SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended August 27, 1999 Commission File Number 1-5197
Plymouth Rubber Company, Inc.
(Exact name of registrant as specified in its charter)
Massachusetts 04-1733970
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
104 Revere Street, Massachusetts 02021
(Address of principal executive offices) (Zip Code)
(781) 828-0220
Registrant's telephone number, including area code
Not Applicable
(Former name, former address, and former fiscal year, if changed since last
report)
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the receding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No _____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the period covered by this report.
Class A common stock, par value $1 - 810,586
Class B common stock, par value $1 - 1,247,914
PLYMOUTH RUBBER COMPANY, INC.
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements: Page No.
Condensed Consolidated Statement of Operations
and Retained Earnings (Deficit). . . . . . . . 2
Condensed Consolidated Balance Sheet. . . . . . 3
Condensed Consolidated Statement of Cash Flows. 4
Notes To Condensed Consolidated Financial
Statements. . . . . . . . . . . . . . . . . . 5-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . 11-16
PART II. OTHER INFORMATION 17
1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PLYMOUTH RUBBER COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
AND RETAINED EARNINGS (DEFICIT)
(In Thousands Except Shares and Per Share Amounts)
(Unaudited)
Third Quarter Ended Nine Months Ended
------------------------------------------
Aug. 27, Aug. 28, Aug. 27, Aug. 28,
1999 1998 1999 1998
--------- --------- --------- ---------
Net Sales. . . . . . . . . . . , $ 18,685 $ 17,087 $ 56,596 $ 50,061
--------- --------- --------- ---------
Cost and Expenses:
Cost of products sold . . . . 13,515 12,859 41,072 37,470
Selling, general and administrative 4,167 3,077 11,532 9,452
Insurance settlement. . . . . -- -- (1,750) --
--------- --------- --------- ---------
17,682 15,936 50,854 46,922
--------- --------- --------- ---------
Operating income . . . . . . . . 1,003 1,151 5,742 3,139
Interest expense . . . . . . . . (493) (496) (1,520) (1,347)
Other expense . . . . . . . . . 2 (7) (31) (41)
--------- --------- --------- ---------
Income before taxes . . . . . . 512 648 4,191 1,751
Provision for income taxes . . . (205) (262) (1,682) (708)
--------- --------- --------- ---------
Net income . . . . . . . . . . . 307 386 2,509 1,043
Retained earnings (deficit)
at beginning of period. . . 1,758 (1,625) (444) (2,282)
--------- --------- --------- ---------
Retained earnings (deficit)
at end of period . . . . . . $ 2,065 $ (1,239) $ 2,065 $ (1,239)
========== ========= ========= =========
Per Share Data:
Basic Earnings Per Share:
Net Income . . . . . . . . . . . $ .15 $ .19 $ 1.21 $ .50
========= ========= ========= =========
Weighted average number of
shares outstanding . . . . . . 2,060,600 2,079,825 2,071,333 2,069,544
========= ========= ========= =========
Diluted Earnings Per Share:
Net Income.. . . . . . . . . . . $ .14 $ .17 $ 1.14 $ .47
========= ========= ========= =========
Weighted average number of
shares outstanding . . . . . . 2,201,679 2,227,070 2,202,604 2,196,757
========= ========= ========= =========
See Accompanying Notes to Condensed Consolidated Financial Statements
2
PLYMOUTH RUBBER COMPANY, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In Thousands)
Aug. 27, Nov. 27,
1999 1998
--------- ---------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash . . . . . . . . . . . . . . . $ 339 $ 54
Accounts receivable. . . . . . . . 13,651 13,077
Allowance for doubtful accounts. . (417) (544)
Inventories:
Raw materials. . . . . . . . . 4,162 3,800
Work in process. . . . . . . . 1,667 1,968
Finished goods . . . . . . . . 7,603 5,202
-------- --------
13,432 10,970
-------- --------
Deferred tax assets, net . . . . . 1,542 1,542
Prepaid expenses and other current
assets . . . . . . . . . . . . . 786 908
-------- --------
Total current assets . . . . . 29,333 26,007
-------- --------
PLANT ASSETS:
Plant assets . . . . . . . . . . . 42,281 39,384
Less: Accumulated depreciation . 19,447 17,821
-------- --------
Total plant assets, net. . . . 22,834 21,563
-------- --------
OTHER ASSETS:
Deferred tax assets, net . . . . . 1,694 1,882
Other long-term assets . . . . . . 1,073 1,249
-------- --------
2,767 3,131
-------- --------
TOTAL ASSETS $ 54,934 $ 50,701
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving line of credit . . . . . $ 10,485 $ 10,117
Trade accounts payable . . . . . . 6,695 6,090
Accrued expenses. . . . . . . . . 4,919 4,220
Current portion of long-term
borrowings . . . . . . . . . . . 3,086 2,834
-------- --------
Total current liabilities 25,185 23,261
-------- --------
LONG-TERM LIABILITIES:
Borrowings . . . . . . . . . . . . 12,056 11,527
Pension obligation . . . . . . . . 2,438 2,849
Other . . . . . . . . . . . . . . 2,457 2,543
-------- --------
Total long-term liabilities 16,951 16,919
-------- --------
STOCKHOLDERS' EQUITY
Preferred stock . . . . . . . . . -- --
Class A voting common stock . . . 810 810
Class B non-voting common stock . 1,279 1,275
