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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended October 23, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ____________
Commission file number 0-15046
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WESTERBEKE CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 041925880
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(State or other jurisdiction of Employer (I.R.S. Identification No.)
incorporation or organization)
Avon Industrial Park
Avon, Massachusetts 02322 02322
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (508) 588 - 7700
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Securities registered pursuant to Section 12 (b) of the Act:
Name of each exchange on
Title of each class which registered
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None None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock,
$.01 par value
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(Title of class)
Indicate by a check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period as the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes__X_____ No__________
----- -----
Indicate by a check mark if disclosure of delinquent filers, pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
State the aggregate market value of the voting stock held by non-
affiliates of the registrant. The aggregate market value shall be computed
by reference to the price at which the stock was sold, or the average bid
and asked prices of such stock, as of a specified date within 60 days prior
to the date of filing.
Aggregate market value as of January 11, 2000..............$1,964,000
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, $.01 par value, as of January 11, 2000 1,917,812
shares
DOCUMENTS INCORPORATED BY REFERENCE
None.
PART I
ITEM 1. BUSINESS.
General
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The Company is primarily engaged in the business of designing,
manufacturing and marketing marine engine and air-conditioning products.
The Company was organized in 1932 and was re-incorporated in Delaware in
1986. The Company's marine products consist of diesel and gasoline engine-
driven electrical generator sets, inboard propulsion engines, self-
contained, reverse-cycle air-conditioners, and associated spare parts and
accessories. In addition, the Company manufactures and markets electrical
generator sets for use in non-marine applications. The Company markets its
products throughout the United States and internationally principally for
recreational marine applications. Accordingly, the market for the Company's
products is dependent on the market for recreational boats, including
auxiliary powered sailboats, powerboats, houseboats and other pleasure
boats. The market for recreational boats, and consequently the Company's
products, may be adversely affected by general economic conditions.
Products
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The Company's marine engine product line consists of 23 models of
electrical generator sets, 16 models of inboard propulsion engines, and
associated spare parts and accessories. The Company also offers 11 models
of non-marine generator sets.
The Company's diesel and gasoline engine-driven marine generator sets
are installed in powerboats, houseboats, large sailboats and other pleasure
and commercial boats to provide electricity for communication and
navigational equipment, lighting, refrigeration and other galley services,
and other safety, operating and convenience needs. The Company's present
line of generator sets produce from 4.2 to 65 kilowatts of electricity. A
generator set consists of an electrical generator and an attached diesel or
gasoline engine used to drive the generator. These engines are water cooled
and range from one to eight cylinders.
The Company's propulsion engines are inboard engines, generally
installed as auxiliary power systems for sailboats. The Company's
propulsion engines are fresh water cooled and range from two to six
cylinders and from 12 to 108 horsepower. Management believes that more than
90% of the propulsion engines produced by the Company are installed in
sailboats of up to 50 feet in length. The Company's higher horsepower
propulsion engines are also installed in powerboats of up to approximately
30 feet in length such as fishing boats, cruisers and work boats.
The Company's product line also includes marine auxiliary engines and
associated spare and replacement parts marketed under the Universal(R) name
and marine air-conditioning products marketed under the Rotary Aire(R) name.
The Company manufactures and markets two self-contained, reverse-cycle air-
conditioning units and accessories under the Rotary Aire(R) name. These
units can be installed in powerboats, houseboats, sailboats and other
pleasure and commercial boats.
The Company's product line includes 11 models of non-marine electrical
generator sets which may be installed in fire trucks, rescue vehicles, motor
coaches, refrigerated trucks and other specialty vehicles to provide
electricity for lighting, refrigeration and other safety, operating and
convenience needs. These generators may also be used as stand-by or
secondary power sources in the event of power outages or in locations where
primary power is not readily available, such as construction sites, rural
areas and less developed countries.
The Company offers a complete line of spare parts and accessories for
its current product lines and for most discontinued models. The Company's
line of spare parts includes oil and fuel filters, belts, thermostats,
distributor caps, fuses, spark plugs, wiring, alternators, heat exchangers,
circuit breakers, water and fuel pumps, starter motors and fuel solenoids.
Many basic parts are packaged and sold as spare part kits. Accessories
offered by the Company include various control and instrument panels,
exhaust silencers and generator sound enclosures.
The Company provides its distributors, dealers and final customers
with documentation covering operation, maintenance and repair procedures for
its products. Management believes that the provision of current and
comprehensive documentation enhances the Company's marketing and competitive
effectiveness. See "Marketing and Sales" and "Competition" below.
Each of the Company's products is covered by a one-year limited
warranty covering parts and authorized labor. In addition, the Company
offers a five-year limited warranty on certain marine generator sets. Many
of the Company's suppliers also warrant their products for parts and labor.
Some of the Company's major suppliers warrant their products for the
duration of the Company's warranties. The Company believes it has made
adequate provisions for probable warranty claims. See Note 1 of Notes to
Consolidated Financial Statements included in "Item 8 - Financial Statements
and Supplementary Data." The Company's distributors are generally
responsible for administering the Company's warranties through the dealer
network. See "Marketing and Sales" below.
Governmental Regulation
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Many of the Company's products are subject to exhaust emission
standards pursuant to regulations promulgated by the Environmental
Protection Agency (the "EPA"), effective September 1, 1996, and by the State
of California, effective August 1, 1995. The emission standards are
intended to reduce the emissions of hydrocarbons, nitrogen oxides, carbon
monoxide, particulates and smoke. It is anticipated that by January 1,
2005, all of the Company's products will be subject to such regulations.
All of the regulations include manufacturer testing requirements, mandated
warranties on emissions related components, product labeling and reporting
requirements. Additionally, future regulations may include provisions for
selective enforcement audits and recall and repair requirements.
At this time, all of the Company's products which are subject to these
emissions regulations comply with the regulations. Achieving and
maintaining this compliance has been accomplished through significant design
and development expense. The emission standards established by the
regulations will become broader in scope and more stringent regarding
emissions levels each year. As a result, research and development
expenditures for emissions compliance will continue at a significant level
for the foreseeable future. Additionally, if at any time the Company cannot
effect the required modifications of its products to meet the required
emissions levels within the time frame allowed, the Company could be
materially adversely affected.
Design and Development
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The Company has an ongoing product improvement and development program
intended to enhance the reliability, performance and longevity of existing
products, and to develop new products. A significant portion of the
Company's senior management's time, as well as the efforts of the Company's
thirteen person product engineering department, is spent in this area. As
part of the Company's ongoing product development program, the Company
upgrades its engine products and periodically adds models to its product
line. For example, as and when improvements in component parts allow, the
Company may manufacture smaller or more light-weight versions of existing
models. In fiscal 1999, the product engineering department focused
principally on the modernization of the Company's existing product line and
modifications which the Company believes will be required as a result of the
emissions standards discussed above. In addition, in response to demand,
the Company may expand its engine product line by manufacturing generator
sets or propulsion engines with different kilowattage or horsepower than its
existing models. The Company intends to introduce upgraded and new models
as and when developed.
