ITEM 1. DESCRIPTION OF BUSINESS
Plymouth Rubber Company, Inc. and its subsidiaries primarily operate through the following two business segments: Plymouth Tapes and Brite-Line Technologies. Management has determined these to be Plymouth Rubber Company's business segments, based upon its process of reviewing and assessing Company performance, and allocating resources. Plymouth Tapes manufactures plastic and rubber products, including automotive, electrical, and industrial tapes. These products are sold either through sales personnel employed by the Company and/or through distributors and/or commissioned sales representatives. Brite-Line Technologies manufactures and supplies rubber and plastic highway marking and safety products, sold through sales personnel employed by the Company.
On October 4, 1996, the Company acquired certain assets of Brite-Line Industries, Inc. Brite-Line Technologies, Inc. ("Brite-Line") produces and markets rubber and plastic 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 textile based tapes from its facility in Porrino, Spain, as part of the Plymouth Tapes segment.
The Company purchases raw materials from a variety of industry sources. Principal raw materials include resins, plasticizers, synthetic and natural rubber, and textiles. There are a number of alternate suppliers of materials. The primary sources of natural rubber are domestic suppliers with operations in Southeast Asia; in addition, textiles are acquired from both domestic and foreign suppliers. While temporary shortages of raw materials may occur occasionally, these items are currently readily available. However, their continuing availability and price are subject to domestic and world market and political conditions, as well as to the direct or indirect effect of United States government regulations. The impact of any future raw material shortages on the Company as a whole cannot be accurately predicted. Operations and products may at times be adversely affected by legislation, shortages, or international or domestic events; however, at this time, management is not aware of any legislation, shortage, or events which will materially affect the Company's business.
The Company owns a number of patents and/or intellectual property rights on products manufactured. Patents held and licenses granted do not materially affect current operations.
Because products are manufactured for inventory as well as to order for specific customers, both the order backlog and the inventory turnover vary significantly from market to market. In general, on a Company wide basis, the backlog is equivalent to approximately one month's sales volume. The Company grants various payment terms in accordance with the standards dictated by individual markets; however, extended payment terms generally are not granted with the exception of certain foreign markets where payment terms may consider local customs and practices.
The markets served by the Company are highly competitive. Competition comprises a number of domestic and foreign companies, some of which have larger sales organizations and substantially greater resources than the Company. In general, the Company regards itself as having an average competitive position in the industry, although, based on available market information, it is believed that the Company is a significant factor in, and has captured significant shares of the markets for friction, rubber and vinyl tape products. The estimated number of competitors varies from market to market. The Company relies upon product design, product quality, price and service to maintain its competitive position in the markets served and no single product accounts for a predominant amount of the Company's total sales volume. Since 1988, the Company has been the primary source of PVC (vinyl) harness tapes for the North American wire harness operations of the Delphi Packard Electric Division ("PED") of General Motors and its successor corporation, Delphi Automotive Systems Corporation ("Delphi") which was spun off from General Motors as of May 1999, and has also supplied part of PED's and Delphi's tape requirements for Europe and South America. In 1995, the Company was awarded a three-year agreement, which was extended through December, 1999, to supply PVC (vinyl) harness tapes to PED. In 2000, the Company signed a new contract with Delphi to supply PVC and some textile tapes until 2005. Delphi accounted for approximately 32%, 29% and 33% of the Company's net sales in 1999, 1998 and 1997, respectively. As Delphi constitutes a significant percentage of the Company's sales, loss of the business would have a material adverse effect on the Company. The Company is diversifying its automotive tapes business by adding new customers in the United States and abroad, and by developing new tapes for harnessing, as well as other products for other markets. The following table sets forth information with regard to competition in the worldwide markets from which the Company derives its largest volume of sales:
ESTIMATED NO. OF DOMINANT OR MARKET COMPETITORS MAJOR COMPETITORS ------ ----------- -----------------
Electrical Tapes 15 3M Automotive Tapes Numerous None Industrial Tapes & Films Numerous None Highway Marking Tapes 6 3M
The Company is subject to various Federal, state and local environmental protection regulations. To date, compliance with these regulations has not had a significant effect upon the capital expenditures, earnings or competitive position of the continuing operations of the Company. Refer to Item 3. Legal Proceedings and Note 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. Sales and purchases are largely performed in U.S. dollars. Certain sales and purchases are performed in foreign currencies.
The Company employs approximately 475 people.
ITEM 2.
ITEM 2. PROPERTIES
Substantially all of the Company's manufacturing, administrative and principal sales facilities are owned and are located in Canton, Massachusetts. These facilities comprise approximately 500,000 square feet. Plymouth Rubber Europa, S.A., owns an 11,000 square foot facility in Porrino, Spain, and Brite-Line Technologies, Inc. leases a 50,000 square foot facility in Denver, Colorado.
The Company rents space for its sales operations at various locations. These rentals are not material in the aggregate. The Company believes that its facilities are suitable and adequate for its current needs, and that its facilities and technology are competitive with those of its principal foreign and domestic competitors. For further information with respect to security interests in the properties of the Company, see Note 2 of the Notes to Consolidated Financial Statements, herein.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
ENVIRONMENTAL
Claims under CERCLA
The Company has been named as a Potentially Responsible Party ("PRP") by the United States Environmental Protection Agency ("EPA") in two ongoing claims under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"). These CERCLA claims involve attempts by the EPA to recover the costs associated with the cleanup of two Superfund Sites in Southington, Connecticut--the Solvent Recovery Service of New England Superfund Site ("SRS Site") and the Old Southington Landfill Superfund Site ("OSL Site"). SRS was an independent and licensed solvent recycler/disposal company. The EPA asserts that SRS, after receiving and processing various hazardous substances from PRPs, shipped some resultant sludges and wastewater from the SRS Site to the OSL Site.
The Company received a PRP notification regarding the SRS Site in June, 1992. The EPA originally attributed a 1.74% share of the aggregate waste volume at the SRS Site to the Company. Remedial action is ongoing at the Site, and the Company is a participant in the performing PRP group. Largely because of "orphaned 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 a 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 December 3, 1999, management has accrued $484,000 as a reserve in this matter (which is net of approximately $242,000 in payments made to date by the Company).