Paid in capital. . . . . . . . . . 9,082 9,077
Retained earnings (deficit). . . . 2,065 (444)
Accumulated other comprehensive
income (loss). . . . . . . . . . (146) (69)
Deferred compensation. . . . . . . (85) (114)
-------- --------
13,005 10,535
Less: Treasury stock at cost . . . (207) (14)
-------- ---------
12,798 10,521
-------- ---------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 54,934 $ 50,701
-------- ---------
See Accompanying Notes to Condensed Consolidated Financial Statements
3
PLYMOUTH RUBBER COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands) (Unaudited)
Nine Months Ended
----------------------
Aug. 27, Aug. 28,
1999 1998
-------- --------
Cash flows relating to operating activities:
Net Income .. . . . . . . . . . . . . . . . $ 2,509 $ 1,043
Adjustments to reconcile net income to
net cash provided by (used in)operating
activities:
Depreciation and amortization . . . . 1,849 1,401
Amortization of deferred compensation 29 28
Changes in assets and liabilities:
Accounts receivable . . . . . . . . . (840) (1,481)
Inventory . . . . . . . . . . . . . . (2,523) (1,335)
Prepaid expenses. . . . . . . . . . . 121 262
Other assets. . . . . . . . . . . . . 29 (9)
Accounts payable. . . . . . . . . . . 656 301
Accrued expenses . . . . . . . . . . 955 966
Pension obligation. . . . . . . . . . (411) (313)
Product warranties. . . . . . . . . . -- (140)
Other liabilities . . . . . . . . . . (86) 51
-------- --------
Net cash provided by operating activities 2,288 774
-------- --------
Cash flows relating to investing activities:
Capital expenditures . . . . . . . . . . . . . (3,208) (4,726)
Sale/leaseback of plant assets . . . . . . . . 153 569
-------- --------
Net cash used in investing activities (3,055) (4,157)
-------- --------
Cash flows relating to financing activities:
Net increase in revolving line of credit . . . 428 2,204
Proceeds from term loan. . . . . . . . . . . . 2,618 4,687
Payments of term loan. . . . . . . . . . . . . (1,366) (3,239)
Payments on capital leases . . . . . . . . . . (454) (297)
Treasury stock purchase. . . . . . . . . . . . (193) (11)
Proceeds from issuance of common stock . . . . 9 44
-------- --------
Net cash provided by financing activities 1,042 3,388
-------- --------
Effect of exchange rates on cash . . . . . . . . . 10 7
-------- --------
Net change in cash . . . . . . . . . . . . . . . . 285 12
Cash at the beginning of the period. . . . . . . . 54 12
-------- --------
Cash at the end of the period. . . . . . . . . . . $ 339 $ 24
======== ========
Supplemental Disclosure of Cash Flow Information
Cash paid for interest. . . . . . . . . . . . . . $ 1,519 $ 1,371
======== ========
Cash paid for income taxes . . . . . . . . . . . . $ 484 $ 103
======== ========
See Accompanying Notes to Condensed Consolidated Financial Statements
4
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) The Company, in its opinion, has included all adjustments (consisting of
normal recurring accruals) necessary for a fair presentation of the results
for the interim periods. The interim financial information is not necessarily
indicative of the results that will occur for the full year. The financial
statements and notes thereto should be read in conjunction with the financial
statements and notes for the years ended November 27, 1998, November 28, 1997,
and November 29, 1996, included in the Company's 1998 Annual Report to the
Securities and Exchange Commission on Form 10-K.
(2) The Company's subsidiary, Brite-Line Technologies, Inc., is both a
defendant and a counterclaim plaintiff in a patent infringement lawsuit which
was initiated in 1998 in federal district court in Minnesota. The suit
involves contrasting claims by Brite-Line and the plaintiff (a competitor of
Brite-Line in the highway marking tapes business), that the other party has
committed patent infringement with respect to specialty retroreflective
pavement marking tapes containing raised wedges/protrusions. The particular
Brite-Line products in question, which were recently introduced to the market,
are sold under the Deltaline trademark. Brite-Line believes, upon advice of
counsel, that it has not infringed the plaintiff's patents. Brite-Line is
vigorously defending against the plaintiff's claims and is pursuing with
equal vigor, its own patent infringement claims against the plaintiff.
Discovery recently concluded, and the case now is in the post-discovery motion
stage. Although it is not possible at this time to reasonably estimate the
dollar amount, if any, that either party ultimately may recover from the other,
the plaintiff's sales of its challenged products have significantly exceeded
Plymouth's sales of Deltaline products.
Claims under CERCLA
The Company has been named as a Potentially Responsible Party ("PRP") by the
United States Environmental Protection Agency ("EPA") in two ongoing claims
under the Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"). These CERCLA claims involve attempts by the EPA to recover the
costs associated with the cleanup of two Superfund Sites in Southington,
Connecticut--the Solvent Recovery Service of New England Superfund Site
("SRS Site") and the Old Southington Landfill Superfund Site ("OSL Site").
