demand due to the General Motors strike.
Gross margin increased to 25.5% from 23.8% last year. In Plymouth's tape
business, gross margin improved to 25.5% from 23.5% last year. The primary
factor was lower product costs, resulting from lower purchase costs for resin
and other raw materials, and lower manufacturing spending, offset in part by
higher unfavorable volume variances. Gross margin at Brite-Line decreased to
25.0% from 26.4% last year, reflecting higher production costs and an increase
in inventory reserves, offset in part by favorable manufacturing overhead
absorption from higher production levels, and by favorable product mix.
Selling, general and administrative expenses, as a percentage of sales,
decreased to 18.8% from 19.1% last year. The major contributing factors were
lower warehouse handling charges, advertising, freight and commissions in
Plymouth's tape business. This was partially offset by higher accrued bonus,
profit sharing, professional fees, and bad debt expense in Plymouth's tape
business, and higher professional fees at Brite-Line.
Interest expense, as a percentage of sales, increased to 2.7% from 2.3% last
year. Higher interest expense resulted from an increase in current and long-term
debt to $14.4 million from $12.0 million last year, in order to finance capital
equipment purchases. In addition, the revolving line of credit increased to
$10.1 million at November 27, 1998 from $8.2 million last year, in order to
finance higher accounts receivable, resulting from a $1.2 million sales increase
in the fourth quarter of 1998 from the same period in 1997, some capital
equipment purchases, and a small increase in inventory.
As a result of the above factors, income before tax increased to $2.7 million in
1998 from $2.0 million last year. The effective tax rate in 1998 decreased to
32.6% from 36.1% last year, resulting from investment tax credits generated by
the more than $11 million of capital equipment placed in service during the
year. As a result, net income increased 45% to $1.8 million from $1.3 million
last year.
The Company generated $1.9 million of operating cash flow in 1998. This
operating cash flow and cash provided through additional borrowings totaling
$1.9 million under the Company's line of credit, a refinancing of capital
equipment and a capital expenditure line of credit of $5.5 million, and the
sale/leaseback of plant assets of $1.0 million, were used to pay off or reduce
term debt and capital leases of $4.2 million and to finance capital expenditures
of $6.0 million.
The U.S. dollar is the functional currency for the Company's Brite-Line and
Canton operations. For these operations, all gains and losses from currency
transactions are included in income currently. The Company operates a
wholly-owned subsidiary in Spain which accounted for approximately 8.4% of the
Company's revenues in fiscal 1998. 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.
ENVIRONMENTAL PROCEEDINGS.
Claims under CERCLA
The Company has been named as a Potentially Responsible Party ("PRP") by the
United States Environmental Protection Agency ("EPA") in two ongoing claims
under the Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"). These CERCLA claims involve attempts by the EPA to recover the costs
associated with the cleanup of two Superfund Sites in Southington,
Connecticut--the Solvent Recovery Service of New England Superfund Site ("SRS
Site") and the Old Southington Landfill Superfund Site ("OSL Site"). SRS was an
independent and licensed solvent recycler/disposal company. The EPA asserts that
SRS, after receiving and processing various hazardous substances from PRP's,
shipped some resultant sludges and wastewater from the SRS Site to the OSL Site.
The Company received a PRP notification regarding the SRS Site in June, 1992.
The EPA originally attributed a 1.74% share of the aggregate waste volume at the
SRS Site to the Company. Remedial action is ongoing at the Site, and the Company
is a participant in the performing PRP group. Largely because of "orphaned
shares," the Company recently has been contributing approximately 2.05% toward
the performing PRP group's expenses. Based upon the investigations and remedial
actions conducted at the Site to date, including the recently completed
phytoremediation study, it is presently estimated that the total cost of the
cleanup at the Site will range from approximately $25 million to $50 million. In
the accompanying consolidated financial statements as of November 27, 1998,
management has accrued $511,000 as a reserve in this matter (which is net of
approximately $215,000 in payments made to date by the Company).
The Company received a PRP notification regarding the OSL Site in January, 1994.
In addition to numerous "SRS transshipper" PRP's (such as the Company), EPA has
named a number of other PRP's who allegedly shipped waste materials directly to
the OSL Site. Based on EPA's asserted volume of shipments to SRS, EPA originally
attributed 4.89% of the "SRS transshipper" PRP's waste volume at the OSL Site to
the Company, which is an undetermined fraction of the total waste volume at the
Site. A Record of Decision ("ROD") was issued in September, 1994 for the first
phase of the cleanup and, in December, 1997, following mediation, the Company
contributed $140,180 (toward a total contribution by the "SRS transshipper"
PRP's of approximately $2.5 million) in full settlement of the first phase. At
present, neither the remedy for the second phase of the cleanup (groundwater)
nor the allocation of the costs thereof among the PRP's has been determined. It
has been estimated that the total costs of the second phase may range from $10
million to $50 million. Management has accrued $337,000 in the accompanying
consolidated financial statements as a reserve against the Company's potential
future liability in this matter.
Based on all available information as well as its prior experience, management
believes that its accruals in these two matters are reasonable. However, in each
case the reserved amount is subject to adjustment for future developments that
may arise from one or more of the following--the long range nature of the case,
legislative changes, insurance coverage, the joint and several liability
provisions of CERCLA, the uncertainties associated with the ultimate groundwater
remedy selected, and the Company's ability to successfully negotiate an outcome
similar to its previous experience in these matters.
Claims under Massachusetts General Laws, Chapter 21E
While in the process of eliminating the use of underground storage tanks at the
Company's facility in Canton, Massachusetts, the Company arranged for the
testing of the areas adjacent to the tanks in question--a set of five tanks in
1994 and a set of three tanks in 1997. The tests indicated that some localized
soil contamination had occurred. The Company duly reported these findings
regarding each location to the Massachusetts Department of Environmental
Protection ("DEP") in 1994 and 1997 respectively, and DEP issued Notices of
Responsibility under Massachusetts General Laws Chapter 21E to the Company for
each location (RTN No. 3-11520 and RTN No. 3-15347, respectively). The Company
has retained an independent Licensed Site Professional ("LSP") to perform
assessment and remediation work at the two locations. With regard to the first
matter (involving the set of five tanks), the LSP has determined that the soil
contamination appears to be confined to a small area and does not pose an
environmental risk to surrounding property or community. With regard to the
second matter (involving the set of three tanks), a limited amount of solvent
has been found in the soil in the vicinity of the tanks; however, additional
sampling is required. It presently is estimated that the combined future costs
to complete the assessment and remediation actions at the two locations will
total approximately $325,000, and that amount has been accrued in the
accompanying financial statements.
In January, 1997 the Company received a Chapter 21E Notice of Responsibility
from DEP concerning two sites located in Dartmouth, Massachusetts (RTN No.
4-0234) and Freetown, Massachusetts (RTN No. 4-0086), respectively. According to
DEP, drums containing oil and/or hazardous materials were discovered at the two
sites in 1979, which led to some cleanup actions by the DEP. DEP contends that
an independent disposal firm allegedly hired by the Company and other PRP's, H &
M Drum Company, was responsible for disposing of drums at the two sites. To
date, the DEP has issued Notices of Responsibility to approximately 100 PRP's. A
group of PRP's, including the Company, has retained an LSP to conduct
groundwater investigations at both sites. Those investigations are still in
progress, and until additional data is gathered, it is not possible to
reasonably estimate the extent of the problem, the costs of any cleanup that may
be required at either or both sites, or the Company's potential share of
liability or responsibility therefor. Accordingly, no reserve has been accrued
in the accompanying financial statements with respect to these two sites.
OTHER LITIGATION
The Company's subsidiary, Brite-Line Technologies, Inc., is both a defendant and
a counterclaim plaintiff in a patent infringement lawsuit which was initiated in
1998 in federal district court in Minnesota. The suit involves contrasting
claims by Brite-Line and the plaintiff (a competitor of Brite-Line in the
highway marking tapes business), that the other party has committed patent
infringement with respect to its specialty retroreflective pavement marking
tapes containing raised areas/protrusions. The particular Brite-Line products in
question, which were recently introduced to the market, are sold under the
Deltaline trademark. Brite-Line believes, upon advice of counsel, that it has
not infringed the plaintiff's patents. Brite-Line is vigorously defending
against the plaintiff's claims and is pursuing with equal vigor, its own patent
infringement claims against the plaintiff. The case is in the early stages of
discovery, so it is not possible at this time to reasonably estimate the dollar
amount, if any, that either party ultimately may recover from the other.
