-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AzlHRo4s8rGgl/l7TpUO9775pt2/giPd1c9X5aFLNeGA95TWKvjcMeVElDgw/tfH v9bX6qqppuZtDKFBfk8lww== 0000950156-99-000131.txt : 19990301 0000950156-99-000131.hdr.sgml : 19990301 ACCESSION NUMBER: 0000950156-99-000131 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19981127 FILED AS OF DATE: 19990226 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PLYMOUTH RUBBER CO INC CENTRAL INDEX KEY: 0000079225 STANDARD INDUSTRIAL CLASSIFICATION: FABRICATED RUBBER PRODUCTS, NEC [3060] IRS NUMBER: 041733970 STATE OF INCORPORATION: MA FISCAL YEAR END: 1127 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-05197 FILM NUMBER: 99550751 BUSINESS ADDRESS: STREET 1: 104 REVERE ST CITY: CANTON STATE: MA ZIP: 02021 BUSINESS PHONE: 6178280220 MAIL ADDRESS: STREET 1: PLYMOUTH RUBBER CO INC STREET 2: 104 REVERE ST CITY: CANTON STATE: MA ZIP: 02021 10-K 1 PLYMOUTH RUBBER COMPANY, INC. ================================================================================ 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. ================================================================================ 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. EX-4.(XIV) 2 PROMISSORY NOTE - G.E. CAPITAL Exhibit (4)(xiv) PROMISSORY NOTE DECEMBER 3, 1997 (DATE) 104 REVERE STREET, CANTON, NORFORLK COUNTY, MA 02021 ------------------------------------------------------------------------------ (ADDRESS OF MAKER) FOR VALUE RECEIVED, PLYMOUTH RUBBER COMPANY, INC. FOR ITSELF AND ITS SUBSIDIARIES ("MAKER") promises, jointly and severally if more than one, to pay to the order of GENERAL ELECTRIC CAPITAL CORPORATION FOR ITSELF AND AS AGENT FOR CERTAIN PARTICIPANTS or any subsequent holder hereof (each, a "PAYEE") at its office located at 4 NORTH PARK DRIVE SUITE 500, HUNT VALLEY, MARYLAND 21030 or at such other place as Payee or the holder hereof may designate, the principal sum of FOUR MILLION FIFTY THOUSAND DOLLARS AND 00/100 DOLLARS ($4,050,000.00), with interest thereon, from the date hereof through and including the dates of payment, at a fixed interest rate of EIGHT AND 54/100 PERCENT (8.54%) per annum, to be paid in lawful money of the United States, in one hundred twenty four (124) consecutive monthly installments . Payments one (1) through five (5) will consist of interest only payments on the outstanding principal balance hereof at the rate of interest set forth above, and payments six (6) through one hundred twenty four (124) will consist of principal and interest payments ("PERIODIC INSTALLMENT") with the final Periodic Installment being in the amount of the total outstanding principal and interest. Periodic Installments six (6) through sixty - five (65) will be equal to Sixty Nine Thousand Six Hundred Eighty and 49/100 Dollars ($69,680.49) and Periodic Installments sixty - six (66) through one hundred twenty four (124) will be equal to Twenty Thousand Six Hundred Forty Three and 54/100 Dollars ($20,643.54) and the final Periodic Installment which shall be in the amount of the total outstanding principal and interest. The first Periodic Installment shall be due and payable on January 1, 1998 and the following Periodic Installments and the final installment shall be due and payable on the same day of each succeeding month (each, a "PAYMENT DATE"). Such installments have been calculated on the basis of a 360 day year of twelve 30-day months. Each payment may, at the option of the Payee, be calculated and applied on an assumption that such payment would be made on its due date. The acceptance by Payee of any payment which is less than payment in full of all amounts due and owing at such time shall not constitute a waiver of Payee's right to receive payment in full at such time or at any prior or subsequent time. The Maker hereby expressly authorizes the Payee to insert the date value is actually given in the blank space on the face hereof and on all related documents pertaining hereto. This Note shall be secured by a security agreement, chattel mortgage, pledge agreement or like instrument (each of which is hereinafter called a "SECURITY AGREEMENT.") dated as of January 29, 1997, as amended. Time is of the essence hereof. If any installment or any other sum due under this Note or any Security Agreement is not received within ten (10) days after its due date, the Maker agrees to pay, in addition to the amount of each such installment or other sum, a late payment charge of five percent (5%) of the amount of said installment or other sum, but not exceeding any lawful maximum. If (i) Maker fails to make payment of any amount due hereunder within ten (10) days after the same becomes due and payable; or (ii) Maker is in uncured or unwaived default under, or fails to perform under any term or condition contained in any Security Agreement, then the entire principal sum remaining unpaid, together with all accrued interest thereon and any other sum payable under this Note or any Security Agreement, at the election of Payee, shall immediately become due and payable, with interest thereon at the lesser of twelve percent (12%) per annum or the highest rate not