The Company's design and engineering focus is on reliability, ease of
maintenance, compactness, operating smoothness, safety and longevity, among
other technical and performance factors. The Company's technical and
performance specifications are utilized by the Company's suppliers in
producing certain component parts, metal and nonmetal fabrications and other
peripheral equipment that the Company manufactures and assembles into
finished products. Generally, the Company retains title to Company-
developed drawings, patterns and specifications used by these suppliers.
For the three fiscal years ended October 1999, the Company incurred
expenses of approximately $3,576,500 for design and development activities
as follows: 1999 - $1,365,300, 1998 - $1,180,900 and 1997 - $1,030,300. All
these activities were conducted and sponsored by the Company and the major
portion of these expenses was applied toward salaries and other expenses of
the Company's product design and engineering personnel.
Manufacturing and Sources of Supply
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The Company's manufacturing activities are conducted in an
approximately 37,500 square foot facility owned by the Company. See "Item 2
- - Properties" below. The Company has approximately 86 persons employed in
various manufacturing and assembly functions. See "Employees" below.
The Company's engine products generally contain from 250 to 500
component parts and assemblies purchased from domestic and foreign
manufacturers and suppliers. Some of these component parts are manufactured
to Company specifications, while others are further machined and assembled
by the Company. The basic component of the Company's engine products is a
"long block" engine, which is a complete engine block and head assembly
without peripheral equipment. Peripheral equipment added by the Company
includes subassemblies (generators, transmissions, alternators, carburetors,
motors and pumps), machined castings (flywheels, bellhousings, manifolds,
mounts, pulleys, brackets and couplings), sheet metal fabrications (control
and instrumentation panels), injection-molded plastic and other non-metallic
fabrications (belt guards, drip trays, belts, hoses and panels) and various
other component parts (mounts, switches and other electrical devices).
The Company purchases "long block" engines from five foreign
manufacturers. The Company currently purchases all of its requirements of
"long block" engines on a purchase order basis rather than pursuant to long-
term supply agreements. In certain cases, the Company has an agreement with
its "long block" engine manufacturers to supply these component parts
exclusively to the Company for marine products of the type produced by the
Company. Orders for "long block" engines are dollar-denominated however,
final purchase prices are subject to fluctuations in the dollar/yen exchange
rate and therefore fluctuations in the dollar/yen exchange rate have had and
will continue to have an effect on the cost of the Company's raw materials.
See "Item 7 - Management's Discussion and Analysis of Financial Condition
and Results of Operations." The Company believes that the purchase of "long
block" engines on a purchase order basis has become the more common industry
practice. Interruption of the supply of "long block" engines would have a
material adverse effect on the Company if the time to develop new sources of
supply and replacement products is longer than the time it takes to exhaust
the Company's inventory of existing "long block" engines. In addition, the
Company does not have long-term supply agreements with other manufacturers
of other component parts or peripheral equipment. The Company believes that
it can obtain these parts and equipment from a variety of sources on
commercially reasonable terms. However, the disruption of its supply of
these parts, equipment or "long block" engines would have a material adverse
effect on the Company's operations.
The lead time between ordering and receipt of component parts varies
with the part involved, but generally ranges from a few weeks in the case of
unfinished products to three to six months in the case of "long block"
engines, generators and transmissions. The Company has not experienced any
difficulties in obtaining finished or unfinished components or peripheral
equipment on commercially reasonable terms.
Most of the Company's purchases of component parts and peripheral
equipment from Japanese ("long block" engines), Italian (generators) and
other foreign manufacturers are dollar-denominated. Fluctuations in
exchange rates have resulted, and may in the future result, in price
increases from some of the Company's suppliers. Management believes that to
varying degrees the Company's competitors in the engine product markets have
been and will be similarly affected since many of its competitors also
purchase component parts and peripheral equipment abroad. However, some of
the Company's principal competitors are divisions of large and diversified
multinational companies with extensive production facilities and sales and
marketing staffs and substantially greater financial resources than the
Company and therefore may be better situated to accommodate price increases
from suppliers due to fluctuations in exchange rates. The engine product
markets are price sensitive, and there can be no assurance that the Company
will be able to pass on price increases from its suppliers to its customers.
The manufacturing of a particular engine product requires the
integration of a number of engineering, machining and assembly functions in
order to produce high quality components. Prior to final assembly, the
Company's manufacturing activities involve machining various metal and
nonmetal component parts on computer-controlled and conventional milling
machines, lathes, drill presses, welders and other machinery, modification
and assembly of electrical and mechanical subassemblies, calibration of
electrical devices and components and testing for variances from
specifications and operating parameters. The Company has approximately 16
machine operators who satisfy approximately 95% of the Company's machining
needs. The remainder of the machining is performed by independent
contractors.
The Company has a final assembly line for its engine products where
component parts, subassemblies and peripheral equipment are assembled onto
"long-block" engines. Following final assembly, each generator set and
propulsion engine is tested at increasing loads up to full operating
capacity to verify performance and safety features. After product testing,
the product is pressure hot water washed, primed and painted, unpainted
components are attached, and the product is packed and shipped to the
customer, generally via common carrier freight collect.
The Company's air-conditioning products are produced on a separate
assembly line where component parts (compressors, evaporator and condensing
coils, fans, electrical components and plastic housings), purchased from
manufacturers and suppliers, are assembled into final units. The Company
does not have any long-term supply agreements with the manufacturers of
these component parts. However, the Company believes it can obtain most of
these parts from a variety of sources on commercially reasonable terms.
Following assembly, each air-conditioner is painted and tested for
performance, leakage and compliance with safety standards.
The Company is currently considering the expansion of its
manufacturing facility in order to increase its production capability and
capacity. Management is exploring various alternatives, including the
purchase or lease of an existing facility or building a new facility, to
increase its production capabilities. Management believes that this
expansion is necessary to meet customer demand for the Company's products
and to maintain the Company's competitive position. See "Item 2 -
Properties" below.
Quality Control and Computerization
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Management believes that maintaining high quality manufacturing
standards is important to its competitive position and also believes that
the Company has developed a reputation for high quality products. The
Company maintains quality control systems and procedures which it reviews
with its manufacturing personnel and which it modifies as appropriate.
The Company's quality control systems and procedures include the
testing of each fully assembled generator set and propulsion engine at
increasing loads up to full operating capacity to verify performance and
safety features. The checklist includes testing wiring and electrical
systems, all connections and fittings, fuel and oil systems, the fresh water
cooling system and safety shutdown features. In the case of the Company's
generator sets, output current, voltage and frequency are also tested. The
results of the tests are recorded and each product is approved by quality
assurance personnel before it leaves the testing area.