SRS was an independent and licensed solvent recycler/disposal company. The EPA
asserts that SRS, after receiving and processing various hazardous substances
from PRP's, shipped some resultant sludges and wastewater from the SRS Site
to the OSL Site.
The Company received a PRP notification regarding the SRS Site in June, 1992.
The EPA originally attributed a 1.74% share of the aggregate waste volume at
the SRS Site to the Company. Remedial action is ongoing at the Site, and the
Company is a participant in the performing PRP group. Largely because of
"orphaned shares," the Company recently has been contributing approximately
2.05% toward the performing PRP group's expenses. Based upon the investigations
and remedial actions conducted at the Site to date, including the recently
completed phytoremediation study, it is presently estimated that the total
cost of the cleanup at the Site will range from approximately $25 million to
$50 million. In the accompanying consolidated financial statements as of August
27, 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).
5
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (Continued)
The Company received a PRP notification regarding the OSL Site in January, 1994.
In addition to numerous "SRS transshipper" PRP's (such as the Company), EPA
has named a number of other PRP's who allegedly shipped waste materials
directly to the OSL Site. Based on EPA's asserted volume of shipments to SRS,
EPA originally attributed 4.89% of the "SRS transshipper" PRP's waste volume
at the OSL Site to the Company, which is 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" PRP's of approximately $2.5 million) in full settlement
of the first phase. At present, neither the remedy for the second phase of the
cleanup (groundwater) nor the allocation of the costs thereof among the PRP's
has been determined. It has been estimated that the total costs of the second
phase may range from $10 million to $50 million. Management has accrued $337,000
in the accompanying consolidated financial statements as a reserve against the
Company's potential future liability in this matter.
Based on all available information as well as its prior experience, management
believes that its accruals in these two matters are reasonable. However, in
each case the reserved amount is subject to adjustment for future developments
that may arise from one or more of the following -- the long range nature
of the case, legislative changes, insurance coverage, the joint and several
liability provisions of CERCLA, the uncertainties associated with the ultimate
groundwater remedy selected, and the Company's ability to successfully
negotiate an outcome similar to its previous experience in these matters.
Claims under Massachusetts General Laws, Chapter 21E
While in the process of eliminating the use of underground storage tanks at the
Company's facility in Canton, Massachusetts, the Company arranged for the
testing of the areas adjacent to the tanks in question--a set of five tanks
in 1994 and a set of three tanks in 1997. The tests indicated that some
localized soil contamination had occurred. The Company duly reported these
findings regarding each location to the Massachusetts Department of
Environmental Protection ("DEP") in 1994 and 1997 respectively, and DEP issued
Notices of Responsibility under Massachusetts General Laws Chapter 21E to the
Company for each location (RTN No. 3-11520 and RTN No. 3-15347, respectively).
The Company has retained an independent Licensed Site Professional ("LSP") to
perform assessment and remediation work at the two locations. With regard to
the first matter (involving the set of five tanks), the LSP has determined that
the soil contamination appears to be confined to a small area and does not pose
an environmental risk to surrounding property or community. With regard to the
second matter (involving the set of three tanks), a limited amount of solvent
has been found in the soil in the vicinity of the tanks; however, additional
sampling is required. It presently is estimated that the combined future costs
to complete the assessment and remediation actions at the two locations will
total approximately $325,000, and that amount has been accrued in the
accompanying financial statements.
In January, 1997 the Company received a Chapter 21E Notice of Responsibility
from DEP concerning two sites located in Dartmouth, Massachusetts (RTN No.
4-0234) and Freetown, Massachusetts (RTN No. 4-0086), respectively. According
to DEP, drums containing oil and/or hazardous materials were discovered at the
two sites in 1979, which led to some cleanup actions by the DEP. DEP contends
that an independent disposal firm allegedly hired by the Company and other
PRP's, H & M Drum Company, was responsible for disposing of drums at the two
sites. To date, the DEP has issued Notices of Responsibility to approximately
100 PRP's. A group of PRP's, including the Company,
6
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (Continued)
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.
(3) 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
potentially dilutive common stock.
Third Quarter Ended August 27, 1999
-------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
---------- ----------- ---------
Basic EPS
Income available to common
stockholders $ 307,000 2,060,600 $ .15
=========
Effect of Dilutive Security (A)
options -- 141,079
--------- ---------
Diluted EPS
Income available to common
stockholders and assumed
conversions $ 307,000 2,201,679 $ .14
========= ========= =========
Third Quarter Ended August 28, 1998
-------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
---------- ----------- ---------
Basic EPS
Income available to common
stockholders $ 386,000 2,079,825 $ .19
=========
Effect of Dilutive Security (A)
options -- 147,245
--------- ---------
Diluted EPS
Income available to common
stockholders and assumed
conversions $ 386,000 2,227,070 $ .17
========= ========= =========
(A) Options for 142,625 and 96,425 shares of common stock were outstanding at
August 27, 1999 and August 28, 1998, respectively, but were not included in
computing diluted earnings per share in each of the respective periods because
their effects were anti-dilutive.