prohibited by applicable law from the date of such accelerated maturity until paid (both before and after any judgment). The Maker may prepay in full, but not in part, its entire indebtedness hereunder upon payment of an additional sum as a premium equal to the following percentages of the original principal balance for the indicated period: Prior to the third annual anniversary date of this Note: three percent (3%) Thereafter and prior to the fifth annual anniversary date of this Note: two percent (2%) Thereafter and prior to the tenth annual anniversary date of this Note: one percent (1%) and zero percent (0%) thereafter, plus all other sums due hereunder or under any Security Agreement. It is the intention of the parties hereto to comply with the applicable usury laws; accordingly, it is agreed that, notwithstanding any provision to the contrary in this Note or any Security Agreement, in no event shall this Note or any Security Agreement require the payment or permit the collection of interest in excess of the maximum amount permitted by applicable law. If any such excess interest is contracted for, charged or received under this Note or any Security Agreement, or if all of the principal balance shall be prepaid, so that under any of such circumstances the amount of interest contracted for, charged or received under this Note or any Security Agreement on the principal balance shall exceed the maximum amount of interest permitted by applicable law, then in such event (a) the provisions of this paragraph shall govern and control, (b) neither Maker nor any other person or entity now or hereafter liable for the payment hereof shall be obligated to pay the amount of such interest to the extent that it is in excess of the maximum amount of interest permitted by applicable law, (c) any such excess which may have been collected shall be either applied as a credit against the then unpaid principal balance or refunded to Maker, at the option of the Payee, and (d) the effective rate of interest shall be automatically reduced to the maximum lawful contract rate allowed under applicable law as now or hereafter construed by the courts having jurisdiction thereof. It is further agreed that without limitation of the foregoing, all calculations of the rate of interest contracted for, charged or received under this Note or any Security Agreement which are made for the purpose of determining whether such rate exceeds the maximum lawful contract rate, shall be made, to the extent permitted by applicable law, by amortizing, prorating, allocating and spreading in equal parts during the period of the full stated term of the indebtedness evidenced hereby, all interest at any time contracted for, charged or received from Maker or otherwise by Payee in connection with such indebtedness; provided, however, that if any applicable state law is amended or the law of the United States of America preempts any applicable state law, so that it becomes lawful for the Payee to receive a greater interest per annum rate than is presently allowed, the Maker agrees that, on the effective date of such amendment or preemption, as the case may be, the lawful maximum hereunder shall be increased to the maximum interest per annum rate allowed by the amended state law or the law of the United States of America. The Maker and all sureties, endorsers, guarantors or any others (each such person, other than the Maker, an "OBLIGOR") who may at any time become liable for the payment hereof jointly and severally consent hereby to any and all extensions of time, renewals, waivers or modifications of, and all substitutions or releases of, security or of any party primarily or secondarily liable on this Note or any Security Agreement or any term and provision of either, which may be made, granted or consented to by Payee, and agree that suit may be brought and maintained against any one or more of them, at the election of Payee without joinder of any other as a party thereto, and that Payee shall not be required first to foreclose, proceed against, or exhaust any security hereof in order to enforce payment of this Note. The Maker and each Obligor hereby waives presentment, demand for payment, notice of nonpayment, protest, notice of protest, notice of dishonor, and all other notices in connection herewith, as well as filing of suit (if permitted by law) and diligence in collecting this Note or enforcing any of the security hereof, and agrees to pay (if permitted by law) all expenses incurred in collection, including Payee's reasonable attorneys' fees. THE MAKER HEREBY UNCONDITIONALLY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR INDIRECTLY, THIS NOTE, ANY OF THE RELATED DOCUMENTS, ANY DEALINGS BETWEEN MAKER AND PAYEE RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION OR ANY RELATED TRANSACTIONS, AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN MAKER AND PAYEE. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT (INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS.) THIS WAIVER IS IRREVOCABLE MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS NOTE, ANY RELATED DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THIS TRANSACTION OR ANY RELATED TRANSACTION. IN THE EVENT OF LITIGATION, THIS NOTE MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. This Note and any Security Agreement constitute the entire agreement of the Maker and Payee with respect to the subject matter hereof and supercedes all prior understandings, agreements and representations, express or implied. No variation or modification of this Note, or any waiver of any of its provisions or conditions, shall be valid unless in writing and signed by an authorized representative of Maker and Payee. Any such waiver, consent, modification or change shall be effective only in the specific instance and for the specific purpose given. Any provision in this Note or any Security Agreement which is in conflict with any statute, law or applicable rule shall be deemed omitted, modified or altered to conform thereto. PLYMOUTH RUBBER COMPANY, INC. FOR ITSELF AND ITS SUBSIDIARIES /S/Deborah A. Kream By: /S/ Joseph J. Berns (L.S.) (Witness) (Signature) Deborah A. Kream Joseph J. Berns,VP Finance (Print name) Print name (and title, if applicable) 104 Revere St., Canton, MA 02021 041733970 (Address) (Federal tax identification number) EX-4.(XV) 3 PROMISSORY NOTE -- G.E. CAPITAL Exhibit (4)(xv) PROMISSORY NOTE 4/13/98 (DATE) 104 REVERE STREET, CANTON, NORFOLK COUNTY, MA 02021 - -------------------------------------------------------------------------------- (ADDRESS OF MAKER) FOR VALUE RECEIVED, PLYMOUTH RUBBER COMPANY, INC. ("MAKER") promises, jointly and severally if more than one, to pay to the order of GENERAL ELECTRIC CAPITAL CORPORATION or any subsequent holder hereof (each, a "PAYEE") at its office located at 4 NORTH PARK DRIVE SUITE 500, HUNT VALLEY, MD 21030 or at such other place as Payee or the holder hereof may designate, the principal sum of THREE MILLION SEVEN HUNDRED TEN THOUSAND AND 00/100 DOLLARS ($3,710,000.00), with interest thereon, from the date hereof through and including the dates of payment, at a fixed interest rate of EIGHT AND 04/100 PERCENT (8.04%) per annum, to be paid in lawful money of the United States, in FIFTY-NINE (59) consecutive monthly installments of principal and interest of SEVENTY-FIVE THOUSAND TWO HUNDRED NINETY-SIX AND 46/100 DOLLARS ($75,296.46) each ("PERIODIC INSTALLMENT") and a final installment which shall be in the amount of the total outstanding principal and interest. The first Periodic Installment shall be due and payable on JUNE 1, 1998 and the following Periodic Installments and the final installment shall be due and payable on the same day of each succeeding month (each, a "PAYMENT DATE"). Such installments have been calculated on the basis of a 360 day year of twelve 30-day months. Each payment may, at the option of the Payee, be calculated and applied on an assumption that such payment would be made on its due date. The acceptance by Payee of any payment which is less than payment in full of all amounts due and owing at such time shall not constitute a waiver of Payee's right to receive payment in full at such time or at any prior or subsequent time. The Maker hereby expressly authorizes the Payee to insert the date value is actually given in the blank space on the face hereof and on all related documents pertaining hereto. This Note may be secured by a security agreement, chattel mortgage, pledge agreement or like instrument (each of which is hereinafter called a "SECURITY AGREEMENT") dated as of January 29, 1997, as amended. Time is of the essence hereof. If any installment or any other sum due under this Note or any Security Agreement is not received within ten (10) days after its due date, the Maker agrees to pay, in addition to the amount of each such installment or other sum, a late payment charge of five percent (5%) of the amount of said installment or other sum, but not exceeding any lawful maximum. If (i) Maker fails to make payment of any amount due hereunder within ten (10) days after the same becomes due and payable; or (ii) Maker is in uncured or unwaived default under, or fails to perform under any term or condition contained in any Security Agreement, then the entire principal sum remaining unpaid, together with all accrued interest thereon and any other sum payable under this Note or any Security Agreement, at the election of Payee, shall immediately become due and payable, with interest thereon at the lesser of twelve percent (12%) per annum or the highest rate not prohibited by applicable law from the date of such accelerated maturity until paid (both before and after any judgment). The Maker may prepay in full, but not in part, its entire indebtedness hereunder upon payment of an additional sum as a premium equal to the following percentages of the original principal balance for the indicated period: Prior to the first annual anniversary date of this Note: three percent (3%) Thereafter and prior to the second annual anniversary date of this Note: two percent (2%) Thereafter and prior to the third annual anniversary date of this Note: one percent (1%) Thereafter and prior to the fourth annual anniversary date of this Note: one percent (1%) Thereafter and prior to the fifth annual anniversary date of this Note: one percent (1%) and zero percent (0%) thereafter, plus all other sums due hereunder or under any Security Agreement. It is the intention of the parties hereto to comply with the applicable usury laws; accordingly, it is agreed that, notwithstanding any provision to the contrary in this Note or any Security Agreement, in no event shall this Note or any Security Agreement require the payment or permit the collection of interest in excess of the maximum amount permitted by applicable law. If any such excess interest is contracted for, charged or received under this Note or any Security Agreement, or if all of the principal balance shall be prepaid, so that under any of such circumstances the amount of interest contracted for, charged or received under this Note or any Security Agreement on the principal balance shall exceed the maximum amount of interest permitted by applicable law, then in such event (a) the provisions of this paragraph shall govern and control, (b) neither Maker nor any other person or entity now or hereafter liable for the payment hereof shall be obligated to pay the amount of such interest to the extent that it is in excess of the maximum amount of interest permitted by applicable law, (c) any such excess which may have been collected shall be either applied as a credit against the then unpaid principal balance or refunded to Maker, at the option of the Payee, and (d) the effective rate of interest shall be automatically reduced to the maximum lawful contract rate allowed under applicable law as now or hereafter construed by the courts having jurisdiction thereof. It is further agreed that without limitation of the foregoing, all calculations of the rate of interest contracted for, charged or received under this Note or any Security Agreement which are made for the purpose of determining whether such rate exceeds the maximum lawful contract rate, shall be made, to the extent permitted by applicable law, by amortizing, prorating, allocating and spreading in equal parts during the period of the full stated term of the indebtedness evidenced hereby, all interest at any time contracted for, charged or received from Maker or otherwise by Payee in connection with such indebtedness; provided, however, that if any applicable state law is amended or the law of the United States of America preempts any applicable state law, so that it becomes lawful for the Payee to receive a greater interest per annum rate than is presently allowed, the Maker agrees that, on the effective date of such amendment or preemption, as the case may be, the lawful maximum hereunder shall be increased to the maximum interest per annum rate allowed by the amended state law or the law of the United States of America. The Maker and all sureties, endorsers, guarantors or any others (each such person, other than the Maker, an "OBLIGOR") who may at any time become liable for the payment hereof jointly and severally consent hereby to any and all extensions of time, renewals, waivers or modifications of, and all substitutions or releases of, security or of any party primarily or secondarily liable on this Note or any Security Agreement or any term and provision of either, which may be made, granted or consented to by Payee, and agree that suit may be brought and maintained against any one or more of them, at the election of Payee without joinder of any other as a party thereto, and that Payee shall not be required first to foreclose, proceed against, or exhaust any security hereof in order to enforce payment of this Note. The Maker and each Obligor hereby waives presentment, demand for payment, notice of nonpayment, protest, notice of protest, notice of dishonor, and all other notices in connection herewith, as well as filing of suit (if permitted by law) and diligence in collecting this Note or enforcing any of the security hereof, and agrees to pay (if permitted by law) all expenses incurred in collection, including Payee's reasonable attorneys' fees. THE MAKER HEREBY UNCONDITIONALLY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR INDIRECTLY, THIS NOTE, ANY OF THE RELATED DOCUMENTS, ANY DEALINGS BETWEEN MAKER AND PAYEE RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION OR ANY RELATED TRANSACTIONS, AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN MAKER AND PAYEE. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT (INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS.) THIS WAIVER IS IRREVOCABLE MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS NOTE, ANY RELATED DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THIS TRANSACTION OR ANY RELATED TRANSACTION. IN THE EVENT OF LITIGATION, THIS NOTE MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. This Note and any Security Agreement constitute the entire agreement of the Maker and Payee with respect to the subject matter hereof and supercedes all prior understandings, agreements and representations, express or implied. No variation or modification of this Note, or any waiver of any of its provisions or conditions, shall be valid unless in writing and signed by an authorized representative of Maker and Payee. Any such waiver, consent, modification or change shall be effective only in the specific instance and for the specific purpose given. Any provision in this Note or any Security Agreement which is in conflict with any statute, law or applicable rule shall be deemed omitted, modified or altered to conform thereto. PLYMOUTH RUBBER COMPANY, INC. /S/ Deborah A. Kream By: /S/ Joseph J. Berns (L.S.) (Witness) (Signature) Deborah A. Kream Joseph J. Berns (Print name) Print name (and title, if applicable) 104 Revere Street Canton, MA 02021 041733970 (Address) (Federal tax identification number) EX-4.