The Company received a PRP notification regarding the OSL Site in January, 1994. In addition to numerous "SRS transshipper" PRPs (such as the Company), EPA has named a number of other PRPs who allegedly shipped waste materials directly to the OSL Site. Based on EPA's asserted volume of shipments to SRS, EPA originally attributed 4.89% of the "SRS transshipper" PRPs' waste volume at the OSL Site to the Company, which is a fraction of the undetermined total waste volume at the Site. 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" PRPs 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 PRPs 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 $249,000, 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 one hundred PRPs. A group of PRPs, including the Company, has retained an LSP to conduct subsurface investigations at both sites. The LSP recently completed Limited Subsurface Investigations at both sites. At the Freetown site, no reportable contamination was found either in soil or groundwater, and the LSP has recommended that DEP close the site out. At the Dartmouth site, no reportable contamination was found in soil, while reportable, but lower than historical levels of contaminants were found in groundwater. The LSP's investigation at the Dartmouth site further indicates that there may be an upgradient off-site source of contaminants that is impacting the site, and recommends further investigation into that possibility. While the results of the Limited Subsurface Investigations at these sites are relatively encouraging, until additional data is gathered, it is not possible to reasonably estimate the costs of any further investigation or cleanup that may be required at 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., was both a defendant and a counterclaim plaintiff in a patent infringement lawsuit initiated in 1998 in federal district court in Minnesota and settled in February, 2000. The suit involved contrasting claims by Brite-Line and the plaintiff (a competitor of Brite-Line in the highway marking tapes business), that the other party had committed patent infringement with respect to its specialty retroreflective pavement marking tapes containing raised wedges. The only Brite-Line products at issue in the case have generated limited sales to date that have not been material to the Company or to the Brite-Line subsidiary. After the completion of discovery and prior to trial, both parties agreed to resolve the suit amicably. Under the terms of the settlement, which required no payment of damages by either party, the parties agreed to accept certain interpretations of the plaintiff's patent claims and neither party admitted infringing the patent rights of the other. Brite-Line agreed not to manufacture or sell any product which conflicts with the plaintiff's patent claims and to discontinue its counterclaim against the plaintiff. The Company's earnings, competitive position and capital expenditures are not expected to be materially adversely affected by the settlement.
ITEM 4.
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
Age (at last Served Name Position/Officer Birthday) Since - ---- ---------------- ------------ ------
Maurice J. Hamilburg President and Co - Chief Executive Officer and Director 53 1987 Joseph D. Hamilburg Chairman and Co - Chief Executive Officer and Director 51 1998 Fiore D. DiGiovine VP - Mfg. Development 72 1987 Alan I. Eisenberg VP - Sales & Marketing 49 1988 & 1986 Sheldon S. Leppo VP - Research & Development 65 1970 Joseph J. Berns VP - Finance and Treasurer 53 1997 Thomas L. McCarthy VP - Manufacturing 39 1999 David M. Kozol Clerk and Secretary 41 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. Thomas L. McCarthy joined the Company in June, 1999. From 1997 to 1999 he served as Director of Operations of Madico, Inc. From 1992 to 1997 he served as Vice President - Operations of Venture Tape Corporation.
Mr. 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.
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.
(b) APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS
As of January 7, 2000, 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 ........ 230 Class B non-voting common stock $1.00 par value .... 280
The number of holders listed above does not include shareholders for whom shares are held in a "nominee" or "street" name.
(c) DIVIDENDS
The Company has not paid cash dividends on its common stock since 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 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
1999 COMPARED WITH 1998
Sales increased for the ninth consecutive year, as 1999 sales at $77.7 million were up 12.5% from 1998 levels. The major contributor was Plymouth Tapes, where 1999 sales of $68.0 million were up 12.0% from 1998. Increased capacity in the Canton plant allowed the Company to meet increasing customer demand. Sales in the automotive market were particularly strong, as 1999 sales increased 19.1% from 1998 levels and accounted for most of the growth. Sales in all other markets increased 1.2%, as increases in domestic markets were mostly offset by weakness in markets outside the U.S. Brite-Line Technologies also contributed to growth, as 1999 sales of $9.7 million were up 15.7% over 1998.
Gross margin increased to 27.3% from 25.5% last year. Plymouth Tapes' gross margin increased to 26.7% from 25.6% last year. The major factor in the improvement was higher production volume in the Canton operations to meet increased sales demand and build inventories. This was partially offset by higher raw material purchase prices and higher levels of manufacturing spending. Brite-Line Technologies' gross margin increased to 31.5% from 25.0% last year, due to better pricing and higher volume, partially offset by higher manufacturing spending and raw material usage.
Selling, general and administrative expenses are incurred and recorded in both Plymouth Tapes and Brite-Line Technologies. Certain of the selling, general and administrative expenses recorded in Plymouth Tapes could be considered as incurred for the benefit of Brite-Line, but are currently not allocated to that segment. These expenses include certain management, accounting, personnel and sales services, and a limited amount of travel, insurance, directors fees and other expenses.
Selling, general and administrative expenses, as a percentage of sales, increased to 20.0% from 18.8% last year. The major source of the increase was Brite-Line Technologies, where selling, general and administrative expenses, as a percentage of sales, increased to 32.5% from 20.2% last year. The major factor was an increase in professional fees to $1,275,000 from $201,000 last year, to cover the majority of the costs associated with a patent infringement lawsuit. Salaries in Brite-Line Technologies also increased by approximately $165,000, because of higher accrued bonuses and an additional sales resource. Offsetting these increases, selling, general and administrative expenses, as a percentage of sales, in Plymouth Tapes decreased slightly to 18.3% from 18.7% last year. The major factors were improved bad debt cost and lower professional fees, offset in part by higher freight and outside warehouse costs.
Operating income for 1999 also included an insurance settlement with one of the Company's previous liability insurance carriers. Under the terms of the agreement, the insurance carrier made a one-time payment of $1,750,000, in exchange for a release of all past, present, and future environmental claims.
Interest expense increased to $2,045,000 from $1,871,000 last year. The increase occurred largely in the first half of 1999, due to increased long-term borrowings to finance capital investments, as well as higher balances on the revolving line of credit, to finance operations and some capital improvements. During the second half of 1999, interest expense was approximately level with last year. Although the average second half borrowing balances for both long-term debt and the revolving line of credit were higher in 1999 compared to last year, the interest rates applied to the revolving line of credit and the real estate portion of the long-term debt were lower in 1999 compared to last year. The lower interest rates were a result of a new loan agreement with Plymouth's primary lender, effective June 2, 1999.
As a result of the above factors, income before tax increased 96.5% to $5,362,000 from $2,728,000 last year. Excluding the one-time insurance settlement, income before tax increased 32.4%. The effective tax rate in 1999 increased to 41.8% from 32.6% last year. The major factor in the difference occurred during 1998, which benefited from investment tax credits generated by the more than $11 million of capital equipment placed in service during that year. As a result, net income increased 69.9% to $3,122,000 from $1,838,000 last year. Excluding the one-time insurance settlement, net income increased 14.4%, based upon the 1999 effective tax rate.
Cash generated from operating activities was $4.3 million in 1999, as compared to $1.9 million in 1998. The major factors contributing to cash from operating activities include net income of $3.1 million, depreciation and amortization of $2.5 million, and deferred income tax expense of $1.2 million, partially offset by a $3.6 million increase in inventory. Inventory was increased to (1) better respond to customer demand in Plymouth Tapes, (2) prepare for certain Canton plant equipment installations during the first quarter of fiscal 2000, and (3) to support higher levels of activity in Brite-Line Technologies. The operating cash flow and cash provided through additional borrowings totaling $1.2 million under the Company's revolving line of credit, $2.6 million under a capital expenditure line of credit, and $0.2 million from sale/leaseback of equipment, were used to finance capital expenditures of $5.3 million, pay off or reduce term debt and capital leases of $2.8 million, and repurchase Plymouth Rubber common stock in the amount of $0.2 million.