7
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (Continued)
Nine Months Ended August 27, 1999
------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ----------- ---------
Basic EPS
Income available to common
stockholders $ 2,509,000 2,071,333 $ 1.21
=========
Effect of Dilutive Security (B)
options -- 131,271
----------- ---------
Diluted EPS
Income available to common
stockholders and assumed
conversions $ 2,509,000 2,202,604 $ 1.14
=========== ========= =========
Nine Months Ended August 28, 1998
-------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ----------- ---------
Basic EPS
Income available to common
stockholders $ 1,043,000 2,069,544 $ .50
=========
Effect of Dilutive Security (B)
options -- 127,213
----------- ---------
Diluted EPS
Income available to common
stockholders and assumed
conversions $ 1,043,000 2,196,757 $ .47
=========== ========= =========
(B) Options for 192,250 and 182,733 shares of common stock were outstanding at
August 27, 1999 and August 28, 1998, respectively, but were not included in
computing diluted earnings per share in each of the respective periods because
their effects were anti-dilutive.
8
PLYMOUTH RUBBER COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (Continued)
(4) During the first quarter of fiscal 1999 the Company adopted Statement of
Financial Accounting Standards No. 130 - Reporting Comprehensive Income. FAS
130 requires that certain financial activity typically disclosed in
stockholders' equity be reported in the financial statements as an adjustment
to net income in determining comprehensive income.
The following table presents comprehensive income for the quarters ended August
27, 1999 and August 28, 1998.
Aug. 27, Aug. 28,
1999 1998
--------- ---------
Net income . . . . . . . . . . . . . . . . . . . . $ 307 $ 386
Other comprehensive income (loss):
Foreign currency translation adjustments. . . 1 (6)
------- --------
Comprehensive income (loss) $ 308 $ 380
======= ========
The following table presents comprehensive income for the nine months ended
August 27, 1999 and August 28, 1998.
Nine Months Ended
-----------------------
Aug. 27, Aug. 28,
1999 1998
-------- --------
Net income . . . . . . . . . . . . . . . . . . . . $ 2,509 $ 1,043
Other comprehensive income (loss):
Foreign currency translation adjustments. . . (77) (18)
-------- --------
Comprehensive income (loss) $ 2,432 $ 1,025
======== ========
(5) 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 is effective June 2, 1999 (except for the real estate loan
increase which was 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.
(6) 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.
9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
First Nine Months, 1999, Compared with First Nine Months, 1998
Sales increased 13% in the first nine months of 1999 to $56,596,000 from
$50,061,000 in the previous year. Sales in Plymouth's tape business increased
12%, to $48,406,000 from $43,328,000 last year, as increased capacity from the
new calender and coating line allowed the Company to better meet customer
demand. Sales in the automotive tape market increased 21% from last year, as
automotive demand continues to be strong, while sales in the electrical and
other tape markets decreased 2% from last year. Sales in the Brite-Line highway
marking products business increased $1,457,000, or 22%, from last year.
Gross margin increased to 27.4% from 25.2% last year. Gross margin in
Plymouth's tape business increased to 26.3% from 24.3% last year. The major
factor in the improvement was higher production volume in the Canton operations
to meet increased sales demand, reduce backlog, and build inventories. This
was partially offset by one-time process losses, higher levels of manufacturing
spending, and higher raw material purchase prices. Gross margin in the highway
marking products business increased to 33.8% from 30.4% last year. This was due
to better pricing and higher volume, partially offset by higher manufacturing
spending and raw material usage.
Selling, general and administrative expenses, as a percentage of sales,
increased to 20.4% from 18.9% last year. In the Brite-Line highway marking
products business, selling, general and administrative expenses increased to
31.6% of sales from 18.7% last year. The major factor was an increase in
professional fees for patent litigation, as well as higher freight and salaries
and benefits. Professional fees at Brite-Line increased $1,078,000 from last
year. In Plymouth's tape business, selling, general and administrative expenses
decreased to 18.5% of sales from 18.9% last year. The major factors were
lower expenses, as a percentage of sales, in professional fees, bad debt
expense, and outside warehouse charges, partially offset by higher salaries
and benefits.
The first nine months of 1999 also included an insurance settlement with one of
Plymouth's previous liability insurance carriers. Under the terms of the
agreement, the insurance carrier made a one-time cash payment of $1,750,000,
in exchange for a release of all past, present, and future environmental claims.
The cash payment was recorded as operating income.
Interest expense increased $173,000 from last year. The major factor was
increased long-term borrowings (average monthly long-term borrowings of
$14,896,000 in 1999 compared to $12,317,000 in 1998), to finance the capital
investment program supporting Plymouth's tape business. In addition, there
were higher balances on the revolving line of credit to finance operations
and some capital improvements, partially offset by lower interest rates on the
revolving line of credit and the real estate term loan, as 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 139% to
$4,191,000 from $1,751,000 last year, and net income increased 141% to
$2,509,000 from $1,043,000 last year. Excluding the one-time insurance
settlement, income before tax increased 39% and net income increased 40%,
assuming a 40% tax rate.