(XVI) 4 PROMISSORY NOTE -- G.E. CAPITAL Exhibit 4(xvi) PROMISSORY NOTE NOVEMBER 12, 1998 (DATE) 104 REVERE STREET, CANTON, NORFORLK COUNTY, MA 02021 - -------------------------------------------------------------------------------- (ADDRESS OF MAKER) FOR VALUE RECEIVED, PLYMOUTH RUBBER COMPANY, INC. FOR ITSELF AND ITS SUBSIDIARIES ("MAKER") promises, jointly and severally if more than one, to pay to the order of GENERAL ELECTRIC CAPITAL CORPORATION FOR ITSELF AND AS AGENT FOR CERTAIN PARTICIPANTS or any subsequent holder hereof (each, a "PAYEE") at its office located at 4 NORTH PARK DRIVE SUITE 500, HUNT VALLEY, MARYLAND 21030 or at such other place as Payee or the holder hereof may designate, the principal sum of FOUR HUNDRED FIFTY THOUSAND DOLLARS AND 00/100 DOLLARS ($450,000.00), with interest thereon, from the date hereof through and including the dates of payment, at a fixed interest rate of SEVEN AND 75/100 PERCENT (7.75%) per annum, to be paid in lawful money of the United States, in one hundred fifteen (115) consecutive monthly installments of principal and interest ("Periodic Installment"). Payments one (1) through fifty five (55) shall be in the amount of Eight thousand forty five and 27/100 Dollars ($8,045.27) and payments fifty-six (56) through one hundred fifteen (115) shall be in the amount of Two thousand two hundred fifty six and 36/100Dollars ($2,256.36). The first Periodic Installment shall be due and payable on January 2, 1999 and the following Periodic Installments and the final installment shall be due and payable on the same day of each succeeding month (each, a "PAYMENT DATE"). Such installments have been calculated on the basis of a 360 day year of twelve 30-day months. Each payment may, at the option of the Payee, be calculated and applied on an assumption that such payment would be made on its due date. The acceptance by Payee of any payment which is less than payment in full of all amounts due and owing at such time shall not constitute a waiver of Payee's right to receive payment in full at such time or at any prior or subsequent time. The Maker hereby expressly authorizes the Payee to insert the date value is actually given in the blank space on the face hereof and on all related documents pertaining hereto. This Note shall be secured by a security agreement, chattel mortgage, pledge agreement or like instrument (each of which is hereinafter called a "SECURITY AGREEMENT.") dated as of January 29, 1997, as amended. Time is of the essence hereof. If any installment or any other sum due under this Note or any Security Agreement is not received within ten (10) days after its due date, the Maker agrees to pay, in addition to the amount of each such installment or other sum, a late payment charge of five percent (5%) of the amount of said installment or other sum, but not exceeding any lawful maximum. If (i) Maker fails to make payment of any amount due hereunder within ten (10) days after the same becomes due and payable; or (ii) Maker is in uncured or unwaived default under, or fails to perform under any term or condition contained in any Security Agreement, then the entire principal sum remaining unpaid, together with all accrued interest thereon and any other sum payable under this Note or any Security Agreement, at the election of Payee, shall immediately become due and payable, with interest thereon at the lesser of twelve percent (12%) per annum or the highest rate not prohibited by applicable law from the date of such accelerated maturity until paid (both before and after any judgment). The Maker may prepay in full, but not in part, its entire indebtedness hereunder upon payment of an additional sum as a premium equal to the following percentages of the original principal balance for the indicated period: Prior to the third annual anniversary date of this Note: three percent (3%) Thereafter and prior to the fifth annual anniversary date of this Note: two percent (2%) Thereafter and prior to the tenth annual anniversary date of this Note: one percent (1%) and zero percent (0%) thereafter, plus all other sums due hereunder or under any Security Agreement. It is the intention of the parties hereto to comply with the applicable usury laws; accordingly, it is agreed that, notwithstanding any provision to the contrary in this Note or any Security Agreement, in no event shall this Note or any Security Agreement require the payment or permit the collection of interest in excess