However, the plaintiff's sales of its challenged products have significantly
exceeded Plymouth's sales of Deltaline products.
YEAR 2000
Computers, software and other equipment utilizing microprocessors that use only
two digits to identify a year in a data field may be unable to process
accurately certain date-based information at or after the year 2000. This is
commonly referred to as the "Year 2000 issue," and the Company has assembled a
task force to oversee the entire Year 2000 project, which includes the Company's
domestic and foreign tape business and Brite-Line, for both information
technology ("IT") and non-IT systems. The Company believes that its greatest
potential risks are associated with its IT systems and non-IT systems embedded
in its operations and infrastructure. The task force has identified five phases
of the Year 2000 compliance process for the Company's IT and non-IT systems.
These phases are 1) issue identification, 2) assessment, 3) development of
remediation plans, 4) implementation and testing and 5) contingency planning.
The first two phases have been completed as planned.
The Company's Year 2000 project is currently in the remediation phase and, with
respect to its main information systems hardware and software, in the
implementation and testing phase, which is 20% complete. With respect to IT
systems, the Company's strategy is to upgrade some of the existing systems and
replace others. Correction and testing of mission critical systems are targeted
for completion by the end of the second quarter of fiscal 1999.
With respect to non-IT systems, the implementation phase is 80% complete. Large
and critical suppliers were selected for compliance confirmation; to date 80% of
the responses have been received and no critical problems have been identified.
The Company is following up with vendors yet to respond satisfactorily or at all
to its inquiries. Separately, the Company also is actively seeking information
and assurances of a more technical nature from certain vendors regarding the
compliance status of specific manufacturing and information processing
equipment. In addition to confirming compliance directly with suppliers and
vendors, the Company expects to perform its own testing of certain purchased
equipment and IT systems for compliance. The Company is monitoring the status of
Year 2000 compliance of its most significant customer by reviewing publicly
available information. Compliance for all other customers is being determined
through direct contact and written confirmation. The Company cannot provide
assurance that the Year 2000 compliance plans of its vendors and customers will
be successfully completed in a timely manner.
The Company has begun contingency planning and plans to complete its contingency
planning for both IT and non-IT systems, as appropriate, by the end of the
second quarter of fiscal 1999. Possible contingency plans include using
alternate suppliers, outsourcing to third parties and reverting to manual
processing of information. Once developed, contingency plans will continue to be
reassessed and refined as additional information becomes available.
Costs incurred to date for Year 2000 have totaled approximately $100,000 and
have been expensed as incurred. The Company currently estimates that total costs
will approximate $400,000, including internal employee costs and costs of
external consultants, and it currently plans to be able to fund the costs
through operating cash flows. The Company does not expect a material adverse
impact of such costs on its long-term results of operations, liquidity or
financial position. Cost estimates may be refined as remediation, testing and
contingency planning continue and as compliance status information becomes
available from third parties.
If the Company were not taking any of the remedial steps detailed above, Year
2000 issues would possibly cause significant technological problems for the
Company, disrupting business and resulting in a decline in earnings. At this
time, however, management does not believe that this will happen.
The most reasonably likely worst case scenario should the Company, its customers
or suppliers be unable to adequately resolve Year 2000 issues, would include a
temporary slowdown or abrupt stoppage of operations at one or more of the
Company's facilities due to the failure of one or more critical processes or
business systems. Such failures could result in interruptions in manufacturing,
safety and/or environmental systems; and/or a temporary inability to receive raw
materials, ship finished products and process orders and invoices. Although not
anticipated at this time, if such or similar scenarios were to occur, they
could, depending on their duration, have a material impact on the Company's
results of operations and financial position. Such theoretical consequences are
of a kind and magnitude generally shared with other manufacturing companies.
Assuming the successful completion of its Year 2000 program in a timely manner,
the company expects that any Year 2000 disruptions which occur, should there be
any, will be minor and not material to its business.
Estimates and conclusions herein contain forward-looking statements and are
based on management's best estimates of future events.
Impact of New Accounting Pronouncements
In June, 1997, the Financial Accounting Standards Board issued FAS 130 Reporting
Comprehensive Income. FAS 130 requires that certain financial activity typically
disclosed in stockholders' equity be reported in the financial statements as an
adjustment to net income in determining comprehensive income. Items applicable
to the Company include cumulative translation adjustments related to the
Company's foreign operations and pension equity adjustments. Items identified as
comprehensive income are reported in the Consolidated Balance Sheet, under
separate captions. The Company will adopt FAS 130 in fiscal 1999, and does not
anticipate any significant impact on its Financial Statements.
In June, 1997, the Financial Accounting Standards Board issued FAS 131
Disclosures about Segments of an Enterprise and Related Information. FAS 131
requires the reporting of selected segment information in quarterly and annual
reports. Information from operating segments is derived from methods used by the
Company's management to allocate resources and measure performance. The Company
is required to disclose profit/loss, revenues and assets for each segment
identified, including reconciliations of these items to consolidated totals. The
Company is also required to disclose the basis for identifying the segments and
the types of products and services within each segment. FAS 131 is effective for
the Company for the fiscal year ended December 3, 1999, and quarterly beginning
in fiscal 2000, including the restatement of prior periods reported consistent
with this pronouncement, if practicable. The Company expects to have two
reportable segments, the tape business and the highway marking tape business.
In February, 1998, the Financial Accounting Standards Board issued FAS 132
Employer's Disclosure About Pensions and Other Postretirement Benefits. FAS 132
revises employers' disclosures about pension and other postretirement benefit
plans. The Company will adopt the provisions of FAS 132 in fiscal 1999, and does
not anticipate any significant impact on its Financial Statements from this
adoption.
In June, 1998, the Financial Accounting Standards Board issued FAS 133
Accounting for Derivative and Similar Financial Instruments and for Hedging
Activities. FAS 133 will require the Company to record derivative instruments,
such as foreign currency hedges, on the Consolidated Balance Sheet as assets or
liabilities, measured at fair value. Currently, the Company treats such
instruments as off-balance-sheet items. Gains or losses resulting from changes
in the values of those derivatives would be accounted for depending on the
specific use of each derivative instrument and whether it qualifies for hedge
accounting treatment as stated in the standard. FAS 133 will be effective for
the Company on December 4, 1999, the beginning of fiscal year 2000. The Company
currently does not expect the impact of adopting FAS 133 to be material.
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, was a new vinyl
calender and auxiliary equipment, which began production in the third quarter of
1998.
Gross margin as a percentage of sales improved to 23.8% in 1997 from 23.1% in
1996. Plymouth's core business gross margin improved from 23.1% in 1996 to 23.5%
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 were incurred in preparation for the Company's increase in manufacturing
capacity. In addition, Brite-Line's 26.4% gross margin contributed to the
improved overall percentage. Europa's gross margin was 23.5%.
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 reflected 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.
LIQUIDITY AND CAPITAL RESOURCES
During 1997, Plymouth Rubber initiated a significant capital expansion program,
including a new calender and associated equipment, which substantially increased
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 and 70% in 1998. The Company was in compliance with
all of its financial covenants as of November 27, 1998. Although several of
these covenants will become more restrictive in 1999, the Company believes that
it will meet these covenants during 1999 based upon current projections.
As of November 27, 1998, the Company had approximately $3.4 million of unused
borrowing capacity, under its $15 million line of credit with its primary lender
after consideration of collateral limitations and the letter of credit related
to a guarantee of 80 million pesetas (approximately $0.6 million) on a term loan
agreement with a Spanish Bank syndicate.
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) a
renewal of the revolving line of credit with the primary lender, (ii) a
refinancing of the real estate term loan with the primary lender, and (iii) the
sale/leaseback of capital equipment, will provide sufficient funds to meet
expected needs during fiscal 1999, including necessary working capital expansion
to support anticipated revenue growth and 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 estimate 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, changes in interest rates, currency exchange rate
fluctuations, limits on the repatriation of funds and political uncertainty.
Specific risks to the Company include: risk of recession in the economies in
which its products are sold, the concentration of a substantial percentage of
the Company's sales with a few major automotive customers, and competition in
pricing.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At November 27, 1998, the carrying value of Company's debt totaled $24.4 million
which approximated its fair value. This debt includes amounts at both fixed and
variable interest rates. For fixed rate debt, interest rate changes affect the
fair market value but do not impact earnings or cash flows. Conversely, for
floating rate debt, interest rate changes generally do not affect the fair
market value but do impact earnings and cash flows, assuming other factors are
held constant.