Liquidity
The Company generated $2,288,000 of operating cash flows during the first half
of 1999. The operating cash flow was comprised of net income of $2,509,000,
depreciation of $1,849,000, an increase in accounts payable and accrued expenses
of $1,611,000, and other operating cash inflows, which was offset by an $840,000
increase in accounts receivable, due to higher sales volume, and a
$2,523,000 increase in inventory, to better respond to customer demand in
10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
First Nine Months, 1999, Compared with First Nine Months, 1998
(Continued)
Plymouth's tape business, and to support higher levels of activity in the
highway marking products business. During 1999, in addition to the cash
provided by operating activities, the Company used $428,000 from its revolving
line of credit and $2,618,000 from additional term borrowings to finance
capital expenditures of $3,208,000, and make payments of term debt and capital
leases of $1,820,000.
As of August 27, 1999, the Company had $3.5 million of unused borrowing capacity
under its $18,000,000 line of credit with its primary lender, after
consideration of collateral limitations and a 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. On February 19, 1999, the Company
had amended its revolving line of credit and real estate loan with its
primary lender to increase the maximum borrowing capacity from $15,000,000
to $18,000,000, effective June 2, 1999.
In the opinion of management, anticipated cash flow from operations, unused
capacity under existing borrowing agreements, and additional funds generated
from capital equipment lines of credit, term loans, and/or capital equipment
leases, will provide sufficient funds to meet expected needs during fiscal
1999, including necessary working capital expansion to support anticipated
revenue growth and investments in capital equipment, and to service its
indebtedness. Although management expects to be able to accomplish its
plans, there is no assurance that it will be able to do so. Failure to
accomplish these plans could have had an adverse impact on the Company's
liquidity and financial position.
11
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Third Quarter, 1999, Compared with Third Quarter, 1998
Sales increased 9% in the third quarter of 1999 to $18,685,000 from $17,087,000
in the same quarter last year. Sales increased $1,712,000, or 12%, in
Plymouth's tape business as increased capacity from the new calender and
coating line allowed the Company to better meet customer demand. Sales
increased 32% in the automotive tape market, because of strong automotive
demand, and the effects of the General Motors strike on the third quarter of
last year. Sales in the electrical and other tape markets decreased 10%
from last year, primarily as a result of lower international demand. Sales
decreased $114,000, or 3%, in the Brite-Line highway marking products business.
Gross margin increased to 27.7% from 24.7% last year. Gross margin in
Plymouth's tape business increased to 26.4% from 23.4% last year. The major
factor contributing to the increase was higher production volume in the Canton
operations to meet increased sales demand and to build inventory. This was
partially offset by higher levels of manufacturing spending and higher raw
material purchase prices. Gross margin in the highway marking products business
increased to 33.9% from 30.6% last year, due to better pricing, partially
offset by higher manufacturing spending and raw material usage.
Selling, general and administrative expenses, as a percentage of sales,
increased to 22.3% from 18.0% last year. In the Brite-Line highway marking
products business, selling, general and administrative expenses increased to
40.1% of sales from 16.5% last year. The major factor was an increase in
professional fees for patent litigation, as well as salaries and benefits,
freight, and travel expenses. Professional fees at Brite-Line increased
approximately $650,000 from last year. In Plymouth's tape business, selling,
general and administrative expenses increased to 18.7% of sales from 18.4% last
year. The major factor was higher outside warehouse charges.
Interest expense was approximately level with last year. The major factors
were lower interest rates on the revolving line of credit and real estate
term loan, offset by increased balances on the revolving line of credit, and
increased long-term borrowings (average monthly balance of $15,047,000 in
1999 compared to $13,091,000 in 1998), to finance the capital investment
program supporting Plymouth's tape business.
As a result of the above factors, income before tax decreased 21%, to $512,000,
from $648,000 last year, and net income decreased 20%, to $307,000, from
$386,000 last year.
12
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
(Continued)
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 has assembled a
task force to oversee the entire Year 2000 project, which includes the
Company's domestic and foreign tape business and Brite-Line, for both
information technology ("IT") and non-IT systems. The Company believes that
its greatest potential risks are associated with its IT systems and non-IT
systems embedded in its operations and infrastructure. The task force has
identified five phases of the Year 2000 compliance process for the Company's
IT and non-IT systems. These phases are 1) issue identification, 2) assessment,
3) development of remediation plans, 4) implementation and testing and 5)
contingency planning. The first three phases, and parts of phase four, have
been completed.
With respect to IT systems, the Company's strategy is 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 is 90% complete.
Large and critical suppliers were selected for compliance confirmation; to
date 90% of the responses have been received and no critical problems have
been identified. The Company will continue to follow up with vendors yet to
respond satisfactorily or at all to its inquiries or with certain critical
vendors who may not yet have corrected and tested their mission critical
systems. Separately, the Company also is actively seeking information and
assurances of a more technical nature from certain vendors regarding the
compliance status of specific manufacturing and information processing
equipment. In addition to confirming compliance directly with suppliers and
vendors, the Company expects to perform its own testing of certain purchased
equipment and information processing equipment for compliance. One
manufacturing control device is not Year 2000 compatible and is being replaced
during November, 1999; however, management believes this replacement is not a
critical component to operating in the Year 2000. The Company is monitoring
the status of Year 2000 compliance of its most significant customers through
direct contact, written confirmation, and by reviewing publicly available
information. The Company cannot provide assurance that the Year 2000
compliance plans of its vendors and customers will be successfully completed
in a timely manner.