In line with its policy of updating and improving its manufacturing
operations, the Company utilizes a computerized manufacturing management
system which integrates the Company's inventory control, sales and financial
functions with its manufacturing operations.
Marketing and Sales
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The Company's marine engine and air-conditioning products are marketed
through a nationwide and international network of distributors and dealers.
The Company markets its non-marine engine products through a sales
representative and to distributors. In addition, the Company's sales
management and senior management devote a substantial amount of time to the
overall coordination of the Company's sales to distributors, as well as to
the Company's direct sales to boat and other manufacturers (OEM's). Direct
sales by the Company to OEM's accounted for approximately 44%, 40%, and 42%
of total sales for the fiscal years ended October 1999, 1998 and 1997,
respectively.
The Company's marine products are sold to distributors for resale to
manufacturers of powerboats, houseboats, sailboats and other pleasure and
commercial boats, and to boat dealers and marinas. Boat manufacturers
install the Company's products as original equipment. In addition, the
Company's distributors resell the Company's marine products to over 400
authorized dealers (including boatyards and marinas) located on or near
major navigable waterways throughout the world. These dealers install the
Company's generator sets, propulsion engines and air-conditioners as either
new or replacement equipment. In addition, many of these dealers maintain
inventories of spare parts and accessories in order to maintain and repair
the Company's marine products.
The Company's distributor network consists of 10 domestic and 54
foreign distributors. The Company's domestic distributors are located along
the East, West and Gulf Coasts and in the Great Lakes Region. Two of the
Company's foreign distributors are located and operate in Canada, one is
located and operates in Mexico, 17 are located and operate in Europe, seven
are located and operate in Central and South America, and ten are located
and operate in the Far East. The Company also has distributors in 34 other
countries throughout the world. Each distributor operates in a specified
region under a distribution agreement with the Company which assigns to the
distributor the nonexclusive responsibility for sales and service of the
Company's products in its territory, including warranty administration,
accounts receivable collection and other customer related functions. Each
distributor maintains inventories of the Company's marine products,
including spare parts and accessories, in order to provide boat
manufacturers and dealers with prompt delivery of products. Typically, the
Company's distributors and dealers also distribute and sell other marine
accessories and products. Generally, however, the Company's distributors do
not sell products which compete with the Company's products.
Sales to international customers totaled $2,591,600 (8.9% of net
sales), $2,305,300 (8.8% of net sales) and $2,843,400 (11.5% of net sales)
for the fiscal years ended October 1999, 1998 and 1997, respectively. See
Note 2 of Notes to Consolidated Financial Statements included in "Item 8 -
Financial Statements and Supplementary Data" for additional information
concerning sales to international customers for the Company's three most
recent fiscal years. Management is not aware of any special tariffs,
importation quotas or any other restrictions imposed by the foreign
countries in which the Company sells its products. All of the Company's
international sales are dollar-denominated which protects the Company to
some extent against foreign currency exchange rate fluctuations, although
significant increases in the value of the dollar in relation to foreign
currencies may adversely impact the Company's ability to market its products
abroad. Management believes that, to varying degrees, the Company's
competitors in the marine product market are similarly affected since many
of its competitors also sell products abroad. However, some of the
Company's principal competitors are divisions of large and diversified
multinational companies with extensive production facilities and sales and
marketing staffs and substantially greater financial resources than the
Company and therefore may be better situated to accommodate fluctuations in
exchange rates. Management is not aware of any other unusual or special
risks associated with this aspect of the Company's business. The Company
considers international customers to be an important market for its marine
products.
An important aspect of the Company's marketing approach and
competitive position is the ability of its technical personnel and its
distributors to provide technical assistance to boat manufacturers and
dealers with a view to developing specifications and performance parameters
for unit or serial production of its marine products. To that end, the
Company selects its distributors with great care and continually monitors
their technical expertise. In addition, at times the Company conducts
seminars in each distribution region. These sessions are conducted by
personnel from the Company and from its distributors and are open to boat
manufacturers, dealers and individual boat owners. The Company occasionally
sponsors service schools at its manufacturing facility designed to upgrade a
distributor's technical expertise and to introduce product innovations and
new products. See "Competition" below.
The Company markets the Westerbeke(R), Universal(R) and Rotary Aire(R)
names and its marine products through various methods of advertising.
Certain advertising is accomplished under a cooperative system with the
Company's distributors. Under this system, the Company pays a portion of
the cost of and approves the advertising developed by its distributors.
Advertisements are placed in trade publications such as Soundings, Motor
Boating and Sailing, Sail, Power & Motor Yacht and Cruising World. In
addition, a substantial amount of the Company's advertising is conducted
through the distribution of technical and sales literature and pamphlets,
direct mailings and sponsorship of exhibits at boat shows. During the
fiscal years ended October 1999, 1998 and 1997, the Company incurred
advertising and promotional expenses of $647,500, $528,400, and $520,900,
respectively. See Note 1 of Notes to Consolidated Financial Statements
included in " Item 8 - Financial Statements and Supplementary Data".
For the fiscal year ended October 23, 1999, sales to Sea Ray Boats,
Inc. and Marysville Marine Distributors, Inc., accounted for approximately
26.2% and 19.8%, respectively, of the Company's total sales. See Note 2 of
Notes to Consolidated Financial Statements included in " Item 8 - Financial
Statements and Supplementary Data" and "Item 7 - Management's Discussion and
Analysis of Financial Condition and Results of Operations." The Company
believes that, if necessary, it could replace any of its distributors or
sell the products presently distributed by them directly to boat
manufacturers and dealers. However, the loss of these customers or the
inability to replace these distributors could have a material adverse effect
on the Company.
The market for the Company's products is dependent on the market for
recreational boats, including auxiliary powered sailboats, powerboats,
houseboats and other pleasure boats. In addition, the recreational marine
boat business is seasonal in nature and accordingly, the Company's business
generally experiences some fluctuations in its business during the course of
the year. See Note 14 of Notes to Consolidated Financial Statements
included in "Item 8 - Financial Statements and Supplementary Data."
Proprietary Rights
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Although the Company follows a policy of protecting its proprietary
rights to its marine engine products and designs, it does not believe that
its business, as a whole, is materially dependent upon such protection. The
Company has registered the names Westerbeke(R), Universal(R), Rotary Aire(R)
and Atomic Four(R) under Federal trademark law.
Backlog and Credit Terms
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The Company believes that because its production is based upon
cancelable purchase orders rather than long-term agreements, the amount of
its backlog is not an important indicator of future sales. The Company
extends credit to certain of its customers on terms which it believes are
normal and customary in the marine industry.