At November 27, 1998, the Company had fixed rate debt of $11.5 million and
variable rate debt of $12.9 million. Holding other variables constant (such as
foreign exchange rates and debt levels) a one percentage point decrease in
interest rates would increase the unrealized fair market value of fixed rate
debt by approximately $300,000. The earnings and cash flows impact for the next
year resulting from a one percentage point increase in interest rates would be
approximately $130,000, holding other variables constant.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by this item are set
forth on pages 14 to 39 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 27, 1998.
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
27, 1998.
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
27, 1998.
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
27, 1998.
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 14.
(A)2. Financial statement schedules required as part of this report are
listed in the index appearing on page 14.
(A)3. Exhibits required as part of this report are listed in the index
appearing on pages 41 - 43.
(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 19, 1999
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 19, 1999.
/s/ MAURICE J. HAMILBURG President and Co-Chief
- --------------------------------- Executive Officer and Director
Maurice J. Hamilburg
/s/ JOSEPH D. HAMILBURG Chairman and Co-Chief
- --------------------------------- Executive Officer and Director
Joseph D. Hamilburg
/s/ C. GERALD GOLDSMITH Director
- ---------------------------------
C. Gerald Goldsmith
/s/ JANE H. GUY Director
- ---------------------------------
Jane H. Guy
/s/ MELVIN L. KEATING Director
- ---------------------------------
Melvin L. Keating
/s/ JAMES M. OATES Director
- ---------------------------------
James M. Oates
/s/ EDWARD PENDERGAST Director
- ---------------------------------
Edward Pendergast
/s/ DUANE E. WHEELER Director
- ---------------------------------
Duane E. Wheeler
/s/ JOSEPH J. BERNS Vice President - Finance and Treasurer
- --------------------------------- (Principal Financial Officer and
Joseph J. Berns Principal Accounting Officer)
PLYMOUTH RUBBER COMPANY, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
PAGE
----
Report of Independent Accountants .................................. 15
Consolidated Balance Sheet at November 27, 1998 and
November 28, 1997 ................................................ 16 - 17
Consolidated Statement of Operations and Retained Earnings (Deficit)
for each of the three years in the period ended November 27, 1998. 18
Consolidated Statement of Cash Flows for each of the three years in
the period ended November 27, 1998 ............................... 19 - 20
Notes to Consolidated Financial Statements ......................... 22 - 39
Reserves (Schedule II) ............................................. 40
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 14 present fairly, in all material respects, the
financial position of Plymouth Rubber Company, Inc. and its subsidiaries at
November 27, 1998 and November 28, 1997, and the results of their operations and
their cash flows for each of the three years in the period ended November 27,
1998, 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.
PricewaterhouseCoopers LLP
Boston, Massachusetts
January 29, 1999
PLYMOUTH RUBBER COMPANY, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
November 27, November 28,
1998 1997
------------ ------------
Cash ................................................. $ 54,000 $ 12,000
Accounts receivable, less allowance for
doubtful accounts of $544,000 and
$314,000 at November 27,
1998 and November 28, 1997, respectively ............ 12,533,000 10,033,000
Inventories:
Raw materials .................................. 3,800,000 3,772,000
Work in process ................................ 1,968,000 1,472,000
Finished goods ................................. 5,202,000 5,208,000
------------ ------------
10,970,000 10,452,000
Deferred tax assets, net ............................. 1,542,000 1,689,000
Prepaid expenses and other current assets ............ 908,000 873,000
------------ ------------
Total current assets ........................... 26,007,000 23,059,000
------------ ------------
PLANT ASSETS:
Land .............................................. 618,000 605,000
Buildings ......................................... 5,995,000 6,008,000
Machinery and equipment ........................... 32,201,000 22,778,000
Construction in progress .......................... 570,000 5,999,000
------------ ------------
39,384,000 35,390,000
Less: accumulated depreciation ................... (17,821,000) (18,049,000)
------------ ------------
Total plant assets, net ......................... 21,563,000 17,341,000
------------ ------------
OTHER ASSETS:
Deferred tax assets, net ........................... 1,882,000 2,346,000
Other long-term assets ............................. 1,249,000 1,318,000
------------ ------------
Total other assets .............................. 3,131,000 3,664,000
------------ ------------
$ 50,701,000 $ 44,064,000
============ ============
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 27, November 28,
1998 1997
------------ ------------
CURRENT LIABILITIES:
Revolving line of credit .......................... $ 10,117,000 $ 8,221,000
Trade accounts payable ............................ 6,090,000 6,034,000
Accrued expenses .................................. 4,220,000 3,372,000
Current portion of long-term borrowings ........... 2,834,000 2,138,000
------------ ------------
Total current liabilities ...................... 23,261,000 19,765,000
------------ ------------
LONG-TERM LIABILITIES:
Borrowings ........................................ 11,527,000 9,874,000
Pension obligation ................................ 2,849,000 3,358,000
Other ............................................. 2,543,000 2,626,000
------------ ------------
Total long-term liabilities .................... 16,919,000 15,858,000
------------ ------------
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 27, 1998 and
November 28, 1997 .................................. 810,000 810,000
Class B non-voting common stock $1 par value,
3,500,000 shares authorized, 1,275,014 shares
issued and outstanding at November 27, 1998 and
1,234,334 shares issued and outstanding at
November 28, 1997 .................................. 1,275,000 1,234,000
Paid in capital .................................... 9,077,000 9,067,000
Retained earnings (deficit) ........................ (444,000) (2,282,000)
Cumulative translation adjustment .................. (69,000) (91,000)
Pension liability adjustment, net of tax ........... -- (145,000)
Deferred compensation .............................. (114,000) (152,000)
------------ ------------
10,535,000 8,441,000
Less: Treasury stock at cost (2,100 shares at
November 27, 1998) ................................. (14,000) --
------------ ------------
10,521,000 8,441,000
------------ ------------
$ 50,701,000 $ 44,064,000
============ ============
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 27, November 28, November 29,
1998 1997 1996
----------- ----------- -----------
Revenues:
Net sales ......................................... $69,041,000 $67,136,000 $57,181,000
----------- ----------- -----------
Costs and Expenses:
Cost of products sold ............................. 51,433,000 51,191,000 43,964,000
Selling, general and administrative ............... 13,010,000 12,854,000 10,329,000
Pension curtailment loss .......................... -- -- 1,571,000
----------- ----------- -----------
64,443,000 64,045,000 55,864,000
----------- ----------- -----------
Operating income ..................................... 4,598,000 3,091,000 1,317,000
Interest expense ..................................... (1,871,000) (1,513,000) (1,262,000)
Foreign currency exchange loss ....................... (69,000) (214,000) (53,000)
Other income, net .................................... 70,000 618,000 73,000
----------- ----------- -----------
Income before income taxes ........................... 2,728,000 1,982,000 75,000
Provision (benefit) for income taxes ................. 890,000 716,000 (1,797,000)
----------- ----------- -----------
Net income ........................................... 1,838,000 1,266,000 1,872,000
Retained earnings (deficit) at beginning of year ..... (2,282,000) (3,548,000) (4,577,000)
Less stock dividends ................................. -- -- (843,000)
----------- ----------- -----------
Retained earnings (deficit) at end of year ........... $ (444,000) $(2,282,000) $(3,548,000)
=========== =========== ===========
PER SHARE DATA:
BASIC EARNINGS PER SHARE:
Net income ......................................... $ 0.89 $ 0.62 $ 0.94
=========== =========== ===========
Weighted average number of shares outstanding ...... 2,073,270 2,031,994 1,994,835
=========== =========== ===========
DILUTED EARNINGS PER SHARE:
Net income ......................................... $ 0.84 $ 0.58 $ 0.84
=========== =========== ===========
Weighted average number of shares outstanding ...... 2,200,406 2,174,482 2,226,008
=========== =========== ===========
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 27, November 28, November 29,
1998 1997 1996
----------- ----------- -----------
CASH FLOWS RELATING TO OPERATING ACTIVITIES:
Net Income ......................................... $ 1,838,000 $ 1,266,000 $ 1,872,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization .................... 1,956,000 1,439,000 1,112,000
Deferred income tax expense (benefit) ............ 511,000 593,000 (1,878,000)
Curtailment loss ................................. -- -- 1,571,000
Provision for environmental reserves ............. -- 202,000 233,000
Amortization of deferred compensation ............ 38,000 38,000 38,000