The U.S. dollar is the functional currency for the Company's U.S. 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 7.7% of the Company's revenues in fiscal 1999. 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.
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 1998 sales increased by $3.6 million from 1997, reflecting increased business from both new and existing customers. 1998 sales in Plymouth Tapes (produced in Canton, Mass., and Porrino, Spain) decreased by $1.7 million and 3%, from 1997 primarily because of capacity constraints, product mix, and because of reduced demand due to the General Motors strike.
Gross margin in 1998 increased to 25.5% from 23.8% in 1997. In Plymouth Tapes, gross margin in 1998 improved to 25.5% from 23.5% in 1997. 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 in 1998 at Brite-Line Technologies decreased to 25.0% from 26.4% in 1997, 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 in 1998, as a percentage of sales, decreased to 18.8% from 19.1% in 1997. The major source of the decrease was Brite-Line Technologies, where selling, general and administration expenses, as a percentage of sales decreased to 20.2% from 30.2% in 1997. The major factor was the ability of Brite-Line to have a large increase in sales of 75% without adding substantially to the selling, general and administrative expenses, which had a relatively small increase of 17%. Partially offsetting these decreases, selling, general and administrative expenses, as percentage of sales in Plymouth Tapes, increased to 18.7% from 18.3% in 1997. The major contributing factors were higher accrued bonus, profit sharing, professional fees, and bad debt expense.
Interest expense in 1998, as a percentage of sales, increased to 2.7% from 2.3% in 1997. Higher interest expense resulted from an increase in current and long-term debt to $14.4 million from $12.0 million in 1997, 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 in 1997, 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 in 1997. The effective tax rate in 1998 decreased to 32.6% from 36.1% in 1997, 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 in 1998 increased 45% to $1.8 million from $1.3 million in 1997.
The Company generated $1.9 million of operating cash flow in 1998. This operating cash flow, 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 $0.9 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.
LIQUIDITY AND CAPITAL RESOURCES
During 1997, 1998, and 1999, Plymouth Rubber invested in a significant capital expansion and improvement program, for a total amount of $18.9 million, including a new calender and coating line, and associated equipment, which substantially increased its production capacity. At the end of fiscal 1996 and the beginning of 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 and to support sales growth of approximately $20.5 million or 36% from 1996 to 1999, the Company has increased its debt from approximately $12.2 million in 1996 to approximately $25.4 million in 1999. The Company was in compliance with all of its financial covenants as of December 3, 1999. Based upon current projections, the Company believes it will meet these covenants during 2000.
As of December 3, 1999, the Company had approximately $3.3 million of unused borrowing capacity under its $18 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 a capital expenditure line of credit and/or the sale/leaseback of capital equipment, will provide sufficient funds to meet expected needs during fiscal 2000, 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 theses plans could have an adverse impact on the Company's liquidity and financial position.
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 PRPs, shipped some resultant sludges and wastewater from the SRS Site to the OSL Site.
The Company received a PRP notification regarding the SRS Site in June, 1992. The EPA originally attributed a 1.74% share of the aggregate waste volume at the SRS Site to the Company. Remedial action is ongoing at the Site, and the Company is a participant in the performing PRP group. Largely because of "orphaned 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 a 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 December 3, 1999, management has accrued $484,000 as a reserve in this matter (which is net of approximately $242,000 in payments made to date by the Company).
The Company received a PRP notification regarding the OSL Site in January, 1994. In addition to numerous "SRS transshipper" PRPs (such as the Company), EPA has named a number of other PRPs who allegedly shipped waste materials directly to the OSL Site. Based on EPA's asserted volume of shipments to SRS, EPA originally attributed 4.89% of the "SRS transshipper" PRPs' waste volume at the OSL Site to the Company, which is a fraction of the undetermined total waste volume at the Site. 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" PRPs 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 PRPs 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 $249,000, 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 PRPs, H & M Drum Company, was responsible for disposing of drums at the two sites. To date, the DEP has issued Notices of Responsibility to approximately 100 PRPs. A group of PRPs, including the Company, has retained an LSP to conduct subsurface investigations at both sites. The LSP recently completed Limited Subsurface Investigations at both sites. At the Freetown site, no reportable contamination was found either in soil or groundwater, and the LSP has recommended that DEP close the site out. At the Dartmouth site, no reportable contamination was found in soil, while reportable, but lower than historical levels of contaminants were found in groundwater. The LSP's investigation at the Dartmouth site further indicates that there may be an upgradient off-site source of contaminants that is impacting the site, and recommends further investigation into that possibility. While the results of the Limited Subsurface Investigations at these sites are relatively encouraging, until additional data is gathered, it is not possible to reasonably estimate the costs of any further investigation or cleanup that may be required at 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., was both a defendant and a counterclaim plaintiff in a patent infringement lawsuit initiated in 1998 in federal district court in Minnesota and settled in February, 2000. The suit involved contrasting claims by Brite-Line and the plaintiff (a competitor of Brite-Line in the highway marking tapes business), that the other party had committed patent infringement with respect to its specialty retroreflective pavement marking tapes containing raised wedges. The only Brite-Line products at issue in the case have generated limited sales to date that have not been material to the Company or to the Brite-Line subsidiary. After the completion of discovery and prior to trial, both parties agreed to resolve the suit amicably. Under the terms of the settlement, which required no payment of damages by either party, the parties agreed to accept certain interpretations of the plaintiff's patent claims and neither party admitted infringing the patent rights of the other. Brite-Line agreed not to manufacture or sell any product which conflicts with the plaintiff's patent claims and to discontinue its counterclaim against the plaintiff. The Company's earnings, competitive position and capital expenditures are not expected to be materially adversely affected by the settlement.
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." The Company assembled a task force to oversee the entire Year 2000 project, which included the Company's domestic and foreign tape business and Brite-Line, for both information technology ("IT") and non-IT systems. The Company believed that its greatest potential risks were associated with its IT systems and non-IT systems embedded in its operations and infrastructure. The task force identified five phases of the Year 2000 compliance process for the Company's IT and non-IT systems. These phases were 1) issue identification, 2) assessment, 3) development of remediation plans, 4) implementation and testing and 5) contingency planning. These five phases were completed.
With respect to IT systems, the Company's strategy was to upgrade its mission critical main information systems hardware and software and other support software, and to replace a group of manufacturing support software. Regarding the upgrade of the main information systems hardware and software and other support software, the implementation and testing phase was 100% complete as of April, 1999. Regarding the replacement of a group of manufacturing support software, the implementation and testing phase was 100% complete as of October 1999.
With respect to non-IT systems, the implementation phase was 100% complete as of December 1999. Large and critical suppliers were selected for compliance confirmation; responses were received and no critical problems were identified. Separately, the Company actively sought 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 performed its own testing of certain purchased equipment and information processing equipment for compliance. The Company monitored the status of Year 2000 compliance of its most significant customers through direct contact, written confirmation, and by reviewing publicly available information.
The Company developed a contingency plan for both IT and non-IT systems, as appropriate. The contingency plan included building additional inventories in case of vendor supply or power interruptions, using alternate suppliers, outsourcing to third parties, utilizing alternative software, and reverting to manual processing of information.