of the maximum amount permitted by applicable law. If any such excess interest is contracted for, charged or received under this Note or any Security Agreement, or if all of the principal balance shall be prepaid, so that under any of such circumstances the amount of interest contracted for, charged or received under this Note or any Security Agreement on the principal balance shall exceed the maximum amount of interest permitted by applicable law, then in such event (a) the provisions of this paragraph shall govern and control, (b) neither Maker nor any other person or entity now or hereafter liable for the payment hereof shall be obligated to pay the amount of such interest to the extent that it is in excess of the maximum amount of interest permitted by applicable law, (c) any such excess which may have been collected shall be either applied as a credit against the then unpaid principal balance or refunded to Maker, at the option of the Payee, and (d) the effective rate of interest shall be automatically reduced to the maximum lawful contract rate allowed under applicable law as now or hereafter construed by the courts having jurisdiction thereof. It is further agreed that without limitation of the foregoing, all calculations of the rate of interest contracted for, charged or received under this Note or any Security Agreement which are made for the purpose of determining whether such rate exceeds the maximum lawful contract rate, shall be made, to the extent permitted by applicable law, by amortizing, prorating, allocating and spreading in equal parts during the period of the full stated term of the indebtedness evidenced hereby, all interest at any time contracted for, charged or received from Maker or otherwise by Payee in connection with such indebtedness; provided, however, that if any applicable state law is amended or the law of the United States of America preempts any applicable state law, so that it becomes lawful for the Payee to receive a greater interest per annum rate than is presently allowed, the Maker agrees that, on the effective date of such amendment or preemption, as the case may be, the lawful maximum hereunder shall be increased to the maximum interest per annum rate allowed by the amended state law or the law of the United States of America. The Maker and all sureties, endorsers, guarantors or any others (each such person, other than the Maker, an "OBLIGOR") who may at any time become liable for the payment hereof jointly and severally consent hereby to any and all extensions of time, renewals, waivers or modifications of, and all substitutions or releases of, security or of any party primarily or secondarily liable on this Note or any Security Agreement or any term and provision of either, which may be made, granted or consented to by Payee, and agree that suit may be brought and maintained against any one or more of them, at the election of Payee without joinder of any other as a party thereto, and that Payee shall not be required first to foreclose, proceed against, or exhaust any security hereof in order to enforce payment of this Note. The Maker and each Obligor hereby waives presentment, demand for payment, notice of nonpayment, protest, notice of protest, notice of dishonor, and all other notices in connection herewith, as well as filing of suit (if permitted by law) and diligence in collecting this Note or enforcing any of the security hereof, and agrees to pay (if permitted by law) all expenses incurred in collection, including Payee's reasonable attorneys' fees. THE MAKER HEREBY UNCONDITIONALLY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR INDIRECTLY, THIS NOTE, ANY OF THE RELATED DOCUMENTS, ANY DEALINGS BETWEEN MAKER AND PAYEE RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION OR ANY RELATED TRANSACTIONS, AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN MAKER AND PAYEE. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT (INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS.) THIS WAIVER IS IRREVOCABLE MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS NOTE, ANY RELATED DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THIS TRANSACTION OR ANY RELATED TRANSACTION. IN THE EVENT OF LITIGATION, THIS NOTE MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. This Note and any Security Agreement constitute the entire agreement of the Maker and Payee with respect to the subject matter hereof and supercedes all prior understandings, agreements and representations, express or implied. No variation or modification of this Note, or any waiver of any of its provisions or conditions, shall be valid unless in writing and signed by an authorized representative of Maker and Payee. Any such waiver, consent, modification or change shall be effective only in the specific instance and for the specific purpose given. Any provision in this Note or any Security Agreement which is in conflict with any statute, law or applicable rule shall be deemed omitted, modified or altered to conform thereto. PLYMOUTH RUBBER COMPANY, INC. FOR ITSELF AND ITS SUBSIDIARIES /S/ Sandra Volpe By: /S/ Joseph J. Berns (L.S.) (Witness) (Signature) Sandra Volpe Joseph J. Berns, Vice President, Finance (Print name) Print name (and title, if applicable) Plymouth Rubber Co. 104 Revere St. Canton, MA 02021 04-1733970 (Address) (Federal tax identification number) EX-4.