Gain on sale of land ............................. -- (539,000) --
Changes in assets and liabilities:
Accounts receivable .............................. (2,457,000) (1,478,000) (1,122,000)
Inventory ........................................ (501,000) 1,111,000 (591,000)
Prepaid expenses ................................. (35,000) (125,000) 550,000
Other assets ..................................... 4,000 (94,000) (272,000)
Accounts payable ................................. 40,000 672,000 (505,000)
Accrued expenses ................................. 1,071,000 (393,000) (157,000)
Product warranties ............................... (165,000) (108,000) (90,000)
Other liabilities ................................ (78,000) 404,000 (113,000)
Pension obligation ............................... (320,000) (900,000) (200,000)
----------- ----------- -----------
Net cash provided by operating activities ............ 1,902,000 2,088,000 448,000
----------- ----------- -----------
CASH FLOWS RELATING TO INVESTING ACTIVITIES:
Capital expenditures ............................... (6,044,000) (7,615,000) (1,935,000)
Sale/leaseback of plant assets ..................... 964,000 919,000 441,000
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 ................ (5,080,000) (8,808,000) (1,705,000)
----------- ----------- -----------
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 27, November 28, November 29,
1998 1997 1996
----------- ----------- -----------
CASH FLOWS RELATING TO FINANCING ACTIVITIES:
Net increase in revolving line of credit ........... $ 1,878,000 $ 2,814,000 $ 858,000
Proceeds from term debt ............................ 5,499,000 5,771,000 6,657,000
Payments of term debt .............................. (3,762,000) (1,654,000) (4,459,000)
Payments of revolving line of credit classified as
non-current ...................................... -- -- (1,717,000)
Payments on capital leases ......................... (405,000) (223,000) (160,000)
Payments on Treasury stock purchase ................ (14,000) -- --
Proceeds from exercises of options ................. 51,000 23,000 78,000
----------- ----------- -----------
Net cash provided by (used in) financing activities .. 3,247,000 6,731,000 1,257,000
----------- ----------- -----------
Effect of exchange rate changes on cash .............. (27,000) 1,000 --
----------- ----------- -----------
Net change in cash ................................... 42,000 12,000 --
Cash at the beginning of the period .................. 12,000 -- --
----------- ----------- -----------
Cash at the end of the period ........................ $ 54,000 $ 12,000 $ --
=========== =========== ===========
Supplemental Disclosure of Cash Flow Information
Cash paid for interest ............................... $ 1,883,000 $ 1,632,000 $ 1,249,000
=========== =========== ===========
Cash paid for income taxes ........................... $ 159,000 $ 171,000 $ 422,000
=========== =========== ===========
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. REVENUE RECOGNITION -- The Company recognizes revenues at the point of
passage of title, which is generally at the time of shipment.
E. PLANT ASSETS -- Plant assets are stated at cost. Additions, renewals and
betterments of plant assets, unless 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 $2.1 million and
approximately $2.7 million of fully depreciated and disposed of plant
assets in 1998 and 1997, respectively.
F. ENVIRONMENTAL MATTERS -- Environmental expenditures that relate to current
operations or to an existing condition caused by past operations are
expensed. Liabilities are recorded without regard to possible recoveries
from third parties, including insurers, when environmental assessments
and/or remediation efforts are probable and the costs can be reasonably
estimated (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 adopted by the Company for fiscal 1997. Adoption of
SOP 96-1 did not materially affect the Company's environmental liabilities
and related disclosures.
G. 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.
H. INCOME TAXES -- The Company reports income taxes using the asset and
liability approach, which requires the recognition of deferred tax assets
and liabilities for the expected future tax consequences of temporary
differences between the financial statement carrying amounts and the tax
bases of the Company's assets and liabilities (see Note 4).
I. EARNINGS PER SHARE -- Statement of Financial Accounting Standards No. 128,
Earnings per Share (FAS 128), became effective for financial statements
issued for annual periods ending after December 15, 1997, including
interim periods, and required restatement of all prior-period
earnings-per-share data. FAS 128 replaced Accounting Principles Board
Opinion No. 15 and requires dual presentation of basic and diluted
earnings per share for all entities with complex capital structures. Basic
earnings per share is computed by dividing income available to common
shareholders by the weighted-average common shares outstanding during the
period. Diluted earnings per share is computed by giving effect to all
dilutive potential common shares that were outstanding during the period.
All historical per-share information has been restated to reflect FAS 128.
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 continued accounting for its
stock-based compensation plans using the intrinsic value method prescribed
by Accounting Principals Board Opinion No. 25, Accounting for Stock Issued
to Employees (APB 25) (See Note 8).
M. FOREIGN CURRENCIES -- The U.S. dollar is the functional currency for the
Company's Brite-Line and Canton operations. For these operations, all
gains and losses from currency transactions are included in income
currently. The Company operates a wholly-owned subsidiary in Spain which
accounted for approximately 8.4% of the Company's revenues in fiscal 1998.
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.
N. RECLASSIFICATIONS -- Certain reclassifications of prior year balances have
been made to conform to the current presentation.
O. COMPREHENSIVE INCOME -- In June, 1997, the Financial Accounting Standards
Board issued FAS 130 - Reporting Comprehensive Income. FAS 130 requires
that certain financial activity typically disclosed in stockholders'
equity be reported in the financial statements as an adjustment to net
income in determining comprehensive income. Items applicable to the
Company include cumulative translation adjustments related to the
Company's foreign operations and pension equity adjustments. Items
identified as comprehensive income are reported in the Consolidated
Balance Sheet, under separate captions. The Company will adopt FAS 130 in
fiscal 1999, and does not anticipate any significant impact on its
Financial Statements.
P. SEGMENT REPORTING -- In June, 1997, the Financial Accounting Standards
Board issued FAS 131 - Disclosures about Segments of an Enterprise and
Related Information. FAS 131 requires the reporting of selected segment
information in quarterly and annual reports. Information from operating
segments is derived from methods used by the Company's management to
allocate resources and measure performance. The Company is required to
disclose profit/loss, revenues and assets for each segment identified,
including reconciliations of these items to consolidated totals. The
Company is also required to disclose the basis for identifying the
segments and the types of products and services within each segment. FAS
131 is effective for the Company for the fiscal year ended December 3,
1999, and quarterly beginning in fiscal 2000, including the restatement of
prior periods reported consistent with this pronouncement, if practicable.
The Company expects to have two reportable segments, the tape business and
the highway marking tape business.
Q. EMPLOYER'S DISCLOSURE ABOUT PENSION AND OTHER POSTRETIREMENT BENEFITS --
In February, 1998, the Financial Accounting Standards Board issued FAS 132
- Employer's Disclosure About Pensions and Other Postretirement Benefits.
FAS 132 revises employers' disclosures about pension and other
postretirement benefit plans. The Company will adopt the provisions of FAS
132 in fiscal 1999, and does not anticipate any significant impact on its
Financial Statements from this adoption.
R. ACCOUNTING FOR DERIVATIVES -- In June, 1998, the Financial Accounting
Standards Board issued FAS 133 - Accounting for Derivative and Similar
Financial Instruments and for Hedging Activities. FAS 133 will require the
Company to record derivative instruments, such as foreign currency hedges,
on the Consolidated Balance Sheet as assets or liabilities, measured at
fair value. Currently, the Company treats such instruments as
off-balance-sheet items. Gains or losses resulting from changes in the
values of those derivatives would be accounted for depending on the
specific use of each derivative instrument and whether it qualifies for
hedge accounting treatment as stated in the standard. FAS 133 will be
effective for the Company on December 4, 1999, the beginning of fiscal
year 2000. The Company currently does not expect the impact of adopting
FAS 133 to be material.
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 became operational in the
third 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%. On November 2, 1998 the Company borrowed
the remaining available balance of $450,000 under this loan agreement.
In April 1998 the Company refinanced one of its term loans with an existing
lender, in the amount of $3,710,000. The proceeds from the refinancing were
primarily used to pay down $1,418,000 of the revolving line of credit and
$2,257,000 of term debt. The loan is secured by a first interest in certain
equipment.
On November 12, 1998, the Company entered into a new loan agreement in the
amount of $1,339,000 with an equipment lender to finance the acquisition of
certain equipment. The new loan is secured by a first interest in the equipment.