Competition
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The business of manufacturing and supplying marine products is
extremely competitive. The Company faces competition from a number of
companies, including at least five significant competitors, some of which
are divisions of large and diversified multinational companies with
extensive production facilities and sales and marketing staffs and
substantially greater financial resources than the Company. Such
competitors may be better situated to accommodate price increases from
suppliers due to fluctuations in exchange rates. In addition, the Company
faces competition from similar companies as it expands its product line or
seeks other non-marine applications for its product line. Although price is
an important competitive factor, the Company believes that its pricing is
competitive.
The market for the Company's marine products is dependent on the
market for recreational boats which may experience contracting sales as a
result of general economic conditions. A contracting market may result in
additional competition particularly for direct sales to large boat
manufacturers.
The Company believes that it can compete effectively with all of its
present competitors based upon the high quality, reliability, performance
and longevity of its products, the comprehensiveness of its line of
products, price, the effectiveness of its customer service and the technical
expertise of its personnel and that of its distributors.
Employees
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At December 31, 1999, the Company had 139 full-time employees,
including officers and administrative personnel. None of the Company's
employees is covered by a collective bargaining agreement and the Company
considers its relationship with its employees to be excellent.
Directors and Executive Officers of the Company
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The directors and executive officers of the Company are as follows:
Name Position with the Company Age
- ---- ------------------------- ---
John H. Westerbeke, Jr Chairman, President and 59
Director (Class C)
John H. Westerbeke, Sr Director (Class C) 90
Carleton F. Bryant, III Executive Vice President, 54
Treasurer, Chief Operating
Officer and Secretary
Gerald Bench Director (Class A) 58
Thomas M. Haythe Director (Class B) 60
Nicholas H. Safford Director (Class A) 67
James W. Storey Director (Class B) 65
John H. Westerbeke, Jr. has been President and a director of the
Company since 1976. In June 1986, Mr. Westerbeke, Jr. assumed the
additional position of Chairman of the Company. Mr. Westerbeke, Jr. has
served in various managerial capacities since joining the Company in 1966.
John H. Westerbeke, Sr. is the founder of the Company. Mr.
Westerbeke, Sr. has served as a director of the Company since 1946 and was
Chairman of the Board of Directors of the Company from 1976 until June 1986.
Mr. Westerbeke, Sr. is presently employed by the Company in various
engineering capacities.
Carleton F. Bryant, III has been Executive Vice President, Treasurer,
Chief Operating Officer, and Secretary of the Company since May 1993. From
October 1987 to May 1993, Mr. Bryant was Director of Business Development
for Analysis & Computer Systems, Inc., a developer of computer software and
systems. From June 1980 to October 1987, Mr. Bryant held various management
positions with Bird-Johnson Company, a manufacturer of ship propellers, bow
thrusters and hydraulic actuators. From 1969 to 1980, Mr. Bryant held a
variety of management positions with Bath Iron Works Corporation, a
shipbuilder.
Gerald Bench has been a director of the Company since June 1986. Mr.
Bench has been the President of BFT Holdings Co., Inc., a company that
invests in emerging growth businesses, since November 1996. Mr. Bench was
the President and Chief Executive Officer of Hadley Fruit Orchards, Inc. from
November 1996 to June 1999 and was a consultant from March 1995 to November
1996. Mr. Bench was a partner in ICAP Marine Group (consulting firm) from
November 1993 to February 1995. Mr. Bench was the Chairman and President of
TDG Aerospace, Inc. (manufacturer of aircraft de-icing devices) from October
1991 to November 1993. Mr. Bench was the President of Thermion, Inc.
(manufacturer of heaters for aircraft de-icing devices) from April 1990 to
September 1991. From July 1989 to March 1990, Mr. Bench was the general
manager of Lermer Corporation (manufacturer of airline galley equipment).
Mr. Bench is the former Chairman of the Board, President, Chief Executive
Officer and director of E&B Marine Inc. (marine supplies and accessories).
Mr. Bench had held various executive positions with E&B Marine Inc. for more
than 30 years.
Thomas M. Haythe has been a director of the Company since June 1986.
Mr. Haythe was a partner of the law firm of Torys from 1982 to January 2000.
Mr. Haythe is also a director of Novametrix Medical Systems Inc.
(manufacturer of electronic medical instruments), Guest Supply, Inc.
(provider of hotel guest room amenities, accessories and products) and
Ramsay Youth Services, Inc. (provider of youth and educational services).
Nicholas H. Safford has been a director of the Company since February
1991. Mr. Safford has been the President of Nicholas H. Safford & Co., Inc.
(investment counselor and private trustee) since 1983 and from 1979 to 1981.
From 1982 to 1983, Mr. Safford was the President and a director of Wendell,
Safford and Co., Inc. (investment counseling firm). Prior to 1978, Mr.
Safford was Vice President and a director of David L. Babson & Co., Inc.
(investment counseling firm).
James W. Storey has been a director of the Company since June 1986.
Mr. Storey was the President of Wellingsley Corporation (private investment
management company) from December 1986 through December 1992. Mr. Storey is
currently an independent consultant. From 1982 to 1986, Mr. Storey was the
President and Chief Executive Officer of Codex Corporation, a subsidiary of
Motorola, Inc., and was a Vice President of Motorola, Inc. Mr. Storey had
held various managerial positions with Codex Corporation since 1966. Mr.
Storey is also a director of Progress Software Corporation (software).
ITEM 2. PROPERTIES.
The Company's executive and administrative offices and manufacturing
operations are located in Avon, Massachusetts in an approximately 37, 500
square foot facility owned by the Company. The Company also leases a
warehouse of approximately 26,000 square feet. Annual warehouse rent was
approximately $145,200 in fiscal 1999 and $141,300 in fiscal 1998. See Note
10 of Notes to Consolidated Financial Statements included in "Item 8 -
Financial Statements and Supplementary Data." The Company is currently
considering the expansion of its manufacturing facility in order to increase
its production capability and capacity. Management is exploring various
alternatives, including the purchase or lease of an existing facility or
building a new facility, to increase its production capabilities.
Management believes that this expansion is necessary to meet customer demand
for the Company's products and to maintain the Company's competitive
position.
ITEM 3. LEGAL PROCEEDINGS.
The Company has initiated arbitration with the American Arbitration
Association in New York against Daihatsu Motor Company, Ltd. ("Daihatsu")
for breach of contract and other claims. The Company is seeking damages
based on Daihatsu's breach of a Component Sales Agreement which also granted
the Company rights to certain engines including an engine Daihatsu began
marketing in 1993 through a joint venture with Briggs & Stratton
Corporation. In a separate but related case pending in the Federal District
Court for the District of Massachusetts, the Company is seeking damages from
Briggs & Stratton Corporation for tortious interference with the Company's
Agreement with Daihatsu and other related claims.
In addition, from time to time, the Company is party to certain
claims, suits and complaints which arise in the ordinary course of business.