The Company has developed a contingency plan for both IT and non-IT systems,
as appropriate. The contingency plan includes 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. Contingency plans will continue to be
reassessed and refined as additional information becomes available.
Costs incurred to date for Year 2000 have totaled approximately $550,000 and
have been expensed as incurred. The Company currently estimates that total
costs will approximate $650,000, including internal employee costs and costs
of external consultants, and it currently plans to be able to fund the costs
through operating cash flows. The Company does not expect a material adverse
impact of such costs on its long-term results of operations, liquidity or
financial position.
13
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
(Continued)
Cost estimates may be refined as remediation, testing and contingency planning
continue and as compliance status information becomes available from third
parties.
If the Company were not taking any of the remedial steps detailed above, Year
2000 issues would possibly cause significant technological problems for the
Company, disrupting business and resulting in a decline in earnings. At this
time, however, management does not believe that this will happen.
The most reasonably likely worst case scenario should the Company, its customers
or suppliers be unable to adequately resolve Year 2000 issues, would include
a temporary slowdown or abrupt stoppage of operations at one or more of the
Company's facilities due to the failure of one or more critical processes or
business systems. Such failures could result in interruptions in manufacturing,
safety and/or environmental systems; and/or a temporary inability to receive raw
materials, ship finished products and process orders and invoices. Although not
anticipated at this time, if such or similar scenarios were to occur, they
could, depending on their duration, have a material impact on the Company's
results of operations and financial position. Such theoretical consequences
are of a kind and magnitude generally shared with other manufacturing companies.
Assuming the successful completion of its Year 2000 program in a timely manner,
the company expects that any Year 2000 disruptions which occur, should there be
any, will be minor and not material to its business.
Estimates and conclusions herein contain forward-looking statements and are
based on management's best estimates of future events.
Impact of Accounting Pronouncements
In June, 1997, the Financial Accounting Standards Board issued FAS 131 -
Disclosures about Segments of an Enterprise and Related Information. FAS 131
requires the reporting of selected segment information in quarterly and annual
reports. Information from operating segments is derived from methods used by
the Company's management to allocate resources and measure performance. The
Company is required to disclose profit/loss, revenues and assets for each
segment identified, including reconciliations of these items to consolidated
totals. The Company is also required to disclose the basis for identifying
the segments and the types of products and services within each segment.
FAS 131 is effective for the Company for the fiscal year ended December 3, 1999,
and quarterly beginning in fiscal 2000, including the restatement of prior
periods reported consistent with this pronouncement, if practicable. The
Company expects to have two reportable segments, the tape business and the
highway marking products business.
In February, 1998, the Financial Accounting Standards Board issued FAS 132 -
Employer's Disclosure About Pensions and Other Postretirement Benefits. FAS 132
revises employers' disclosures about pension and other postretirement benefit
plans. The Company will adopt the provisions of FAS 132 in fiscal 1999, and
does not anticipate any significant impact on its Financial Statements from
this adoption.
In June, 1998, the Financial Accounting Standards Board issued FAS 133 -
Accounting for Derivative 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
14
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
(Continued)
standard. In June, 1999, the Financial Accounting Standards Board issued FAS
137 -Accounting for Derivative Instruments and 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.
15
PLYMOUTH RUBBER COMPANY, INC.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to the information contained in Item 3 of the Company's
Annual Report on Form 10-K for its fiscal year ended November 27, 1998, and
in Note 12 of the Notes To Consolidated Financial Statements contained in
said report.
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: See Index to Exhibits
(b) Not Applicable
16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
Plymouth Rubber Company, Inc.
--------------------------------
(Registrant)
/s/ Joseph J. Berns
-------------------------
Joseph J. Berns
Vice President - Finance
Date: October 12, 1999
-----------------------
17
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 Quarterly 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 Quarterly 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 Quarterly 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 Quarterly 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 Quarterly 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 Quarterly 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 Quarterly 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 Quarterly Report on Form 10-Q
for the quarter ended May 30, 1997.
18
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 Quarterly Report on Form 10-Q for the
quarter ended May 30, 1997.
(4)(xii) Public Deed which contains the loan guaranteed by mortgage and
granted between Plymouth Rubber Europa, S.A. and Caja de Ahorros Municipal de
Vigo, Banco de Bilbao, and Vizcaya y Banco de Comercio dated April 11, 1997 --
incorporated by reference to Exhibit (4)(xviii) to the Company's Quarterly
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 Quarterly 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 -- incorporated by
reference to Exhibit (4)(xiv) to the Company's Annual Report on Form 10-K for
the year ended November 27, 1998.