The revolving line of credit and term debt of the Company consisted of the
following as of:
November 27, November 28,
1998 1997
----------- -----------
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 27, 1998, the
Company had approximately $3,400,000 in unused borrowing availability on its
revolving line of credit. The interest rate
at November 27, 1998 was 8.0% ................................................ $ 9,519,000 $ 8,025,000
Short-term borrowings with three Spanish Banks with interest rates ranging
from 4.65% to 5.35% at November 27, 1998. Principal amount 86,657,000
pesetas (approximately $598,000) ............................................. 598,000 196,000
----------- -----------
$10,117,000 $ 8,221,000
=========== ===========
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 27, 1998 was 8.0% ........................................... $ 1,350,000 $ 1,950,000
Term debt, in the original principal amount of $1,339,000, due November, 2003,
secured by a first interest in certain equipment. Monthly payments
of $26,578 including interest at 7.1% ........................................ 1,339,000 --
Term debt, in the original principal amount of $3,710,000, due April, 2003,
secured by a first interest in certain equipment. Monthly payments
of $75,296 including interest at 8.04% ....................................... 3,402,000 --
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% ....................................... -- 2,433,000
Term debt, in the original principal amount of $4,050,000, due May, 2008,
secured by a first interest in certain equipment. Monthly payments of interest
only of $28,823 until June, 1998 when payments of $69,680 including interest
at 8.54%. In June, 2003, the remaining debt will be amortized over five years,
giving a monthly payment of $20,644, including
interest until May, 2008 ..................................................... 3,800,000 4,050,000
Term debt, in the original principal amount of $450,000, due June, 2008
secured by a first interest in certain equipment. Monthly payments of $8,045
including interest at 7.75%. In July, 2003, the remaining debt will be
amortized with monthly payments of $2,256 including interest until
June, 2008 ................................................................... 450,000 --
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 27, 1998 was 5.0% ................................. 1,468,000 1,596,000
Term debt, in the principal amount of 37,500,000 pesetas (approximately
$298,000 at November 27, 1998) plus interest at 8.0%, payable in three annual
installments of 12,500,000 pesetas, plus accrued interest,
beginning December 31, 1999 .................................................. 298,000 270,000
Capital lease obligations (see Note 10) ...................................... 2,254,000 1,713,000
----------- -----------
14,361,000 12,012,000
Less current portion ......................................................... 2,834,000 2,138,000
----------- -----------
$11,527,000 $ 9,874,000
=========== ===========
The Company's revolving credit loan and long term debt agreements contain
various covenants which, among other things, prohibit cash dividends without the
consent of the lender and specify that the Company meet certain financial
requirements, including certain net worth, fixed charge and EBITDA coverage
ratios and minimum working capital levels. In addition, for certain short term
borrowings, the agreements contain certain subjective provisions which would
result in an event of default if the bank would deem itself "insecure" for any
reason. The short-term borrowings are also payable on demand. The Company was in
compliance with all of its financial covenants as of November 27, 1998.
Maturities of long-term obligations in the next five years are: 1999 -
$2,834,000; 2000 - $3,067,000; 2001 - $2,631,000; 2002 - $2,586,000; 2003 -
$1,611,000; and thereafter - $1,632,000.
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 $298,000) 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 27, 1998 was approximately $88,000.
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
==========
On October 4, 1996, the Company acquired certain assets of Brite-Line
Industries, Inc. ("Brite-Line Industries") 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 Industries'
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. ("Brite-Line"), 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,
1997 1996
----------- -----------
Revenue .............................. $67,446,000 $63,944,000
Income from continuing operations .... $ 1,227,000 $ 833,000
Net income ........................... $ 1,227,000 $ 833,000
Diluted earnings per share ........... $ 0.56 $ 0.37
NOTE 4 -- INCOME TAXES
Income from continuing operations before income taxes consist of the following:
Year Ended
------------------------------------------------
November 27, November 28, November 29,
1998 1997 1996
---------- ---------- -----------
U.S ................................... $2,536,000 $1,908,000 $ 75,000
Foreign ............................... 192,000 74,000 --
---------- ---------- -----------
Total ................................. $2,728,000 $1,982,000 $ 75,000
========== ========== ===========
The provision (benefit) for income taxes consists of the following:
Year Ended
------------------------------------------------
November 27, November 28, November 29,
1998 1997 1996
---------- ---------- -----------
Current:
Federal ................................ $ 113,000 $ 23,000 $ 36,000
State .................................. 193,000 70,000 45,000
Foreign ................................ 73,000 30,000 --
---------- ---------- -----------
379,000 123,000 81,000
---------- ---------- -----------
Deferred:
Federal ................................ $ 668,000 $ 560,000 $(1,483,000)
State .................................. (157,000) 33,000 (395,000)
---------- ---------- -----------
511,000 593,000 (1,878,000)
---------- ---------- -----------
Total .................................. $ 890,000 $ 716,000 $(1,797,000)
========== ========== ===========
The components of the net deferred tax asset are as follows:
November 27, November 28,
1998 1997
---------- ----------
Deferred tax asset:
Pension obligations ................................. $1,358,000 $1,622,000
Federal net operating loss (NOL) carryforwards ...... -- 573,000
Federal investment tax credit (ITC) carryforwards ... -- 331,000
State investment tax credit (ITC) carryforwards ..... 240,000 --
Postretirement benefits ............................. 415,000 425,000
Environmental reserves .............................. 493,000 494,000
Other reserves ...................................... 1,261,000 993,000
---------- ----------
Total gross deferred tax assets ..................... 3,767,000 4,438,000
Valuation allowance ................................. (80,000) (93,000)
---------- ----------
3,687,000 4,345,000
Deferred tax liability:
Plant assets ........................................ (263,000) (310,000)
---------- ----------
Net deferred tax asset ........................ $3,424,000 $4,035,000
========== ==========
The valuation allowance for deferred tax assets was reduced in 1998 by $93,000
and in 1997 by $78,000. The remaining valuation allowance is maintained against
state investment tax credits which will expire in 2001 and are not expected to
be utilized.
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 27, 1998, November 28, 1997, and November 29, 1996, is as follows:
Year Ended
---------------------------------------------
November 27, November 28, November 29,
1998 1997 1996
-------- -------- -----------
Tax computed at statutory rate ........... $933,000 $674,000 $ 25,000
State income taxes, net of U.S. .......... 134,000 97,000 (99,000)
Income tax benefit
State investment tax credit .............. (158,000) -- --
Valuation allowance reduction, net ....... (13,000) -- (1,707,000)
Rate differential attributable to
foreign operations ..................... 2,000 4,000 --
Other .................................... (8,000) (59,000) (16,000)
-------- -------- -----------
$890,000 $716,000 $(1,797,000)
======== ======== ===========
Effective income tax rate ................ 32.6% 36.1% (2,396.0)%
NOTE 5 -- ACCRUED EXPENSES
The Company's accrued expenses consist of the following:
November 27, November 28,
1998 1997
---------- -----------
Accrued payroll and related benefits ................ $1,945,000 $1,063,000
Accrued pension contributions ....................... 385,000 437,000
Other ............................................... 1,890,000 1,872,000
---------- ----------
$4,220,000 $3,372,000
========== ==========
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 annual pay and employee
elective deferral of pay. The Company may make a discretionary contribution to
the profit sharing trust. During 1998, 1997 and 1996, the Company accrued
$306,000, $242,000, and $200,000 of profit sharing expense, respectively.
Net periodic pension costs for the pension plan for the years ended November 27,
1998, November 28, 1997, and November 29, 1996 are as follows:
Year Ended
------------------------------------------------
November 27, November 28, November 29,
1998 1997 1996
---------- ---------- -----------
Service cost-benefits earned during
the period ............................. $ -- $ -- $ 138,000
Interest on projected .................. 880,000 948,000 960,000
benefit obligation
Actual return on assets ................ (1,288,000) (1,414,000) (1,521,000)
Net amortization and deferral .......... 380,000 610,000 1,204,000
---------- ---------- -----------
Net periodic pension costs ......... $ (28,000) $ 144,000 $ 781,000
========== ========== ===========
Assumptions used in determining net periodic cost:
Discount rate .......................... 6.75% 7.25% 7.25%
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 6.25% at
November 27, 1998 and 6.75% at November 28, 1997.