Costs incurred to date for Year 2000 have totaled approximately $660,000 and have been expensed as incurred. Costs included internal employee costs and costs of external consultants, and were funded through operating cash flows. The Company believes there was no material adverse impact of such costs on its long-term results of operations, liquidity or financial position.
If the Company had not taken any of the remedial steps detailed above, Year 2000 issues would possibly have caused significant technological problems for the Company, disrupting business, potentially resulting in increased costs and/or loss of business. At this time, no technological problems have occurred.
The worst case scenario had the Company, its customers or suppliers been unable to adequately resolve Year 2000 issues, would have included 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 have resulted 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. If such or similar scenarios had occurred, they could, depending on their duration, have had 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.
At this time, no significant Year 2000 disruptions have occurred. The Company will continue to monitor its IT and non-IT systems for any possible Year 2000 issues.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
In June, 1998, the Financial Accounting Standards Board issued FAS 133 Accounting for Derivative Instruments and 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. In June, 1999, the Financial Accounting Standards Board issued FAS 137 - Accounting for Derivative and Similar Financial Instruments and for Hedging Activities Deferral of the Effective Date of FAS 133. FAS 137 changed the effective date for implementation of FAS 133. FAS 133 will be effective for the Company on December 2, 2000, the beginning of fiscal year 2001. The Company currently does not expect the impact of adopting FAS 133 to be material.
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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At December 3, 1999, the carrying value of Company's debt totaled $25.3 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 December 3, 1999, the Company had fixed rate debt of $10.2 million and variable rate debt of $15.1 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 $200,000. The earnings and cash flows impact for the next year resulting from a one percentage point increase in interest rates would be approximately $150,000, holding other variables constant.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by this item are set forth on pages 15 to 42 herein.
ITEM 9.
ITEM 9. DISAGREEMENT ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10.
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 December 3, 1999.
ITEM 11.
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 December 3, 1999.
ITEM 12.
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 December 3, 1999.
ITEM 13.
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 December 3, 1999.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(A)1. Financial statements filed as part of this report are listed in the index appearing on page 15.
(A)2. Financial statement schedules required as part of this report are listed in the index appearing on page 15.
(A)3. Exhibits required as part of this report are listed in the index appearing on pages 44 - 46.
(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 28, 2000
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 28, 2000.
President and Co-Chief Executive Officer /s/ MAURICE J. HAMILBURG and Director - -------------------------------- Maurice J. Hamilburg
Chairman and Co-Chief Executive Officer /s/ JOSEPH D. HAMILBURG 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/ SUMNER KAUFMAN Director - -------------------------------- Sumner Kaufman
/s/ JAMES M. OATES Director - -------------------------------- James M. Oates
/s/ EDWARD PENDERGAST Director - -------------------------------- Edward Pendergast
/s/ DUANE E. WHEELER Director - -------------------------------- Duane E. Wheeler
Vice President - Finance and Treasurer (Principal Financial Officer and /s/ JOSEPH J. BERNS Principal Accounting Officer) - -------------------------------- Joseph J. Berns
PLYMOUTH RUBBER COMPANY, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
PAGE
Report of Independent Accountants ................................... 16
Consolidated Balance Sheet at December 3, 1999 and November 27, 1998 ................................................. 17 - 18
Consolidated Statement of Operations and Retained Earnings (Deficit) for each of the three years in the period ended December 3, 1999 .................................................. 19
Consolidated Statement of Comprehensive Income for each of the three years in the period ended December 3, 1999 .................. 20
Consolidated Statement of Cash Flows for each of the three years in the period ended December 3, 1999 .............................. 21 - 22
Notes to Consolidated Financial Statements .......................... 23 - 42
Reserves (Schedule II) .............................................. 43
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 accompanying consolidated balance sheets and the related consolidated statements of operations and retained earnings, of comprehensive income and of cash flows present fairly, in all material respects, the financial position of Plymouth Rubber Company, Inc. and its subsidiaries at December 3, 1999 and November 27, 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 3, 1999 in conformity with accounting principles generally accepted in the United States. 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 auditing standards generally accepted in the United States, 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 28, 2000, except as to Note 13, which is as of February 14, 2000
PLYMOUTH RUBBER COMPANY, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
December 3, November 27, 1999 1998 ----------- -----------
Cash ................................... $ -- $ 54,000 Accounts receivable, less allowance for doubtful accounts of $369,000 and $544,000 at December 3, 1999 and November 27, 1998, respectively ...... 12,050,000 12,533,000
Inventories: Raw materials .................... 4,481,000 3,800,000 Work in process .................. 2,332,000 1,968,000 Finished goods ................... 7,661,000 5,202,000 ----------- ----------- 14,474,000 10,970,000 ----------- ----------- Deferred tax assets, net ............... 1,580,000 1,542,000 Prepaid expenses and other current assets ............................... 913,000 908,000 ----------- ----------- Total current assets ............... 29,017,000 26,007,000 ----------- -----------
PLANT ASSETS: Land ................................. 554,000 618,000 Buildings ............................ 5,969,000 5,995,000 Machinery and equipment .............. 34,804,000 32,201,000 Construction in progress ............. 2,544,000 570,000 ----------- ----------- 43,871,000 39,384,000
Less: Accumulated depreciation ...... (19,678,000) (17,821,000) ----------- ----------- Total plant assets, net ............ 24,193,000 21,563,000 ----------- ----------- OTHER ASSETS: Deferred tax assets, net ............. 678,000 1,882,000 Other long-term assets ............... 1,027,000 1,249,000 ----------- ----------- Total other assets ................. 1,705,000 3,131,000 ----------- ----------- $54,915,000 $50,701,000 =========== ===========
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
December 3, November 27, 1999 1998 ---------------- ----------------
CURRENT LIABILITIES: Revolving line of credit ............. $11,233,000 $10,117,000 Trade accounts payable ............... 6,827,000 6,090,000 Accrued expenses ..................... 4,378,000 4,220,000 Current portion of long-term borrowings 3,260,000 2,834,000 ----------- ----------- Total current liabilities ......... 25,698,000 23,261,000 ----------- -----------
LONG-TERM LIABILITIES: Borrowings ........................... 10,796,000 11,527,000 Pension obligation ................... 2,546,000 2,849,000 Other ................................ 2,538,000 2,543,000 ----------- ----------- Total long-term liabilities ....... 15,880,000 16,919,000 ----------- -----------
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 December 3, 1999 and November 27, 1998 ................................. 810,000 810,000 Class B non-voting common stock, $1 par value, 3,500,000 shares authorized, 1,280,304 shares issued and outstanding at December 3, 1999 and 1,275,014 shares issued and outstanding at November 27, 1998 .................... 1,280,000 1,275,000 Paid-in capital ...................... 9,083,000 9,077,000 Retained earnings (deficit) .......... 2,678,000 (444,000) Accumulated other comprehensive loss . (179,000) (69,000) Deferred compensation ................ (76,000) (114,000) ----------- ----------- 13,596,000 10,535,000 Less: Treasury stock at cost (39,200 and 2,100 shares at December 3, 1999 and November 27, 1998) ................... (259,000) (14,000) ----------- ----------- 13,337,000 10,521,000 ----------- ----------- $54,915,000 $50,701,000 =========== ===========
The accompanying Notes to Consolidated Financial 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. and its subsidiaries primarily operate through the following two business segments: Plymouth Tapes and Brite-Line Technologies. Management has determined these to be Plymouth Rubber Company's business segments, based upon its process to review and assess Company performance, and to allocate resources. Plymouth Tapes manufactures plastic and rubber products, including automotive, electrical, and industrial tapes. Brite-Line Technologies manufactures and supplies rubber and plastic highway marking and safety products.
B. PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements include the accounts of Plymouth Rubber Company, Inc. and its wholly-owned subsidiaries, Brite-Line Technologies, Inc. and Plymouth Rubber Europa, S.A. Significant intercompany accounts and transactions have been eliminated in consolidation.
C. INVENTORIES -- Inventories are valued at the lower of cost, determined principally on the first-in, first-out method, or market.
D. REVENUE RECOGNITION -- The Company recognizes revenues at the point of passage of title, which is generally at the time of shipment.
E. PLANT ASSETS -- Plant assets are stated at cost. 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 $.3 million and approximately $2.1 million of fully depreciated and disposed of plant assets in 1999 and 1998, 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).
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.
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 - In accordance with Statement of Financial Accounting Standards No. 128, Earnings per Share (FAS 128), basic earnings per share is computed by dividing income available to common shareholders by the weighted-average common shares outstanding during the period. Diluted earnings per share is computed by giving effect to all dilutive potential common shares that were outstanding during the period.
J. FAIR VALUE OF FINANCIAL INSTRUMENTS -- The carrying amounts reported in the accompanying consolidated balance sheets for accounts receivable, and accounts payable approximate fair values because of the immediate or short-term maturities of these financial instruments. The carrying amount of the Company's fixed rate 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 U.S. tape operations. For these operations, all gains and losses from foreign currency transactions are included in income currently. The Company operates a wholly-owned tape subsidiary in Spain which accounted for approximately 7.7% of the Company's revenues in fiscal 1999. The functional currency of this subsidiary is the peseta. The balance sheet is translated at year end exchange rates and the income statement at weighted average exchange rates. 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. 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. In June, 1999, the Financial Accounting Standards Board issued FAS 137 - Accounting for Derivative and Similar Financial Instruments and for Hedging Activities - Deferral of the Effective Date of FAS 133. FAS 137 changed the effective date for implementation of FAS 133. FAS 133 will be effective for the Company on December 2, 2000, the beginning of fiscal year 2001. The Company currently does not expect the impact of adopting FAS 133 to be material.
NOTE 2 -- BORROWING ARRANGEMENTS AND FINANCING COMMITMENTS
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.
On February 19, 1999 the Company amended its revolving line of credit and real estate term loan agreement with its primary lender. The loan amendment increases the maximum borrowing amount from $15 million to $18 million, increases the real estate term loan from $1.25 million to $3.0 million, and lowers the borrowing rate from prime plus 1/4% to prime. In addition, the Company has the option to convert part or all of its loan balances at variable rates to 30, 60, 90 or 180 day contracts at a fixed rate of LIBOR plus 2%. The amendment became effective June 3, 1999 (except for the real estate loan increase which became effective February 26, 1999) and extends the agreement by three years to June 2, 2002. The term loan calls for monthly interest only payments through June, 1999, and interest plus monthly principal payments of $50,000, beginning July, 1999.
On June 30, 1999, the Company entered into a new loan agreement in the amount of $868,000 with an equipment lender to finance the acquisition of certain equipment. The new loan is secured by a first interest in the equipment.
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- BORROWING ARRANGEMENTS AND FINANCING COMMITMENTS -- (CONTINUED)
The revolving line of credit and term debt of the Company consisted of the following as of: December 3, November 27, 1999 1998 ----------- ---------- Short-term borrowings under a revolving line of credit, secured by a first interest in accounts receivable, inventory, certain equipment and certain other personal property with interest charged at prime. At December 3, 1999, the Company had approximately $3,300,000 in unused borrowing availability on its revolving line of credit. The interest rate at December 3, 1999 was 8.50% .................................... $10,585,000 $ 9,519,000
Short-term borrowings with three Spanish Banks with interest rates ranging from 3.72% to 4.95% at December 3, 1999. Principal amount 107,682,000 pesetas (approximately $648,000) at December 3, 1999 .............................................. 648,000 598,000 ----------- ----------- $11,233,000 $10,117,000 =========== =========== Term debt, in the original principal amount of $3,000,000, due June 2002, secured by a first interest in real property. Monthly principal payments of $50,000 plus interest at prime are required. The interest rate at December 3, 1999 was 8.50% ......................................... $ 2,750,000 $ 1,350,000
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% ................ 1,108,000 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% ............ 2,690,000 3,402,000
Term debt, in the original principal amount of $868,000, due June 2004, secured by a first interest in certain equipment. Monthly payments of $17,757 including interest at 8.39% ............ 808,000 --
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 $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 ................. 3,222,000 3,800,000
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 ................................... 386,000 450,000
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 December 3, 1999 was 5% .................................... 1,129,000 1,468,000
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 (approximately $86,000), plus accrued interest, beginning December 31, 1999 ....................... 278,000 298,000 Capital lease obligations (see Note 10) ........... 1,685,000 2,254,000 ----------- ----------- 14,056,000 14,361,000 Less current portion .............................. 3,260,000 2,834,000 ----------- ----------- $10,796,000 $11,527,000 =========== ===========
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- BORROWING ARRANGEMENTS AND FINANCING COMMITMENTS -- (CONTINUED)
The Company's revolving credit loan and long term debt agreements contain various covenants which, among other things, prohibit cash dividends without the consent of the lender and specify that the Company meet certain financial requirements, including certain net worth, fixed charge and EBITDA coverage ratios and minimum working capital levels. In addition, for 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 December 3, 1999.
Maturities of long-term obligations in the next five years are: 2000 - $3,262,000; 2001 - $3,039,000; 2002 - $4,287,000; 2003 - $1,790,000; 2004 - $466,000; and thereafter - $1,212,000.
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.
The aggregate purchase price was allocated as follows:
Working capital ........................... $ 320,000 Plant assets .............................. 1,660,000 Goodwill .................................. 1,020,000 Other ..................................... 100,000 ----------- $ 3,100,000 ===========
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- INCOME TAXES
Income from operations before income taxes consist of the following:
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- INCOME TAXES -- (CONTINUED)
The components of the net deferred tax asset are as follows:
December 3, November 27, 1999 1998 ----------- ----------- Deferred tax asset: Pension obligations .................... $ 1,180,000 $ 1,358,000 State investment tax credit (ITC) carryforwards ........................ 217,000 240,000 Environmental reserves ................. 449,000 493,000 Inventory reserves ..................... 426,000 376,000 Postretirement benefits ................ 410,000 415,000 Other reserves ......................... 1,041,000 885,000 ----------- ----------- Total gross deferred tax assets ........ 3,723,000 3,767,000 Valuation allowance .................... (80,000) (80,000) ----------- ----------- 3,643,000 3,687,000 Deferred tax liability: Plant assets ........................... (1,385,000) (263,000) ----------- ----------- Net deferred tax asset ........... $ 2,258,000 $ 3,424,000 =========== ===========
The valuation allowance for deferred tax assets was reduced in 1998 by $13,000. 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 December 3, 1999, November 27, 1998, and November 28, 1997, is as follows:
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 -- ACCRUED EXPENSES
The Company's accrued expenses consist of the following:
December 3, November 27, 1999 1998 ----------- ----------- Accrued payroll and related benefits ... $ 2,029,000 $ 1,945,000 Accrued pension contributions .......... 265,000 385,000 Other .................................. 2,084,000 1,890,000 ----------- ----------- $ 4,378,000 $ 4,220,000 =========== ===========
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 1999, 1998 and 1997, the Company accrued $400,000, $306,000, and $242,000 of profit sharing expense, respectively.