Currently, there are no such claims, suits or complaints which, in the
opinion of management, would have a material adverse effect on the Company's
financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The Company's Common Stock is traded in the over-the-counter market on
the National Association of Securities Dealers Automated Quotation System
("NASDAQ") under the symbol WTBK. On January 11, 2000, there were
approximately 135 shareholders of record. The following table sets forth
the range of high and low sales prices per share of the Company's Common
Stock from October 26, 1997 through October 23, 1999, on the NASDAQ.
Common Stock Prices
High Low
---- ---
FISCAL 1998
First Quarter (October 26, 1997 to
January 24, 1998) $4.750 $3.750
Second Quarter (January 25, 1998 to
April 25, 1998) 4.250 3.250
Third Quarter (April 26, 1998 to
July 25, 1998) 4.000 2.938
Fourth Quarter (July 26, 1998 to
October 24, 1998) 3.375 2.625
FISCAL 1999
First Quarter (October 25, 1998 to
January 23, 1999) $3.000 $2.500
Second Quarter (January 24, 1999 to
April 24, 1999) 3.625 2.188
Third Quarter (April 25, 1999 to
July 24, 1999) 3.250 2.125
Fourth Quarter (July 25, 1999 to
October 23, 1999) 3.000 2.375
On January 11, 2000, the last high and low sales price for the
Company's Common Stock was $2.438.
No dividends have been paid or declared on the Common Stock of the
Company and the Company does not expect to pay any dividends on its Common
Stock in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA.
Five Year Comparison of Selected Financial Data
October 23, October 24, October 25, October 26, October 28,
1999 1998 1997 1996 1995
-----------------------------------------------------------------------
For the Year: (In thousands, except for per share amount)
Net sales $29,114 $26,202 $24,620 $20,653 $18,794
Gross profit 6,563 5,966 5,556 4,778 4,292
Selling, general and
administrative expense 4,359 3,684 3,106 2,672 2,514
Research and development expense 1,365 1,181 1,030 919 679
Income from operations 839 1,100 1,420 1,187 1,099
Interest income (expense) 60 (10) (71) 47 43
Other income 387 - - - -
Net income 796 644 799 737 698
Net income per share, diluted* 0.39 0.31 0.37 0.33 0.31
At end of year:
Total assets $15,384 $14,670 $14,811 $12,681 $10,999
Working capital 7,616 5,650 5,800 6,315 5,908
Long-term liabilities 647 893 1,069 520 189
Stockholders' equity 11,381 10,719 10,136 9,841 9,091
See Note 1 of Notes to Consolidated Financial Statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Results of Operations:
The following table sets forth, for the years indicated, the percentages
which the following items in the Consolidated Statements of Operations bear
to Net Sales.
Years Ended
-------------------------------------------
October 23, October 24, October 25,
1999 1998 1997
-------------------------------------------
Net sales 100.0% 100.0% 100.0%
Gross profit 22.5 22.8 22.6
Selling, general and administrative expense 15.0 14.1 12.6
Research and development expense 4.7 4.5 4.2
Income from operations 2.9 4.2 5.8
Interest income (expense), net 0.2 0.0 (0.3)
Other income 1.3 0.0 0.0
Provision for income taxes 1.7 1.7 2.2
Net income 2.7 2.5 3.2
Fiscal 1999 compared to Fiscal 1998
- -----------------------------------
Net sales increased $2,911,700 or 11.1% in fiscal 1999 as compared to fiscal
1998. The increase was attributable to higher unit sales of the Company's
marine generators and also an increase in the sales of spare parts and
accessories, primarily the result of more favorable economic conditions
benefiting the pleasure boat industry. International sales were $2,591,600
in 1999, representing 8.9% of net sales, as compared to $2,305,500 in 1998,
or 8.8% of net sales.
Gross profit increased $597,600 or 10.0% in fiscal 1999 as compared to
fiscal 1998. Gross profit as a percentage of sales decreased to 22.5% in
fiscal 1999 as compared to 22.8% in fiscal 1998.
Selling, general and administrative expense increased $674,700 or 18.3% in
fiscal 1999 as compared to fiscal 1998. The increase was primarily the
result of higher legal costs associated with the legal proceeding against
the Company's former "long block" supplier and also an increase in sales and
marketing costs.
Research and development expense increased $184,400 or 15.6% in fiscal 1999
as compared to fiscal 1998. The increase is due to the hiring of additional
engineering personnel. The Company also experienced increased costs to
comply with federal and state exhaust requirements for existing and new
engines. See "Business - Governmental Regulation."
Other income in the amount of $387,100 is comprised of the realized gains
and losses from the sale of marketable securities.
Net interest income was $59,700 in fiscal 1999 compared to net interest
expense of $9,900 in fiscal 1998. The interest income is primarily due to a
decrease in the loan balance used for operating purposes and the increase in
cash obtained from the sale of marketable securities during the year.
The Company's income tax expense in fiscal 1999 was $489,400 as compared to
$446,700 in fiscal 1998. The effective tax rate decreased in fiscal 1999 to
38.1% as compared to 40.9% in fiscal 1998.
The Company's net income was $796,000 as compared to $643,500 in fiscal
1998. The increase is mainly attributable to the increase in sales revenues
and from the sale of marketable securities.
As previously announced the Company has successfully renegotiated its
exclusive agreement with its largest customer.
Fiscal 1998 compared to Fiscal 1997
- -----------------------------------
Net sales increased $1,581,700 or 6.4% in fiscal 1998 as compared to fiscal
1997. The increase was attributable to higher unit sales of the Company's
marine generators, primarily the result of more favorable economic
conditions benefiting the pleasure boat industry. International sales were
$2,305,500 in 1998, representing 8.8% of net sales, as compared to
$2,843,400 in 1997, or 11.5% of net sales. The decrease in 1998 was the
result of less than favorable economic conditions in the European countries.
Gross profit increased $409,400 or 7.4% in fiscal 1998 as compared to fiscal
1997. Gross profit as a percentage of sales increased to 22.8% in fiscal
1998 as compared to 22.6% in fiscal 1997.
Selling, general and administrative expense increased $578,600 or 18.6% in
fiscal 1998 as compared to fiscal 1997. The increase was primarily the
result of higher legal costs associated with the legal proceeding against
the Company's former "long block" supplier and also an increase in the
warranty expense during the year.
Research and development expense increased $150,600 or 14.6% in fiscal 1998
as compared to fiscal 1997. The increase is due to additional engineering
personnel, education and training expenses and costs associated with
bringing the replacement "long block" engines into full production. The
Company also experienced increased costs to comply with federal and state
exhaust requirements for existing and new engines. See "Business -
Governmental Regulation."
Net interest expense was $9,900 in fiscal 1998 compared to $71,000 in fiscal
1997. The decrease is primarily due to a decrease in the loan balance used
for operating purposes during the year.