November 27, November 28,
1998 1997
---------- ----------
Vested benefits ..................................... $13,848,000 $13,755,000
Nonvested benefits .................................. 85,000 344,000
----------- -----------
Projected benefit obligation ........................ 13,933,000 14,099,000
Plan assets at fair value ........................... 10,722,000 10,304,000
----------- -----------
Projected benefit obligation in excess of
plan assets ....................................... 3,211,000 3,795,000
Unrecognized net actuarial gains (losses) ........... 23,000 (241,000)
Adjustment required to recognize minimum liability .. -- 241,000
---------- -----------
Accrued pension costs ............................... $ 3,234,000 $ 3,795,000
=========== ===========
The following table details the plan assets held at fair market value as of
November 27, 1998 and November 28, 1997:
November 27, November 28,
Assets 1998 1997
- ------ ----------- -----------
Common Stock ........................................ $ 4,031,000 $ 3,315,000
Bonds ............................................... 6,585,000 3,098,000
Cash ................................................ 106,000 3,891,000
----------- -----------
$10,722,000 $10,304,000
=========== ===========
The Company, in accordance with FAS 87, had an adjusted minimum pension
liability of $241,000 ($145,000, net of tax) at November 28, 1997, which
represented the excess of minimum accumulated net benefit obligation over
previously recorded pension liabilities. This amount has been adjusted to zero
as of November 27, 1998 to reflect the impact of benefit payments and an
increase in the fair value of the plan assets offset by the effect on the
projected benefit obligation of utilizing a discount rate of 6.25%.
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 27, November 28, November 29,
1998 1997 1996
---------- ---------- -----------
Service cost ........................... $ 33,000 $ 27,000 $ 27,000
Interest cost .......................... 48,000 52,000 57,000
Amortization of gain or loss ........... (8,000) (9,000) (4,000)
---------- ---------- -----------
$ 73,000 $ 70,000 $ 80,000
========== ========== ===========
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 27, November 28,
1998 1997
---------- ----------
Retirees ............................................ $ 295,000 $ 367,000
Fully eligible active plan participants ............. 80,000 65,000
Other active plan participants ...................... 413,000 365,000
---------- ----------
Accumulated postretirement
benefit obligation .................................. 788,000 797,000
Unrecognized gain ................................... 192,000 198,000
---------- ----------
Accrued postretirement benefit costs ................ $ 980,000 $ 995,000
========== ==========
In determining the Accumulated Projected Benefit Obligation (the "APBO"), the
weighed average discount rate was assumed to be 6.25% and 6.75% for fiscal 1998
and 1997, respectively. The assumed health care cost trend was 7.5% in 1998,
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 1998 by
approximately $8,000, as well as increase the APBO at November 27, 1998 by
approximately $43,000.
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.
The Company has authorized a class of preferred stock. To date no shares have
been issued.
Common stock activity was as follows:
Shares Common Stock
----------------------- ------------------------- Paid in Treasury
Class A Class B Class A Class B Capital Stock
------- --------- ------- --------- --------- --------
Balance at December 1, 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 1,234,334 810,000 1,234,000 9,067,000 --
Purchase of treasury shares............. (14,000)
Issuance of Class B common stock under
stock option plans...................... 53,251 53,000 58,000 --
Shares exchanged in connection with
exercise under stock option plans...... (12,571) (12,000) (48,000) --
------- --------- ------- --------- --------- --------
Balance at November 27, 1998............ 810,586 1,275,014 810,000 $1,275,000 9,077,000 (14,000)
======= ========= ======= ========== ========= =======
The following table reflects the factors used in computing earnings per
share and the effect on income and the weighted average number of
shares of dilutive potential common stock.
Year Ended November 27, 1998
------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------ ---------
BASIC EPS
Income available to common
stockholders $1,838,000 2,073,270 $ .89
======
Effect of Dilutive Security (A)
Options -- 127,136
---------- ---------
DILUTED EPS
Income available to common
stockholders and assumed
conversions $1,838,000 2,200,406 $ .84
========== ========= ======
Year Ended November 28, 1997
------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------ ---------
BASIC EPS
Income available to common
stockholders $1,266,000 2,031,994 $ .62
======
Effect of Dilutive Security (A)
Options -- 142,488
---------- ---------
DILUTED EPS
Income available to common
stockholders and assumed
conversions $1,266,000 2,174,482 $ .58
========== ========= ======
Year Ended November 29, 1996 _
------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------ ---------
BASIC EPS
Income available to common
stockholders $1,872,000 1,994,835 $ .94
======
Effect of Dilutive Security
Options -- 231,173
---------- ----------
DILUTED EPS
Income available to common
stockholders and assumed
conversions $1,872,000 2,226,008 $ .84
========== ========= ======
(A) Options for 195,842, and 137,493 shares of common stock were
outstanding at November 27, 1998 and November 28, 1997,
respectively, but were not included in computing diluted earnings
per share in each of the respective periods because their effects
were anti-dilutive.
NOTE 8 -- STOCK OPTION AND STOCK PURCHASE PLANS
The Company established on June 29, 1992, an incentive stock option plan
entitled the "1992 Employee Stock Option Plan" (the "1992 Plan"). The 1992 Plan
authorizes the granting of options to key employees and officers to purchase an
aggregate of 225,000 shares of the Company's Class B Common Stock. The exercise
price of the options granted under the 1992 Plan may be no less than the fair
market value of the shares subject thereto on the date of grant. Although the
Board of Directors or Committee administering the 1992 Plan may authorize
variations, options under the 1992 Plan will generally be exercisable in annual
one-fourth increments, beginning one year from the date of grant, with an
additional one-fourth becoming exercisable at the end of each of the years
thereafter. The options are exercisable for ten years from the date of grant. As
of November 27, 1998 all options under this plan have been granted.
Of the total options issued and outstanding under the 1992 Plan, 98,175 (with
exercise prices ranging from $2.17 to $2.38) were issued with variations from
the standard form. These options were originally only exercisable for five years
from the date of grant and could not be exercised unless the closing price of
the Company's Class B common stock on the American Stock Exchange had been no
less than $10.39 on each of at least twenty days in any consecutive sixty day
period during the twelve months immediately preceding the date of the exercise
and unless the average daily closing price of the Common Stock during the sixty
day period immediately prior to the date of exercise was not less than $10.39
(the "price hurdle").
During August 1993, modifications to certain terms were made to alter the
exercise provisions and the period of exercisability. The revised terms provide
for exercisability, in any event, after the tenth anniversary of grant. In
addition, the new terms provide for accelerated exercisability should the "price
hurdle" be attained. In conjunction with the above modifications, the Company
recorded deferred compensation of $317,000, with an offsetting increase to
Paid-in Capital, representing the difference between the fair market value at
the date of modification over the original option's exercise price. The deferred
compensation is being amortized against operations over the remaining time
period covering exercisability of the options.
On February 1, 1995, the Company established an incentive stock option plan
entitled the "1995 Employee Incentive Stock Option Plan" (the "1995 Employee
Plan") and a non-incentive stock option plan entitled the "1995 Non-employee
Directors Stock Option Plan" (the "1995 Director Plan").
The 1995 Employee Plan authorizes the granting of options to key employees and
officers to purchase an aggregate of 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. At November 27, 1998 there were 27,992 options
available for grant under this plan.
The 1995 Director Plan authorizes the granting of options only to non-employee
directors to purchase an aggregate of 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. As of November 27, 1998 all options under this plan have
been granted.
A summary of the Company's stock option plans as of November 27, 1998, November
28, 1997, and November 29, 1996, and the changes during the years ending on
those dates are presented below:
Weighted
Number of Average
Shares Exercise Price
------- --------------
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
Options granted ........................... 169,375 6.04
Options exercised ......................... (53,251) 2.08
Options expired ........................... (10,988) 3.81
------- -----
Outstanding at November 27, 1998 .......... 484,629 $4.87
======= =====
- --------------------------------------------------------------------------------
Exercisable at November 26, 1996 .......... 267,348 $3.79
======= =====
Exercisable at November 28, 1997 .......... 218,228 $4.54
======= =====
Exercisable at November 27, 1998 .......... 189,405 $5.06
======= =====
The following table summarizes information about all stock options outstanding
at November 27, 1998:
Options Exercisable Outstanding Options
-------------------------------------- ----------------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life (Years) Price Exercisable Price
-------------- ----------- ----------- ------- ----------- --------
$ 2.17 - 2.38 157,659 4 $ 2.24 59,484 $ 2.17
4.25 - 4.75 91,800 10 4.58 7,500 4.50
5.95 - 6.81 185,170 8 6.57 119,920 6.49
7.13 - 7.49 50,000 6 7.42 2,501 7.13
------- -------
484,629 189,405
======= =======
The options outstanding at November 27, 1998 expire at various times in 2002
through 2008.