(4)(xv) Promissory Note between Plymouth Rubber Company, Inc. and General
Electric Capital Corporation dated April 13, 1998 -- incorporated by
reference to Exhibit (4)(xv) to the Company's Annual Report on Form 10-K for
the year ended November 27, 1998.
(4)(xvi) Promissory Note between Plymouth Rubber Company, Inc. and General
Electric Capital Corporation dated November 12, 1998 -- incorporated by
reference to Exhibit (4)(xvi) to the Company's report on Form 10-K for the
year ended November 27, 1998.
(4)(xvii) Promissory Note between Plymouth Rubber Company, Inc. and General
Electric Capital Corporation dated November 25, 1998 -- incorporated by
reference to Exhibit (4)(xvii) to the Company's report on Form 10-K for the
year ended November 27, 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.
(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.
19
PLYMOUTH RUBBER COMPANY, INC.
INDEX TO EXHIBITS
(Continued)
Exhibit
No. Description
- -------- -------------
(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) Not Applicable.
(24) Not Applicable.
(27) Financial data schedule for the nine months ended August 27, 1999.
(28) Not Applicable.
(29) Not Applicable.
20
PROMISSORY NOTE
June 29, 1999
(Date)
104 Revere Street, Canton, Norfolk County, MA 02021
________________________________________________________________________
FOR VALUE RECEIVED, Plymouth Rubber Company, Inc. ("Maker") promises, jointly
and severally if more than one, to pay to the order of Andover Capital Group,
Inc. or any subsequent holder hereof (each, a "Payee") at its office located
at 238 Littleton Road, Westford, MA 01886 or at such other place as Payee or
the holder hereof may designate, the principal sum of Eight hundred sixty seven
thousand seven hundred forty-three and 00/100 Dollars ($867,743.00 ), with
interest thereon, from the date hereof through and including the dates of
payment, at a fixed interest rate of Eight and 39/100 percent (8.39%) per
annum, to be paid in lawful money of the United States, in fifty nine (59)
consecutive monthly installments of principal and interest of Seventeen
thousand seven hundred fifty-seven and 11/100 ($17,757.11) ("Periodic
Installment") and a final installment which shall be in the amount of the total
outstanding principal and interest. The first Periodic Installment shall be due
and payable on July 31, 1999 and the following Periodic Installments and the
final installment shall be due and payable on the same day of each succeeding
month (each, a "Payment Date"). Such installments have been calculated on the
basis of a 360 day year of twelve 30-day months. Each payment may, at the
option of the Payee, be calculated and applied on an assumption that such
payment would be made on its due date.
The acceptance by Payee of any payment which is less than payment in full of
all amounts due and owing at such time shall not constitute a waiver of Payee's
right to receive payment in full at such time or at any prior or subsequent
time.
The Maker hereby expressly authorizes the Payee to insert the date value is
actually given in the blank space on the face hereof and on all related
documents pertaining hereto.
This Note is secured by Collateral Schedule No. A-2 to Master Security Agreement
dated January 27, 1997 ("Security Agreement.")
Time is of the essence hereof. If any installment or any other sum due under
this Note or any Security Agreement is not received within ten (10) days after
its due date, the Maker agrees to pay, in addition to the amount of each such
installment or other sum, a late payment charge of five percent (5%) of the
amount of said installment or other sum, but not exceeding any lawful maximum.
If (i) Maker fails to make payment of any amount due hereunder within ten (10)
days after the same becomes due and payable; or (ii) Maker is in uncured or
unwaived default under, or fails to perform under any term or condition
contained in any Security Agreement, then the entire principal sum remaining
unpaid, together with all accrued interest thereon and any other sum payable
under this Note or any Security Agreement, at the election of Payee, shall
immediately become due and payable, with interest thereon at the lesser of
twelve percent (12%) per annum or the highest rate not prohibited by applicable
law from the date of such accelerated maturity until paid (both before and
after any judgment).
The Maker may prepay in full, but not in part, its entire indebtedness hereunder
upon payment of an additional sum as a premium equal to the following
percentages of the original principal balance for the indicated period:
Prior to the third annual anniversary date of this Note: three percent (3%)
Thereafter and prior to the fifth annual anniversary date of this Note: two
percent (2%)
Thereafter and prior to the tenth annual anniversary date of this Note: one
percent (1%)
and zero percent (0%) thereafter, plus all other sums due hereunder or under
any Security Agreement.