(XVII) 5 PROMISSORY NOTE -- ANDOVER CAPITAL Exhibit (4)(xvii) PROMISSORY NOTE NOVEMBER 25, 1998 (DATE) 104 REVERE STREET, CANTON, NORFOLK COUNTY, MA 02021 - -------------------------------------------------------------------------------- FOR VALUE RECEIVED, PLYMOUTH RUBBER COMPANY, INC. ("MAKER") promises, jointly and severally if more than one, to pay to the order of ANDOVER CAPITAL GROUP, INC. or any subsequent holder hereof (each, a "PAYEE") at its office located at One Constitution Plaza, Boston, MA 02129-2025 or at such other place as Payee or the holder hereof may designate, the principal sum of ONE MILLION THREE HUNDRED THIRTY-NINE THOUSAND THIRTY-ONE AND 88/100 DOLLARS ($1,339,031.88 ), with interest thereon, from the date hereof through and including the dates of payment, at a fixed interest rate of SEVEN AND 10/100 PERCENT (7.10%) per annum, to be paid in lawful money of the United States, in fifty nine (59) consecutive monthly installments of principal and interest of TWENTY-SIX THOUSAND FIVE HUNDRED SEVENTY-SEVEN AND 66/100 ($26,577.66) ("PERIODIC INSTALLMENT") and a final installment which shall be in the amount of the total outstanding principal and interest. The first Periodic Installment shall be due and payable on DECEMBER 25, 1998 and the following Periodic Installments and the final installment shall be due and payable on the same day of each succeeding month (each, a "PAYMENT DATE"). Such installments have been calculated on the basis of a 360 day year of twelve 30-day months. Each payment may, at the option of the Payee, be calculated and applied on an assumption that such payment would be made on its due date. The acceptance by Payee of any payment which is less than payment in full of all amounts due and owing at such time shall not constitute a waiver of Payee's right to receive payment in full at such time or at any prior or subsequent time. The Maker hereby expressly authorizes the Payee to insert the date value is actually given in the blank space on the face hereof and on all related documents pertaining hereto. This Note is secured by Collateral Schedule No. A-1 to Master Security Agreement dated January 27, 1997 ("Security Agreement.") Time is of the essence hereof. If any installment or any other sum due under this Note or any Security Agreement is not received within ten (10) days after its due date, the Maker agrees to pay, in addition to the amount of each such installment or other sum, a late payment charge of five percent (5%) of the amount of said installment or other sum, but not exceeding any lawful maximum. If (i) Maker fails to make payment of any amount due hereunder within ten (10) days after the same becomes due and payable; or (ii) Maker is in uncured or unwaived default under, or fails to perform under any term or condition contained in any Security Agreement, then the entire principal sum remaining unpaid, together with all accrued interest thereon and any other sum payable under this Note or any Security Agreement, at the election of Payee, shall immediately become due and payable, with interest thereon at the lesser of twelve percent (12%) per annum or the highest rate not prohibited by applicable law from the date of such accelerated maturity until paid (both before and after any judgment). The Maker may prepay in full, but not in part, its entire indebtedness hereunder upon payment of an additional sum as a premium equal to the following percentages of the original principal balance for the indicated period: Prior to the third annual anniversary date of this Note: three percent (3%) Thereafter and prior to the fifth annual anniversary date of this Note: two percent (2%) Thereafter and prior to the tenth annual anniversary date of this Note: one percent (1%) and zero percent (0%) thereafter, plus all other sums due hereunder or under any Security Agreement. It is the intention of the parties hereto to comply with the applicable usury laws; accordingly, it is agreed that, notwithstanding any provision to the contrary in this Note or any Security Agreement, in no event shall this Note or any Security Agreement require the payment or permit the collection of interest in excess of the maximum amount permitted by applicable law. If any such excess interest is contracted for, charged or received under this Note or any Security Agreement, or if all of the principal balance shall be prepaid, so that under any of such circumstances the amount of interest contracted for, charged or received under this Note or any Security Agreement on the principal balance shall exceed the maximum amount of interest permitted by applicable law, then in such event (a) the provisions of this paragraph shall govern and control, (b) neither Maker nor any other person or entity now or hereafter liable for the payment hereof shall be obligated to pay the amount of such interest to the extent that it is in excess of the maximum