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 1998; no dividend yield,
risk-free interest rate of 5.40%, expected option life of 5 and 10 years, and an
expected volatility factor of 35%. Had compensation cost been determined based
on the fair value at the grant dates for awards in 1998, 1997, and 1996
consistent with the provisions of FAS 123, the Company's net income and income
per share would have been decreased to the pro forma amounts indicated below:
November 27, November 28, November 28,
1998 1997 1996
---------- ---------- ----------
Net Income, as reported ................. $1,838,000 $1,266,000 $1,872,000
Net Income, pro forma.................... 1,745,000 1,232,000 1,859,000
Basic EPS as reported ................... 0.89 0.62 0.94
Basic EPS pro forma ..................... 0.84 0.61 0.93
Diluted EPS as reported ................. 0.84 0.58 0.84
Diluted EPS pro forma ................... $ 0.79 $ 0.57 $ 0.84
During the initial phase-in period of FAS 123, pro forma disclosures may not be
representative of the effects on reported net income and earnings per share for
future years because the FAS 123 method of accounting has not been applied to
options granted prior to January 1, 1995.
At November 27, 1998 and November 28, 1997, 15,828 shares of the Company's Class
B non-voting common stock were reserved for issuance to employees at a purchase
price of not less than $1.00 per share under the Company's Executive Incentive
Stock Purchase Plan. Shares issued under the plan are restricted as to
disposition by the employees, with such restrictions lapsing over periods
ranging from five to nine years from the date of issuance. If the participant's
employment is terminated during the restricted period, his or her shares are
required to be offered to the Company for repurchase at the original purchase
price. Repurchased shares totaled 3,720 at November 27, 1998 and November 28,
1997. During 1998 and 1997 no shares were repurchased or issued. At November 27,
1998 and November 28, 1997, 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 29%, 33% and 36% of net sales in 1998, 1997, and
1996, respectively. At November 27, 1998, accounts receivable included
approximately $4,269,000 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 11%, 15%, and 14% of total sales in 1998, 1997, and 1996,
respectively.
NOTE 10-- LEASES
Included in Plant Assets in the accompanying Consolidated Balance Sheet is
leased property under capital leases as follows:
November 27, November 28,
1998 1997
---------- ----------
Machinery and equipment $3,668,000 $3,132,000
Less accumulated amortization 1,144,000 1,283,000
---------- ----------
$2,524,000 $1,849,000
========== ==========
The Company entered into agreements for the sale and lease back of certain
machinery and equipment in the aggregate amount of $946,000 and $919,000 in 1998
and 1997, 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:
1999 ............................................. $ 706,000
2000 ............................................. 689,000
2001 ............................................. 527,000
2002 ............................................. 456,000
2003 ............................................. 220,000
----------
Total minimum lease payments ..................... 2,598,000
Less: Amount representing interest .............. 344,000
----------
$2,254,000
==========
Minimum annual rentals under noncancelable operating leases (which are
principally for equipment) are as follows:
1999 ............................................. $439,000
2000 ............................................. 380,000
2001 ............................................. 208,000
2002 ............................................. --
2003 ............................................. --
Total rental expense for 1998, 1997 and 1996 was $994,100, $1,231,000, and
$800,000, 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 1998,
1997 and 1996, consulting fees of $106,900, $151,400, and $115,500,
respectively, were paid pursuant to these agreements.
NOTE 12 -- COMMITMENTS AND CONTINGENCIES
ENVIRONMENTAL
Claims under CERCLA
The Company has been named as a Potentially Responsible Party ("PRP") by the
United States Environmental Protection Agency ("EPA") in two ongoing claims
under the Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"). These CERCLA claims involve attempts by the EPA to recover the costs
associated with the cleanup of two Superfund Sites in Southington,
Connecticut--the Solvent Recovery Service of New England Superfund Site ("SRS
Site") and the Old Southington Landfill Superfund Site ("OSL Site"). SRS was an
independent and licensed solvent recycler/disposal company. The EPA asserts that
SRS, after receiving and processing various hazardous substances from PRP's,
shipped some resultant sludges and wastewater from the SRS Site to the OSL Site.
The Company received a PRP notification regarding the SRS Site in June, 1992.
The EPA originally attributed a 1.74% share of the aggregate waste volume at the
SRS Site to the Company. Remedial action is ongoing at the Site, and the Company
is a participant in the performing PRP group. Largely because of "orphaned
shares," the Company recently has been contributing approximately 2.05% toward
the performing PRP group's expenses. Based upon the investigations and remedial
actions conducted at the Site to date, including the recently completed
phytoremediation study, it is presently estimated that the total cost of the
cleanup at the Site will range from approximately $25 million to $50 million. In
the accompanying consolidated financial statements as of November 27, 1998,
management has accrued $511,000 as a reserve in this matter (which is net of
approximately $215,000 in payments made to date by the Company).
The Company received a PRP notification regarding the OSL Site in January, 1994.
In addition to numerous "SRS transshipper" PRP's (such as the Company), EPA has
named a number of other PRP's who allegedly shipped waste materials directly to
the OSL Site. Based on EPA's asserted volume of shipments to SRS, EPA originally
attributed 4.89% of the "SRS transshipper" PRP's waste volume at the OSL Site to
the Company, which is an undetermined fraction of the total waste volume at the
Site. A Record of Decision ("ROD") was issued in September, 1994 for the first
phase of the cleanup and, in December, 1997, following mediation, the Company
contributed $140,180 (toward a total contribution by the "SRS transshipper"
PRP's of approximately $2.5 million) in full settlement of the first phase. At
present, neither the remedy for the second phase of the cleanup (groundwater)
nor the allocation of the costs thereof among the PRP's has been determined. It
has been estimated that the total costs of the second phase may range from $10
million to $50 million. Management has accrued $337,000 in the accompanying
consolidated financial statements as a reserve against the Company's potential
future liability in this matter.
Based on all available information as well as its prior experience, management
believes that its accruals in these two matters are reasonable. However, in each
case the reserved amount is subject to adjustment for future developments that
may arise from one or more of the following--the long range nature of the case,
legislative changes, insurance coverage, the joint and several liability
provisions of CERCLA, the uncertainties associated with the ultimate groundwater
remedy selected, and the Company's ability to successfully negotiate an outcome
similar to its previous experience in these matters.
Claims under Massachusetts General Laws, Chapter 21E
While in the process of eliminating the use of underground storage tanks at the
Company's facility in Canton, Massachusetts, the Company arranged for the
testing of the areas adjacent to the tanks in question--a set of five tanks in
1994 and a set of three tanks in 1997. The tests indicated that some localized
soil contamination had occurred. The Company duly reported these findings
regarding each location to the Massachusetts Department of Environmental
Protection ("DEP") in 1994 and 1997 respectively, and DEP issued Notices of
Responsibility under Massachusetts General Laws Chapter 21E to the Company for
each location (RTN No. 3-11520 and RTN No. 3-15347, respectively). The Company
has retained an independent Licensed Site Professional ("LSP") to perform
assessment and remediation work at the two locations. With regard to the first
matter (involving the set of five tanks), the LSP has determined that the soil
contamination appears to be confined to a small area and does not pose an
environmental risk to surrounding property or community. With regard to the
second matter (involving the set of three tanks), a limited amount of solvent
has been found in the soil in the vicinity of the tanks; however, additional
sampling is required. It presently is estimated that the combined future costs
to complete the assessment and remediation actions at the two locations will
total approximately $325,000, and that amount has been accrued in the
accompanying financial statements.
In January, 1997 the Company received a Chapter 21E Notice of Responsibility
from DEP concerning two sites located in Dartmouth, Massachusetts (RTN No.
4-0234) and Freetown, Massachusetts (RTN No. 4-0086), respectively. According to
DEP, drums containing oil and/or hazardous materials were discovered at the two
sites in 1979, which led to some cleanup actions by the DEP. DEP contends that
an independent disposal firm allegedly hired by the Company and other PRP's, H &
M Drum Company, was responsible for disposing of drums at the two sites. To
date, the DEP has issued Notices of Responsibility to approximately 100 PRP's. A
group of PRP's, including the Company, has retained an LSP to conduct
groundwater investigations at both sites. Those investigations are still in
progress, and until additional data is gathered, it is not possible to
reasonably estimate the extent of the problem, the costs of any cleanup that may
be required at either or both sites, or the Company's potential share of
liability or responsibility therefor. Accordingly, no reserve has been accrued
in the accompanying financial statements with respect to these two sites.