It is the intention of the parties hereto to comply with the applicable usury
laws; accordingly, it is agreed that, notwithstanding any provision to the
contrary in this Note or any Security Agreement, in no event shall this Note
or any Security Agreement require the payment or permit the collection of
interest in excess of the maximum amount permitted by applicable law. If any
such excess interest is contracted for, charged or received under this Note or
any Security Agreement, or if all of the principal balance shall be prepaid,
so that under any of such circumstances the amount of interest contracted for,
charged or received under this Note or any Security Agreement on the principal
balance shall exceed the maximum amount of interest permitted by applicable
law, then in such event (a) the provisions of this paragraph shall govern and
control, (b) neither Maker nor any other person or entity now or hereafter
liable for the payment hereof shall be obligated to pay the amount of such
interest to the extent that it is in excess of the maximum amount of interest
permitted by applicable law, (c) any such excess which may have been collected
shall be either applied as a credit against the then unpaid principal balance
or refunded to Maker, at the option of the Payee, and (d) the effective rate
of interest shall be automatically reduced to the maximum lawful contract rate
allowed under applicable law as now or hereafter construed by the courts having
jurisdiction thereof. It is further agreed that without limitation of the
foregoing, all calculations of the rate of interest contracted for, charged or
received under this Note or any Security Agreement which are made for the
purpose of determining whether such rate exceeds the maximum lawful contract
rate, shall be made, to the extent permitted by applicable law, by amortizing,
prorating, allocating and spreading in equal parts during the period of the
full stated term of the indebtedness evidenced hereby, all interest at any time
contracted for, charged or received from Maker or otherwise by Payee in
connection with such indebtedness; provided, however, that if any applicable
state law is amended or the law of the United States of America preempts any
applicable state law, so that it becomes lawful for the Payee to receive a
greater interest per annum rate than is presently allowed, the Maker agrees
that, on the effective date of such amendment or preemption, as the case may
be, the lawful maximum hereunder shall be increased to the maximum interest per
annum rate allowed by the amended state law or the law of the United States
of America.
The Maker and all sureties, endorsers, guarantors or any others (each such
person, other than the Maker, an "Obligor") who may at any time become liable
for the payment hereof jointly and severally consent hereby to any and all
extensions of time, renewals, waivers or modifications of, and all substitutions
or releases of, security or of any party primarily or secondarily liable on this
Note or any Security Agreement or any term and provision of either, which may
be made, granted or consented to by Payee, and agree that suit may be brought
and maintained against any one or more of them, at the election of Payee
without joinder of any other as a party thereto, and that Payee shall not be
required first to foreclose, proceed against, or exhaust any security hereof
in order to enforce payment of this Note. The Maker and each Obligor hereby
waives presentment, demand for payment, notice of nonpayment, protest, notice
of protest, notice of dishonor, and all other notices in connection herewith,
as well as filing of suit (if permitted by law) and diligence in collecting
this Note or enforcing any of the security hereof, and agrees to pay (if
permitted by law) all expenses incurred in collection, including Payee's
reasonable attorneys' fees.
THE MAKER HEREBY UNCONDITIONALLY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM
OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR INDIRECTLY, THIS
NOTE, ANY OF THE RELATED DOCUMENTS, ANY DEALINGS BETWEEN MAKER AND PAYEE
RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION OR ANY RELATED TRANSACTIONS,
AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN MAKER AND PAYEE. THE
SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES
THAT MAY BE FILED IN ANY COURT (INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS,
TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY
CLAIMS.) THIS WAIVER IS IRREVOCABLE MEANING THAT IT MAY NOT BE MODIFIED EITHER
ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS NOTE, ANY RELATED DOCUMENTS, OR
TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THIS TRANSACTION OR ANY
RELATED TRANSACTION. IN THE EVENT OF LITIGATION, THIS NOTE MAY BE FILED AS A
WRITTEN CONSENT TO A TRIAL BY THE COURT.
This Note and any Security Agreement constitute the entire agreement of the
Maker and Payee with respect to the subject matter hereof and supercedes all
prior understandings, agreements and representations, express or implied.
No variation or modification of this Note, or any waiver of any of its
provisions or conditions, shall be valid unless in writing and signed by
an authorized representative of Maker and Payee. Any such waiver, consent,
modification or change shall be effective only in the specific
instance and for the specific purpose given.
Any provision in this Note or any Security Agreement which is in conflict with
any statute, law or applicable rule shall be deemed omitted, modified or
altered to conform thereto.
Plymouth Rubber Company, Inc.
/s/ Sandra J. Volpe By: /s/ Joseph J. Berns (L.S.)
(Witness) (Signature)
Sandra J. Volpe Joseph J. Berns
(Print name) Print name (and title, if applicable)
104 Revere St., Canton, MA 02021 04-1733970
(Address) (Federal tax identification number)
i:\sec\dle\plymprom.doc
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-03-1999
<PERIOD-END> AUG-27-1999
<CASH> 339
<SECURITIES> 0
<RECEIVABLES> 13,651
<ALLOWANCES> 417
<INVENTORY> 13,432
<CURRENT-ASSETS> 29,333
<PP&E> 42,281
<DEPRECIATION> 19,447
<TOTAL-ASSETS> 54,934
<CURRENT-LIABILITIES> 25,185
<BONDS> 0
0
0
<COMMON> 2,089
<OTHER-SE> 10,709
<TOTAL-LIABILITY-AND-EQUITY> 54,934
<SALES> 56,596
<TOTAL-REVENUES> 56,596
<CGS> 41,072
<TOTAL-COSTS> 50,854
<OTHER-EXPENSES> 31
<LOSS-PROVISION> (97)
<INTEREST-EXPENSE> 1,520
<INCOME-PRETAX> 4,191
<INCOME-TAX> 1,682
<INCOME-CONTINUING> 2,509
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,509
<EPS-BASIC> 1.21
<EPS-DILUTED> 1.14
</TABLE>