The Company's income tax expense in fiscal 1998 was $446,700 as compared to
$550,000 in fiscal 1997. The effective tax rate was relatively constant in
fiscal 1998 as compared to fiscal 1997.
The Company's net income was $643,500 as compared to $798,900 in fiscal
1997. The decrease is mainly attributable to the increase in selling,
general and administrative expenses.
Liquidity and Capital Resources
- -------------------------------
During fiscal 1999, net cash provided by operations was $859,600 as compared
to $1,191,600 in fiscal 1998.
During fiscal 1999 and 1998, the Company purchased property, plant and
equipment of $312,100 and $444,300, respectively. The Company plans capital
spending of approximately $750,000 during fiscal 2000. The Company is
currently considering the expansion of its manufacturing facility in order
to increase its production capability and capacity. Management is exploring
various alternatives, including the purchase or lease of an existing
facility or building a new facility, to increase its production
capabilities. Management believes that this expansion is necessary to meet
customer demand for the Company's products and to maintain the Company's
competitive position. At this time the Company cannot estimate the cost of
the expansion. During fiscal 1999 the Company generated cash in the amount
of $1,465,000 from the sale of marketable securities.
The Company has a $4,000,000 Credit Agreement with Citizens Bank of
Massachusetts (f/k/a State Street Bank and Trust Company), collateralized by
inventory, accounts receivable and general intangibles. The Credit
Agreement was renewed on March 31, 1999, and will expire on March 31, 2000.
The Company believes that it will be able to continue to extend the term of
the Credit Agreement on commercially reasonable terms. As of October 23,
1999, the Company had approximately $3,825,000 in unused borrowing capacity
under the Credit Agreement and approximately $175,000 committed to cover the
Company's reimbursement obligations under certain open letters of credit and
bankers' acceptances.
On April 25, 1997, the Company entered into a $300,000 revolving line of
credit agreement (the "1997 Revolving Line of Credit") and term loan
facility with Citizens Bank of Massachusetts, collateralized by various
items of emission testing and product development equipment and subject to
working capital and equity covenants. On June 30, 1997, the 1997 Revolving
Line of Credit terminated and automatically converted into a five-year term
loan bearing a fixed interest rate of 8.11%. At October 23, 1999, the
outstanding principal amount was $163,200.
On January 23, 1996, the Company entered into a $500,000 revolving line of
credit agreement (the "Revolving Line of Credit") and term loan facility
with Citizens Bank of Massachusetts, collateralized by various emission
testing and product development equipment and subject to working capital and
equity covenants. On July 31, 1996, the Revolving Line of Credit terminated
and automatically converted into a five year term loan in the principal
amount of $491,600 bearing a fixed interest rate of 8.08%. As of October
23, 1999, the outstanding principal amount was $178,500.
Management believes cash flow from operations and borrowings available under
the Credit Agreement will provide for working capital needs, principal
payments on long-term debt, and capital and operating leases through fiscal
2000.
Domestic inflation is not expected to have a major impact on the Company's
operations.
The costs of engine blocks and other components are subject to foreign
currency fluctuations (primarily the Japanese yen). The value of the U.S.
dollar relative to the yen had no material effect on the cost of the
Company's products in fiscal 2000.
Year 2000 Compliance
- --------------------
In fiscal years 1998 and 1999 the Company had developed a plan to reduce the
probability of operational difficulties due to Year 2000 related failures.
The components of the Company's plan included an assessment of internal
systems for modification and/or replacement, communication with vendors to
determine their state of readiness to maintain an uninterrupted supply of
goods and services to the Company; an evaluation of the Company's production
equipment as to its ability to function properly after the turn of the
century; an evaluation of facility related issues; and the development of a
contingency plan. As of January 18, 2000 the Company has not experienced
any Year 2000 issues.
This Annual Report on Form 10-K may contain forward-looking information
about the Company. The Company is hereby setting forth statements
identifying important factors that may cause the Company's actual results to
differ materially from those set forth in any forward-looking statements
made by the Company. Some of the most significant factors include: an
unanticipated down-turn in the recreational boating industry resulting in
lower demand for the Company's products; the unanticipated loss of, or
decline in sales to, a major customer; the unanticipated loss of a major
supplier; the inability of the Company to effect required modifications of
its products to meet governmental regulations with respect to emission
standards; and foreign currency fluctuations resulting in cost increases to
the Company for its foreign supplied components. Accordingly, there can be
no assurances that any anticipated future results will be achieved.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Market risk represents the risk of changes in the value of short-term
investments and financial instruments caused by fluctuations in investment
prices and interest rates.
The Company addresses market risks in accordance with established policies.
The Company's risk-management activities involve risk and uncertainties and
accordingly, results could differ materially from those projected.
Interest Rate Risk
- ------------------
Due to the fact that the long-term debt will mature within three years,
management has determined that the fair value would not be materially
different from the carrying value at October 23, 1999.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
WESTERBEKE CORPORATION AND SUBSIDIARY
-------------------------------------
CONSOLIDATED FINANCIAL STATEMENTS
For the years ended October 23, 1999,
October 24, 1998 and October 25, 1997
KPMG LLP
99 High Street Telephone 617 988 1000 Telefax 617 988 0800
Boston, MA 02110-2371
Independent Auditors' Report
----------------------------
To the Board of Directors and Stockholders of
Westerbeke Corporation:
We have audited the accompanying consolidated balance sheets of Westerbeke
Corporation and subsidiary as of October 23, 1999 and October 24, 1998, and
the related consolidated statements of operations, stockholders' equity and
comprehensive income, and cash flows for each of the years in the three-year
period ended October 23, 1999. In connection with our audits of the
consolidated financial statements, we have also audited the financial
statement schedule as listed in Item 14(a) 2. These consolidated financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Westerbeke Corporation and subsidiary as of October 23, 1999 and October 24,
1998, and the results of their operations and their cash flows for each of
the years in the three-year period ended October 23, 1999, in conformity
with generally accepted accounting principles. Also in our opinion, the
related financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein.