The following table provides reconciliation of changes in benefit obligations and fair value of plan assets. In addition, this table provides the plan's funded status and the amounts recognized in the consolidated balance sheet for the Company's defined benefit pension plan.
December 3, November 27, 1999 1998 ----------- ----------- RECONCILIATION OF BENEFIT OBLIGATION: Benefit obligation at beginning of year $13,933,000 $14,099,000 Interest cost ........................ 812,000 880,000 Benefit payments ..................... (1,204,000) (1,200,000) Actuarial (gain) loss ................ (1,487,000) 116,000 Transfer from Profit Sharing Plan .... 25,000 38,000 ----------- ----------- Benefit obligation at end of year .... $12,079,000 $13,933,000 =========== =========== RECONCILIATION OF FAIR VALUE OF PLAN ASSETS: Fair value at beginning of year ...... $10,722,000 $10,304,000 Actual return on plan assets ......... 1,156,000 1,289,000 Employer contributions ............... 376,000 291,000 Benefit payments ..................... (1,204,000) (1,200,000) Transfer from Profit Sharing Plan .... 25,000 38,000 ----------- ----------- Fair value at end of year ............ $11,075,000 $10,722,000 =========== =========== FUNDED STATUS: Funded status ........................ $ 1,003,000 $ 3,211,000 Unrecognized gain .................... 1,807,000 23,000 ----------- ----------- Accrued pension costs ................ $ 2,810,000 $ 3,234,000 =========== ===========
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- RETIREMENT AND OTHER BENEFIT PLANS -- (CONTINUED)
December 3, November 27, 1999 1998 ----------- ----------- AMOUNTS RECOGNIZED IN THE CONSOLIDATED BALANCE SHEET: Accrued pension obligation ........... $ 2,810,000 $ 3,234,000 ----------- ----------- Net amount recognized ................ $ 2,810,000 $ 3,234,000 =========== ===========
Net periodic pension costs for the pension plan for the years ended December 3, 1999, November 27, 1998, and November 28, 1997 are as follows:
Year Ended ----------------------------------------- December 3, November 27, November 28, 1999 1998 1997 ----------- ----------- ----------- Service cost ...................... $ -- $ -- $ -- Interest cost ..................... 812,000 880,000 948,000 Expected return on assets ......... (823,000) (889,000) (816,000) Amortization of net gain .......... (36,000) (19,000) 12,000 --------- --------- --------- Net periodic pension costs .... $ (47,000) $ (28,000) $ 144,000 ========= ========= =========
Key weighted-average assumptions used in the measurement of the Company's defined benefit pension obligation:
1999 1998 1997 ----------- ----------- ----------- Discount rate ..................... 7.25% 6.75% 7.25% Long term rate of return on assets 8.00% 9.00% 9.00%
In addition to pension benefits, the Company provides health insurance benefits to retirees disabled on the job and employees who elect early retirement after age 62, on a shared-cost basis. This coverage ceases when the employee reaches age 65 and becomes eligible for Medicare. In addition, the Company provides certain limited life insurance for retired employees. In accordance with FAS 106, Employers' Accounting for Postretirement Benefits Other than Pensions, the cost of these benefits is accrued during the employees' active service period.
The following table provides a reconciliation of changes in benefit obligations. In addition, this table provides the plan's funded status and the amounts recognized in the consolidated balance sheet for the Company's postretirement benefits.
December 3, November 27, 1999 1998 ----------- ----------- RECONCILIATION OF BENEFIT OBLIGATION: Benefit obligation at beginning of year $ 725,000 $ 794,000 Service .............................. 28,000 35,000 Interest cost ........................ 49,000 47,000 Benefit payments ..................... (93,000) (88,000) Actuarial (gain) loss ................ -- (63,000) ----------- ----------- Benefit obligation at end of year .... $ 709,000 $ 725,000 =========== ===========
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- RETIREMENT AND OTHER BENEFIT PLANS -- (CONTINUED)
December 3, November 27, 1999 1998 ----------- ----------- RECONCILIATION OF FAIR VALUE OF PLAN ASSETS: Fair value at beginning of year ...... $ -- $ -- Employer contributions ............... 78,000 87,000 Benefit payments ..................... (78,000) (87,000) ----------- ----------- Fair value at end of year ............ $ -- $ -- =========== =========== FUNDED STATUS: Funded status ........................ $ 709,000 $ 788,000 Unrecognized gain .................... 266,000 192,000 ----------- ----------- Accrued postretirement benefit cost .. $ 975,000 $ 980,000 =========== =========== AMOUNTS RECOGNIZED IN THE CONSOLIDATED BALANCE SHEET: Accrued benefit obligation ........... $ 975,000 $ 980,000 ----------- ----------- Net amount recognized ................ $ 975,000 $ 980,000 =========== ===========
Key weighted-average assumptions used in the measurement of the Company's postretirement benefit obligation :
1999 1998 1997 --------- --------- --------- Discount rate ..................... 7.25% 6.75% 7.25%
The components of net postretirement expense are as follows:
Year Ended ----------------------------------------- December 3, November 27, November 28, 1999 1998 1997 ----------- ----------- ----------- Service cost ...................... $ 33,000 $ 33,000 $ 27,000 Interest cost ..................... 46,000 48,000 52,000 Amortization of gain or loss ...... (6,000) (8,000) (9,000) --------- --------- --------- $ 73,000 $ 73,000 $ 70,000 ========= ========= =========
Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one percent change in the assumed health care cost trend rates would have the following effects:
1-Percentage- 1-Percentage- Point Point Increase Decrease ------------- -------------
Effect on total of service and interest cost components ...................... $ 7,000 $ (6,000) Effect on postretirement benefit obligation 43,000 (36,000)
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- COMMON STOCK AND EARNINGS PER SHARE -- (CONTINUED)
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 December 3, 1999 ----------------------------------------- Income Shares Per Share (Numerator) (Denominator) Amount --------- ----------- --------- BASIS EPS Income available to common stockholders .................. $3,122,000 2,068,509 $ 1.51 ========= Effect of dilutive security options (A) ................... -- 129,971 --------- --------- DILUTED EPS Income available to common stockholders and assumed conversions ................... $3,122,000 2,198,480 $ 1.42 ========== ========= =========
Year Ended November 27, 1998 ----------------------------------------- Income Shares Per Share (Numerator) (Denominator) Amount --------- ----------- --------- BASIS EPS Income available to common stockholders .................. $1,838,000 2,073,270 $ .89 ========= Effect of dilutive security options (A) ................... -- 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 --------- ----------- --------- BASIS EPS Income available to common stockholders .................. $1,266,000 2,031,994 $ .62 ========= Effect of dilutive security options (A) ................... -- 142,488 --------- --------- DILUTED EPS Income available to common stockholders and assumed conversions ................... $1,266,000 2,174,482 $ .58 ========== ========= =========
(A) Options for 195,619, 195,842, and 137,493 shares of common stock were outstanding at December 3, 1999, 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.