NOTE 13 -- UNAUDITED QUARTERLY FINANCIAL DATA
The following table presents the quarterly information for fiscal 1998 and 1997.
Quarter Ended
February 27 May 29 August 28 November 27
----------- ----------- ----------- -----------
1998 (a)
Net sales .................... $14,464,000 $18,510,000 $17,087,000 $18,980,000
Gross profit .................. 2,756,000 5,607,000 4,228,000 5,017,000
Net income .................... (423,000) 1,080,000 386,000 795,000
Earnings per share ............
Basic ....................... $ (0.21) $ 0.52 $ 0.19 $ 0.38
Diluted ..................... $ (0.21) $ 0.49 $ 0.17 $ 0.36
February 28 May 30 August 29 November 28
----------- ----------- ----------- -----------
1997 (b)
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 ............
Basic ....................... $ 0.07 $ 0.08 $ 0.22 $ 0.25
Diluted ..................... $ 0.06 $ 0.08 $ 0.20 $ 0.24
(a) Sales and net income for the first quarter of 1998 were reduced due to the
highly seasonal nature of Brite-Line's highway pavement marking business.
Sales and net income for the third quarter of 1998 were reduced due to the
General Motors strike.
(b) 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.
SCHEDULE II
PLYMOUTH RUBBER COMPANY, INC.
ACCOUNTS RECEIVABLE
RESERVES
Uncollectable
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 27, 1998 .......... $314,000 $ -- $180,000 $ 50,000 $544,000
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
PLYMOUTH RUBBER COMPANY, INC.
INDEX TO EXHIBITS
Exhibit
No. Description
- -------- -----------
(2) Not Applicable.
(3)(i) Restated Articles of Organization -- incorporated by reference to
Exhibit 3(i) of the Company's Annual Report on Form 10-K for the year
ended December 2, 1994.
(3)(ii) By Laws, as amended -- incorporated by reference to Exhibit (3)(ii)
of the Company's Annual Report on Form 10-K for the year ended
November 26, 1993.
(4)(i) Promissory Note between Plymouth Rubber Company, Inc. and General
Electric Capital Corporation dated December 29, 1995 -- incorporated
by reference to Exhibit (4)(viii) to the report on Form 10-Q for the
Quarter ended March 1, 1996.
(4)(ii) Master Security Agreement between Plymouth Rubber Company, Inc. and
General Electric Capital Corporation dated December 29, 1995 --
incorporated by reference to Exhibit (4)(viii) to the report on Form
10-Q for the quarter ended March 1, 1996.
(4)(iii) Demand Note between Plymouth Rubber Company, Inc. and LaSalle
National Bank dated June 6, 1996 -- incorporated by reference to
Exhibit (2)(i) to the report on Form 8-K with cover page dated June
6, 1996.
(4)(iv) Loan and Security Agreement between Plymouth Rubber Company, Inc. and
LaSalle National Bank dated June 6, 1996 -- incorporated by reference
to Exhibit (2)(ii) to the report on Form 8-K with cover page dated
June 6, 1996.
(4)(v) Amendment to Master Security Agreement between Plymouth Rubber
Company, Inc. and General Electric Capital Corporation dated February
19, 1997 -- incorporated by reference to Exhibit (4)(xi) to the
report on Form 10-Q for the quarter ended February 25, 1997.
(4)(vi) Master Security Agreement between Plymouth Rubber Company, Inc. and
General Electric Capital Corporation dated January 29, 1997 --
incorporated by reference to Exhibit (4)(xii) to the Company's report
on Form 10-Q for the quarter ended February 25, 1997.
(4)(vii) Demand Note between Brite-Line Technologies, Inc. and LaSalle
National Bank dated February 28, 1997 -- incorporated by reference to
Exhibit (4)(xiii) to the Company's report on Form 10-Q for the
quarter ended May 30, 1997.
(4)(viii) Loan and Security Agreement between Brite-Line Technologies, Inc. and
LaSalle National Bank dated February 25, 1997 -- incorporated by
reference to Exhibit (4)(xiv) to the Company's report on Form 10-Q
for the quarter ended May 30, 1997.
(4)(ix) Continuing Unconditional Guaranty between Brite-Line Technologies,
Inc. LaSalle National Bank dated February 25, 1997 -- incorporated by
reference to Exhibit (4)(xv) to the Company's report on Form 10-Q for
the quarter ended May 30, 1997.
(4)(x) Amendment to Loan and Security Agreement between Plymouth Rubber
Company, Inc. and LaSalle National Bank dated May 7, 1997 --
incorporated by reference to Exhibit (4)(xvi) to the Company's report
on Form 10-Q for the quarter ended May 30, 1997.
(4)(xi) Continuing Unconditional Guaranty between Plymouth Rubber Company,
Inc. and LaSalle National Bank dated March 20, 1997 -- incorporated
by reference to Exhibit (4)(xvii) to the Company's report on Form
10-Q for the quarter ended May 30, 1997.
(4)(xii) Public Deed which contains the loan guaranteed by mortgage and
granted between Plymouth Rubber Europa, S.A. and Caja de Ahorros
Municipal de Vigo, Banco de Bilbao, and Vizcaya y Banco de Comercio
dated April 11, 1997 -- incorporated by reference to Exhibit
(4)(xviii) to the Company's report on Form 10-Q for the quarter ended
May 30, 1997.
(4)(xiii) Corporate Guaranty between Plymouth Rubber Company, Inc. and Caja de
Ahorros Municipal de Vigo, Banco de Bilbao, and Vizcaya y Banco de
Comercio dated April 11, 1997 -- incorporated by reference to Exhibit
(4)(xix) to the Company's report on Form 10-Q for the quarter ended
May 30, 1997.
(4)(xiv) Promissory Note between Plymouth Rubber Company, Inc. and General
Electric Capital Corporation dated December 3, 1997
(4)(xv) Promissory Note between Plymouth Rubber Company, Inc. and General
Electric Capital Corporation dated April 13, 1998
(4)(xvi) Promissory Note between Plymouth Rubber Company, Inc. and General
Electric Capital Corporation dated November 12, 1998
(4)(xvii) Promissory Note between Plymouth Rubber Company, Inc. and General
Electric Capital Corporation dated November 25, 1998
(9)(i) Voting Trust Agreement, as amended, relating to certain shares of
Company's common stock -- incorporated by reference to Exhibit (9) of
the Company's Annual Report on Form 10-K for the year ended November
26, 1993.
(9)(ii) Voting Trust Amendment Number 6 -- incorporated by reference to
Exhibit 9(ii) of the Company's Annual Report on Form 10-K for the
year ended December 2, 1994.
(10)(i) 1982 Employee Incentive Stock Option Plan -- incorporated by
reference to Exhibit (10)(i) of the Company's Annual Report on Form
10-K for the year ended November 26, 1993.
(10)(ii) General Form of Deferred Compensation Agreement entered into between
the Company and certain officers -- incorporated by reference to
Exhibit (10)(ii) of the Company's Annual Report on Form 10-K for the
year ended November 26, 1993.
(10)(iii) 1992 Employee Incentive Stock Option Plan -- incorporated by
reference to Exhibit (10)(iv) of the Company's Annual Report on Form
10-K for the year ended November 26, 1993.
(10)(iv) 1995 Non-Employee Director Stock Option Plan -- incorporated by
reference to Exhibit (4.3) of the Company's Registration Statement on
Form S-8 dated May 4, 1995.
(10)(v) 1995 Employee Incentive Stock Option Plan -- incorporated by
reference to Exhibit (4.4) of the Company's Registration Statement on
Form S-8 dated May 4, 1995.
(10)(vi) Sales contract entered into between the Company and Kleinewefers
Kunststoffanlagen GmbH -- incorporated by reference to Exhibit
(10)(vi) of the Company's report on Form 10-Q for the quarter ended
February 28, 1997.
(11) Not Applicable.
(12) Not Applicable.
(13) Not Applicable.
(15) Not Applicable
(16) Not Applicable.
(18) Not Applicable.
(19) Not Applicable
(21) Brite-Line Technologies, Inc. (incorporated in Massachusetts) and
Plymouth Rubber Europa, S.A. (organized under the laws of Spain).
(22) Not Applicable.
(23) Consent of Independent Accountants.
(23) Not Applicable.
(24) Not Applicable.
(27) Financial data schedule for the year ended November 27, 1998.
(28) Not applicable.
(29) Not applicable.