amount of interest permitted by applicable law, (c) any such excess which may have been collected shall be either applied as a credit against the then unpaid principal balance or refunded to Maker, at the option of the Payee, and (d) the effective rate of interest shall be automatically reduced to the maximum lawful contract rate allowed under applicable law as now or hereafter construed by the courts having jurisdiction thereof. It is further agreed that without limitation of the foregoing, all calculations of the rate of interest contracted for, charged or received under this Note or any Security Agreement which are made for the purpose of determining whether such rate exceeds the maximum lawful contract rate, shall be made, to the extent permitted by applicable law, by amortizing, prorating, allocating and spreading in equal parts during the period of the full stated term of the indebtedness evidenced hereby, all interest at any time contracted for, charged or received from Maker or otherwise by Payee in connection with such indebtedness; provided, however, that if any applicable state law is amended or the law of the United States of America preempts any applicable state law, so that it becomes lawful for the Payee to receive a greater interest per annum rate than is presently allowed, the Maker agrees that, on the effective date of such amendment or preemption, as the case may be, the lawful maximum hereunder shall be increased to the maximum interest per annum rate allowed by the amended state law or the law of the United States of America. The Maker and all sureties, endorsers, guarantors or any others (each such person, other than the Maker, an "OBLIGOR") who may at any time become liable for the payment hereof jointly and severally consent hereby to any and all extensions of time, renewals, waivers or modifications of, and all substitutions or releases of, security or of any party primarily or secondarily liable on this Note or any Security Agreement or any term and provision of either, which may be made, granted or consented to by Payee, and agree that suit may be brought and maintained against any one or more of them, at the election of Payee without joinder of any other as a party thereto, and that Payee shall not be required first to foreclose, proceed against, or exhaust any security hereof in order to enforce payment of this Note. The Maker and each Obligor hereby waives presentment, demand for payment, notice of nonpayment, protest, notice of protest, notice of dishonor, and all other notices in connection herewith, as well as filing of suit (if permitted by law) and diligence in collecting this Note or enforcing any of the security hereof, and agrees to pay (if permitted by law) all expenses incurred in collection, including Payee's reasonable attorneys' fees. THE MAKER HEREBY UNCONDITIONALLY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR INDIRECTLY, THIS NOTE, ANY OF THE RELATED DOCUMENTS, ANY DEALINGS BETWEEN MAKER AND PAYEE RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION OR ANY RELATED TRANSACTIONS, AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN MAKER AND PAYEE. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT (INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS.) THIS WAIVER IS IRREVOCABLE MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS NOTE, ANY RELATED DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THIS TRANSACTION OR ANY RELATED TRANSACTION. IN THE EVENT OF LITIGATION, THIS NOTE MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. This Note and any Security Agreement constitute the entire agreement of the Maker and Payee with respect to the subject matter hereof and supercedes all prior understandings, agreements and representations, express or implied. No variation or modification of this Note, or any waiver of any of its provisions or conditions, shall be valid unless in writing and signed by an authorized representative of Maker and Payee. Any such waiver, consent, modification or change shall be effective only in the specific instance and for the specific purpose given. Any provision in this Note or any Security Agreement which is in conflict with any statute, law or applicable rule shall be deemed omitted, modified or altered to conform thereto. PLYMOUTH RUBBER COMPANY, INC. /S/Sandra Volpe By:/S/ Joseph J. Berns (L.S.) (Witness) (Signature) Sandra Volpe Joseph J. Berns, VP Finance (Print name) Print name (and title, if applicable) 104 Revere St. Canton, MA 02021 04-1733970 (Address) (Federal tax identification number) EX-23 6 CONSENT OF INDEPENDENT ACCOUNTANTS EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 033-59085 and No. 033-65441) of Plymouth Rubber Company, Inc. of our report dated January 29, 1999 appearing on page 15 of this Form 10-K. PricewaterhouseCoopers LLP Boston, Massachusetts February 24, 1999 EX-27 7 FINANCIAL DATA SCHEDULE
5 12-MOS NOV-27-1998 NOV-27-1998 54 0 13,077 544 10,970 26,007 39,384 17,821 50,701 23,261 0 0 0 2,085 8,436 10,521 69,041 69,041 51,433 64,443 (1) 180 1,871 2,728 890 1,838 0 0 0 1,838 .89 .84
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