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 December 3, 1999 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 300,000 shares of the Company's Class B Common Stock. The exercise price of the options granted under the 1995 Employee Plan may be no less than 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 December 3, 1999 there were 157,742 options available for grant under this plan.
The 1995 Director Plan authorizes the granting of options only to non-employee directors to purchase an aggregate of 210,000 shares of the Company's Class B Common Stock. The exercise price of the options granted under the 1995 Director Plan may be no less than 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 December 3, 1999 there were 54,075 options available for grant this plan.
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- STOCK OPTION AND STOCK PURCHASE PLANS -- (CONTINUED)
A summary of the Company's stock option plans as of December 3, 1999, November 27, 1998, and November 28, 1997, and the changes during the years ending on those dates are presented below:
Weighted Average Number of Exercise Shares Price ----------- ---------- 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 Options granted ................................... 29,325 7.14 Options exercised ................................. (5,290) 2.17 Options expired ................................... (15,000) 4.75 -------- ----------- Outstanding at December 3, 1999 ................... 493,664 $ 5.04 ======== ===========
Weighted Average Number of Exercise Shares Price ----------- ---------- Exercisable at November 28, 1997 .................. 218,228 $ 4.54 Exercisable at November 27, 1998 .................. 189,405 $ 5.06 Exercisable at December 3, 1999 ................... 242,815 $ 5.37
The following table summarizes information about all stock options outstanding at December 3, 1999:
Outstanding Options Options Exercisable ----------------------------------- ------------------------ Weighted Average Remaining Weighted Weighted Range of Contractual Average Average Exercise Number Life Exercise Number Exercise Prices Outstanding (Years) Price Exercisable Price --------- ----------- ---------- ---------- ---------- ------------ $2.17 - 2.38 152,369 3 $2.25 54,194 $ 2.16 4.25 - 4.63 76,800 9 4.55 28,100 4.52 5.95 - 6.81 197,170 7 6.55 145,520 6.53 7.13 - 7.49 67,325 6 7.50 15,001 7.37 ------- ------- 493,664 242,815 ======= =======
The options outstanding at December 3, 1999 expire at various times in 2002 through 2009.
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- STOCK OPTION AND STOCK PURCHASE PLANS -- (CONTINUED)
In accordance with Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (FAS 123), the fair value of options granted was estimated on the date of grant using the Black-Scholes option pricing model. Had compensation expense for the Company's stock option plans been determined based on the fair value at the grant dates for awards under these plans 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:
Year Ended ---------------------------------------------- December 3, November 27, November 28, 1999 1998 1997 ---------- ----------- ----------- Net Income, as reported .... $3,122,000 $1,838,000 $1,266,000 Net Income, pro forma....... 3,005,000 1,745,000 1,232,000
Basic EPS, as reported ..... 1.51 0.89 0.62 Basic EPS, pro forma ....... 1.45 0.84 0.61
Diluted EPS, as reported ... 1.42 0.84 0.58 Diluted EPS, pro forma ..... $ 1.37 $ 0.79 $ 0.57
The weighted average fair value of the options granted during the fiscal years 1999, 1998 and 1997 were $4.88, $3.05, and $2.77 per option, respectively.
The fair value of options at the date of grant was estimated using the Black-Scholes model with the following weighted average assumptions:
1999 1998 1997 ---------- ----------- ----------- Expected life (years) .......... 10 $ 7.6 10 Expected stock price volatility 50% 35% 26% Risk-free interest rate..... 6.07% 5.40% 6.50%
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 December 3, 1999 and November 27, 1998, 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 December 3, 1999 and November 27, 1998. During 1999 and 1998 no shares were repurchased or issued. At December 3, 1999 and November 27, 1998, 30,452 shares were outstanding.
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 - SEGMENT INFORMATION
Plymouth Rubber Company, Inc. and its subsidiaries primarily operate through the following two business segments: Plymouth Tapes and Brite-Line Technologies. Management has determined these to be Plymouth Rubber Company's business segments, based upon its process of reviewing and assessing Company performance, and allocating resources. Plymouth Tapes manufactures plastic and rubber products, including automotive, electrical, and industrial tapes. Brite-Line Technologies manufactures and supplies rubber and plastic highway marking and safety products.
The reporting segments utilize the accounting policies as described in the summary of significant accounting policies in the Company's consolidated financial statements. Management evaluates the performance of its segments and allocates resources to them primarily based upon sales and operating income. Intersegment sales are at cost and are eliminated in consolidation. In addition, certain of the selling, general and administrative expenses recorded in Plymouth Tapes could be considered as incurred for the benefit of Brite-Line, but are currently not allocated to that segment. These expenses include certain management, accounting, personnel and sales services, and a limited amount of travel, insurance, directors fees and other expenses.
The table below presents information related to Plymouth Rubber's business segments information for each of the past three years.
Year Ended ---------------------------------------------- December 3, November 27, November 28, 1999 1998 1997 ---------- ----------- ----------- Segment sales to unaffiliated customers: Plymouth Tapes ................ $67,951,000 $60,653,000 $62,349,000 Brite-Line Technologies ....... 9,702,000 8,388,000 4,787,000 ----------- ----------- ----------- Consolidated net sales ........ $77,653,000 $69,041,000 $67,136,000 =========== =========== ===========
Segment income: Plymouth Tapes ................ $ 5,724,000 $ 4,190,000 $ 3,272,000 Brite-Line Technologies ....... (93,000) 408,000 (181,000) ----------- ----------- ----------- Segment income ................ 5,631,000 4,598,000 3,091,000 Insurance settlement .......... 1,750,000 -- -- ----------- ----------- ----------- Consolidated operating income ...................... 7,381,000 4,598,000 3,091,000 Interest expense .............. (2,045,000) (1,871,000) (1,513,000) Foreign currency exchange loss ........................ (77,000) (69,000) (214,000) Other income, net ............. 103,000 70,000 618,000 ----------- ----------- ----------- Consolidated income before tax $ 5,362,000 $ 2,728,000 $ 1,982,000 =========== =========== ===========
Depreciation and amortization: Plymouth Tapes ................ $ 2,452,000 $ 1,914,000 $ 1,403,000 Brite-Line Technologies ....... 42,000 42,000 36,000 ----------- ----------- ----------- Total depreciation and amortization ................ $ 2,494,000 $ 1,956,000 $ 1,439,000 =========== =========== ===========
Assets: Plymouth Tapes ................ $50,455,000 $46,840,000 $40,877,000 Brite-Line Technologies ....... 4,460,000 3,861,000 3,187,000 ----------- ----------- ----------- Total assets .................. $54,915,000 $50,701,000 $44,064,000 =========== =========== ===========
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 - SEGMENT INFORMATION-- (CONTINUED)
Year Ended ---------------------------------------------- December 3, November 27, November 28, 1999 1998 1997 ---------- ----------- ----------- Geographic information: Net sales to unaffiliated customers: United States ................. $65,448,000 $55,915,000 $53,153,000 Spain and Portugal ............ 5,418,000 5,320,000 4,396,000 Other ......................... 6,787,000 7,806,000 9,587,000 ----------- ----------- ----------- Consolidated net sales ........ $77,653,000 $69,041,000 $67,136,000 =========== =========== ===========
Long-lived assets: United States ................. $22,630,000 $19,858,000 $15,712,000 Spain ......................... 1,563,000 1,705,000 1,629,000 ----------- ----------- ----------- Total long-lived assets ....... $24,193,000 $21,563,000 $17,341,000 =========== =========== ===========
The Company has one customer, whose operations are primarily in the automotive industry, which accounted for 32%, 29% and 33% of net sales in 1999, 1998, and 1997, respectively.