By /s/ KPMG LLP
---------------
Boston, Massachusetts
December 17, 1999
WESTERBEKE CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
October 23, October 24,
1999 1998
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 1,739,300 $ 101,900
Accounts receivable, net of allowance for doubtful accounts
of $59,200 (Note 2) 2,502,100 2,292,900
Inventories (Note 3) 5,640,200 5,391,600
Prepaid expenses and other assets 476,900 343,000
Prepaid income taxes 35,600 -
Deferred income taxes (Note 9) 577,900 578,600
--------------------------
Total current assets 10,972,000 8,708,000
Property, plant and equipment, net (Notes 4,8 and 10) 2,027,300 2,161,500
Other assets, net (Note 5) 2,199,400 2,002,100
Investments in marketable securities 91,400 1,690,700
Note receivable - related party (Note 6) 93,400 108,000
--------------------------
$15,383,500 $14,670,300
==========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (Notes 8 and 10) $ 192,900 $ 189,700
Revolving demand note payable (Note 7) - 200,000
Accounts payable 2,248,700 1,905,900
Accrued expenses and other liabilities 914,000 668,900
Accrued income taxes (Note 9) - 93,900
--------------------------
Total current liabilities 3,355,600 3,058,400
--------------------------
Deferred income taxes (Note 9) 13,600 154,900
Deferred compensation 409,200 320,700
Long-term debt, net of current portion (Notes 8 and 10) 224,500 417,400
--------------------------
Total Liabilities 4,002,900 3,951,400
--------------------------
Commitments and contingencies (Notes 7, 8 and 10)
Stockholders' equity (Notes 11 and 12):
Common stock, $.01 par value; authorized 5,000,000 shares; issued
2,185,950 shares in 1999 and 1998. 21,900 21,900
Additional paid-in-capital 6,025,300 6,025,300
Accumulated other comprehensive income 16,900 151,200
Retained earnings 6,072,500 5,276,500
--------------------------
12,136,600 11,474,900
Less - Treasury shares at cost, 268,138 shares in 1999 and 1998 756,000 756,000
--------------------------
Total stockholders' equity 11,380,600 10,718,900
--------------------------
$15,383,500 $14,670,300
==========================
The accompanying notes are an integral part of
the consolidated financial statements.
WESTERBEKE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended
------------------------------------------
October 23, October 24, October 25,
1999 1998 1997
----------- ----------- ------------
Net sales (Note 2) $29,113,700 $26,202,000 $24,620,300
Cost of sales 22,550,600 20,236,500 19,064,200
-----------------------------------------
Gross profit 6,563,100 5,965,500 5,556,100
Selling, general and administrative expense 4,359,200 3,684,500 3,105,900
Research and development expense 1,365,300 1,180,900 1,030,300
-----------------------------------------
Income from operations 838,600 1,100,100 1,419,900
Interest income (expense), net 59,700 (9,900) (71,000)
Other income, net 387,100 - -
-----------------------------------------
Income before income taxes 1,285,400 1,090,200 1,348,900
Provision for income taxes (Note 9) 489,400 446,700 550,000
-----------------------------------------
Net income $ 796,000 $ 643,500 $ 798,900
=========================================
Income per common share, basic $ .42 $ .34 $ .40
=========================================
Income per common share, diluted $ .39 $ .31 $ .37
=========================================
Weighted average common shares - basic 1,917,812 1,914,546 1,995,155
=========================================
Weighted average common shares - diluted 2,055,682 2,077,125 2,159,114
=========================================
The accompanying notes are an integral part of
the consolidated financial statements.
WESTERBEKE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
Three years ended October 23, 1999
Accumulated
Common Additional Other
Stock Paid-in Comprehensive Retained Treasury Stockholders' Comprehensive
Amount Capital Income Earnings Stock Equity Income
----------------------------------------------------------------------------------------------
October 26, 1996 $21,200 $5,959,800 $159,100 $3,834,100 $(133,200) $ 9,841,000
Exercise of stock options 400 36,800 - - - 37,200
Repurchase of 223,738 shares - - - - (622,800) (622,800)
Unrealized gains on
marketable securities - - 81,600 - - 81,600 $ 81,600
Net Income - - - 798,900 - 798,900 798,900
--------------------------------------------------------------------------------------------
October 25,1997 21,600 5,996,600 240,700 4,633,000 (756,000) 10,135,900 880,500
Exercise of stock options 300 28,700 - - - 29,000
Unrealized gains on
marketable securities - - (89,500) - - (89,500) (89,500)
Net Income - - - 643,500 - 643,500 643,500
--------------------------------------------------------------------------------------------
October 24, 1998 21,900 6,025,300 151,200 5,276,500 (756,000) 10,718,900 554,000
Unrealized gains on
marketable securities,
net of reclassification
adjustments(see note) - - (134,300) - - (134,300) (134,300)
Net Income - - - 796,000 - 796,000 796,000
--------------------------------------------------------------------------------------------
October 23, 1999 $21,900 $6,025,300 $ 16,900 $6,072,500 $(756,000) $11,380,600 $ 661,700
============================================================================================
Note: (Year ending October 23, 1999)
Unrealized holding loss arising during
period $ (2,600)
Less: reclassification adjustment for
gains included in net income (131,700)
---------
Net unrealized gains on securities $(134,300)
=========
The accompanying notes are an integral part of
the consolidated financial statements.
WESTERBEKE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended
-----------------------------------------
October 23, October 24, October 25,
1999 1998 1997
-----------------------------------------
Cash flows from operating activities:
Net income $ 796,000 $ 643,500 $ 798,900
Reconciliation of net income to net cash
provided by operating activities:
Depreciation and amortization 466,800 428,800 417,700
Loss on disposal of fixed assets 1,300 15,000 -
Deferred income taxes (140,600) (195,700) 87,500
Changes in operating assets and liabilities:
Accounts receivable (209,200) (343,900) 369,500
Inventories (248,600) 862,700 (826,300)
Prepaid expenses and other assets (133,900) (41,400) (52,600)
Prepaid income taxes (35,600) 212,000 (212,000)
Other assets (219,000) (426,700) (414,200)
Accounts payable 342,800 (322,000) 597,600
Accrued expenses and other liabilities 245,000 104,300 7,200
Deferred compensation 88,500 161,100 159,600
Accrued income taxes payable (93,900) 93,900 (8,900)
----------------------------------------
Net cash provided by operating activities 859,600 1,191,600 924,000
----------------------------------------
Cash flows from investing activities:
Purchase of property, plant and equipment (312,100) (444,300) (578,000)
Proceeds from payment of note receivable 14,600 14,800 13,800
Proceeds from sale of marketable securities 1,465,000 - -
Purchase of marketable securities - (234,700) (541,700)
----------------------------------------
Net cash provided (used in) investing activities 1,167,500 (664,200) (1,105,900)
----------------------------------------
Cash flows from financing activities:
Exercise of stock options - 29,000 37,200
Net (repayments) borrowings under revolving
demand note (200,000) (400,000) 600,000
Purchase of treasury stock - - (622,800)
Proceeds from equipment line - - 300,000
Principal payments on long-term debt and
capital lease obligations (189,700) (211,400) (176,100)
----------------------------------------
Net cash provided (used) by financing activities (389,700) (582,400) 138,300
----------------------------------------
Increase(Decrease) in cash and cash equivalents 1,637,400 (55,000) (43,600)
Cash and cash equivalents, beginning of year 101,900 156,900 200,500
----------------------------------------
Cash and cash equivalents, end of year $1,739,300 $ 101,900 $ 156,900
========================================
Supplemental cash flow disclosures:
Interest paid $ 92,500 $ 167,600 $ 136,600
Income taxes paid $ 668,900 $ 266,000 $ 849,000
Supplemental disclosures of non-cash flow items:
Equipment purchase under capital lease - - 175,000
Increase (decrease) in unrealized gains on
marketable securities, net of income taxes $ (2,600) $ (89,500) $ 81,600
========================================
The accompanying notes are an integral part of
the consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 23, 1999, October 24, 1998 and October 25, 1997
1. Summary of Significant Accounting Policies:
The Company is primarily engaged in the business of designing, manufacturing
and marketing marine engine and air-conditioning products.