NOTE 10 -- LEASES
Included in Plant Assets in the accompanying Consolidated Balance Sheet is leased property under capital leases as follows:
December 3, November 27, 1999 1998 ----------- -----------
Machinery and equipment ................ $ 3,715,000 $ 3,668,000 Less accumulated amortization .......... 1,499,000 1,144,000 ----------- ----------- $ 2,216,000 $ 2,524,000 =========== ===========
The Company entered into agreements for the sale and leaseback of certain machinery and equipment in the aggregate amount of $151,000 and $946,000 in 1999 and 1998, 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 December 3, 1999:
2000.............................. $ 607,000 2001.............................. 546,000 2002.............................. 475,000 2003.............................. 229,000 2004.............................. -- ----------- Total minimum lease payments...... 1,857,000 Less: Amount representing interest 172,000 ----------- $ 1,685,000 ===========
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10 -- LEASES-- (CONTINUED)
Minimum annual rentals under noncancelable operating leases (which are principally for equipment) are as follows:
2000.............................. $ 265,000 2001.............................. 264,000 2002.............................. 193,000 2003.............................. -- 2004.............................. --
Total rental expense for 1999, 1998 and 1997 was $1,156,000, $994,000, and $1,231,000, 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 a consulting agreement with a Director of the Company, to provide the Company with various consulting services. During 1999, 1998 and 1997, consulting fees of $61,100, $51,700, and $36,400, respectively, were paid pursuant to this agreement. In addition, the Company has a consulting agreement with Kadeca Consulting Corporation, whose president is a Director of the Company. During 1999 consulting fees under this agreement were $11,400. Previously, the Company had a consulting agreement with a third Director of the Company, to provide the Company with various consulting services. During 1998 and 1997 consulting fees under this agreement were $55,200 and $115,000, respectively.
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 PRPs, shipped some resultant sludges and wastewater from the SRS Site to the OSL Site.
The Company received a PRP notification regarding the SRS Site in June, 1992. The EPA originally attributed a 1.74% share of the aggregate waste volume at the SRS Site to the Company. Remedial action is ongoing at the Site, and the Company is a participant in the performing PRP group. Largely because of "orphaned 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 a 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 December 3, 1999, management has accrued $484,000 as a reserve in this matter (which is net of approximately $242,000 in payments made to date by the Company).
The Company received a PRP notification regarding the OSL Site in January, 1994. In addition to numerous "SRS transshipper" PRPs (such as the Company), EPA has named a number of other PRPs who allegedly shipped waste materials directly to the OSL Site. Based on EPA's asserted volume of shipments to SRS, EPA originally attributed 4.89% of the "SRS transshipper" PRPs' waste volume at the OSL Site to the Company, which is a fraction of the undetermined total waste volume at the Site. 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" PRPs 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 $249,000, 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 PRPs, H & M Drum Company, was responsible for disposing of drums at the two sites. To date, the DEP has issued Notices of Responsibility to approximately 100 PRPs. A group of PRPs, including the Company,has retained an LSP to conduct subsurface investigations at both sites. The LSP recently completed Limited Subsurface Investigations at both sites. At the Freetown site, no reportable contamination was found either in soil or groundwater, and the LSP has recommended that DEP close the site out. At the Dartmouth site, no reportable contamination was found in soil, while reportable, but lower than historical levels of contaminants were found in groundwater. The LSP's investigation at the Dartmouth site further indicates that there may be an upgradient off-site source of contaminants that is impacting the site, and recommends further investigation into that possibility. While the results of the Limited Subsurface Investigations at these sites are relatively encouraging, until additional data is gathered, it is not possible to reasonably estimate the costs of any further investigation or cleanup that may be required at 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.
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 13 - SUBSEQUENT EVENT
The Company's subsidiary, Brite-Line Technologies, Inc., was both a defendant and a counterclaim plaintiff in a patent infringement lawsuit initiated in 1998 in federal district court in Minnesota and settled in February, 2000. The suit involved contrasting claims by Brite-Line and the plaintiff (a competitor of Brite-Line in the highway marking tapes business), that the other party had committed patent infringement with respect to its specialty retroreflective pavement marking tapes containing raised wedges. The only Brite-Line products at issue in the case have generated limited sales to date that have not been material to the Company or to the Brite-Line subsidiary. After the completion of discovery and prior to trial, both parties agreed to resolve the suit amicably. Under the terms of the settlement, which required no payment of damages by either party, the parties agreed to accept certain interpretations of the plaintiff's patent claims and neither party admitted infringing the patent rights of the other. Brite-Line agreed not to manufacture or sell any product which conflicts with the plaintiff's patent claims and to discontinue its counterclaim against the plaintiff.
NOTE 14 -- UNAUDITED QUARTERLY FINANCIAL DATA
The following table presents the quarterly information for fiscal 1999 and 1998.
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.
PLYMOUTH RUBBER COMPANY, INC.
INDEX TO EXHIBITS
(CONTINUED)
Exhibit No. Description - ------- -----------
(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 or 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
(4)(xviii) Amendments to Loan and Security Agreement between Plymouth Rubber Company, Inc., and LaSalle National Bank dated July 15, 1998 and February 18, 1999 - incorporated by reference to Exhibit (4)(xviii) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 26, 1999.
(4)(xix) Amendment to Loan and Security Agreement between Brite-Line Technologies, Inc., and LaSalle National Bank dated February 18, 1999 - incorporated by reference to Exhibit (4)(xix) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 26, 1999.
(4)(xx) Promissory Note between Plymouth Rubber Company, Inc. and General Electric Capital Corporation dated June 29, 1999 - incorporated by reference to Exhibit (4)(xx) to the Company's Quarterly Report on Form 10-Q for the quarter ended August 27, 1999.
(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 December 3, 1999.
(28) Not applicable.
(29) Not applicable.