Principles of Consolidation
The consolidated financial statements include the accounts of Westerbeke
Corporation (the "Company"), and its wholly owned subsidiary, Westerbeke
International, Inc. (a foreign sales corporation). Westerbeke
International, Inc. was inactive during fiscal years 1999, 1998, and 1997.
Use of Estimates
The preparation of consolidated 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 financial statements and the reported amounts of revenues and
expenses. Actual results could differ from these estimates.
Cash Equivalents
All highly liquid investments with an original maturity of three months or
less are considered to be cash equivalents.
Investments in Marketable Securities
Marketable investment securities at October 23, 1999 and October 24, 1998
consist of equity securities in various mutual funds. The Company employs
the provisions of Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities (Statement
115). Under Statement 115, the Company classifies its marketable securities
in one of two categories: trading or available-for-sale.
Trading and available-for-sale securities are recorded at fair value.
Unrealized holding gains and losses on trading securities are included in
earnings. Unrealized holding gains and losses on available-for-sale
securities are excluded from earnings and are reported as a separate
component of stockholders' equity until realized. Transfers of securities
between categories are recorded at fair value at the date of transfer.
Unrealized holding gains and losses are recognized in earnings for transfers
into trading securities.
A decline in the market value of any available-for-sale security below cost
that is deemed other than temporary is charged to earnings resulting in the
establishment of a new cost basis for the security.
Dividend and interest income are recognized when earned. Realized gains and
losses, if any, for securities classified as available-for-sale are included
in earnings with cost determined using the specific identification method.
Marketable investment securities held in connection with the deferred
compensation arrangement are classified as trading securities. All other
marketable securities are classified as available-for-sale. Equity
securities are stated at the fair market value at October 23, 1999 and at
October 24, 1998. The total cost of the marketable securities at October
23, 1999 was $65,300. The total cost of marketable securities at October
24, 1998 was $1,437,500. Unrealized holding gains in investment securities,
net of income taxes, which is included in accumulated other comprehensive
income at October 23, 1999 and October 24, 1998 were $16,900 and $151,200,
respectively.
Inventories
Inventories are valued at the lower of cost (determined on the last-in,
first-out method) or market.
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company accounts for long-lived assets in accordance with the provisions
of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of. This Statement requires that long-
lived assets and certain identifiable intangibles be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of assets to be
held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceed the
fair value of the assets. Assets to be disposed of are reported at the
lower of the carrying amount or fair value less costs to sell.
Depreciation and Amortization
The Company computes depreciation and amortization expense on a straight-
line basis over the following estimated useful lives:
Asset Classification Estimated Useful Lives
- -------------------- ----------------------
Building and building improvements 15 - 40 years
Machinery and equipment 10 years
Patterns 5 years
Furniture and fixtures 5 - 10 years
Transportation equipment 3 - 5 years
Equipment under capital lease 5 - 10 years
Intangibles 3 - 17 years
Intangible assets, primarily acquired patents, are classified in other
assets. Maintenance and repairs are charged to expense in the period
incurred. The cost and accumulated depreciation of assets retired or sold
are removed from the accounts and any gain or loss is credited or charged to
income.
Leasehold improvements are amortized on a straight-line basis over the
shorter of the life of the lease or their estimated useful lives.
Revenue Recognition
The Company recognizes revenue upon shipment of product.
Fair Value of Financial Instruments
Financial instruments of the Company consist of cash, cash equivalents,
accounts receivable, accounts payable and accrued liabilities. The carrying
value of these financial instruments approximates their fair value because
of the short maturity of these instruments. Based upon borrowing rates
currently available to the Company for issuance of similar debt with similar
terms and remaining maturities, the estimated fair value of long-term debt
approximates their carrying amounts.
Product Warranty Cost
The anticipated costs related to product warranty are expensed at the time
of sale of the product. Accrued warranty expense of $300,000 and $330,000 is
included in accrued expenses and other liabilities at October 23, 1999 and
October 24, 1998, respectively.
Advertising
Advertising and promotional expenditures are expensed as incurred.
Income Taxes
The Company uses the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred income taxes are
recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred taxes of a
change in tax rate is recognized in income in the period that includes the
enactment date.
Net Income Per Share
Basic income per common share is computed by dividing income available to
common stockholders by the weighted average number of shares outstanding for
the period. Diluted income per share reflects the maximum dilution that
would have resulted from the exercise of stock options. Diluted income per
share is computed by dividing net income by the weighted average number of
common shares and all dilutive securities.
For the twelve months ended:
October 23, 1999 October 24, 1998 October 25, 1997
-------------------------------- -------------------------------- --------------------------------
Income Net Income Net Income Net
per share Shares Income per share Shares Income per share Shares Income
--------------------------------------------------------------------------------------------------------
Basic $.42 1,917,812 $796,000 $.34 1,914,546 $643,500 $.40 1,995,155 $798,900
Effect of
Stock options (.03) 137,870 (.03) 162,579 (.03) 163,959
-------------------------------- -------------------------------- --------------------------------
Diluted $.39 2,055,682 $796,000 $.31 2,077,125 $643,500 $.37 2,159,114 $798,900
2. Business Segment
The Company has one business segment; the designing, manufacturing and
marketing of marine engines and related products. The profitability of the
Company is directly tied to the marine industry. The industry is subject to
fluctuations in economic conditions that may adversely affect the Company.
Four customers accounted for approximately 64%, 61% and 58% of Company
revenues for the fiscal years ended 1999, 1998 and 1997, respectively. The
loss of one of these customers could adversely affect the Company's
profitability.
Net sales include export sales, primarily to customers in the Netherlands,
England, Italy, South Africa and Puerto Rico of approximately $2,591,600,
$2,305,500 and $2,843,400 for fiscal years ended October 23, 1999, October
24, 1998, and October 25, 1997, respectively. In fiscal 1999, two
customers each accounted for sales in excess of 10% of net sales as follows:
$7,657,400 and $5,791,000. In fiscal 1998, three customers each accounted
for sales in excess of 10% of net sales as follows: $5,878,000, $4,827,900
and $2,788,500. In fiscal 1997, two customers each accounted for sales in
excess of 10% of net sales as follows: $5,656,600 and $4,193,700.
At October 23, 1999, two customers each accounted for trade accounts
receivable in excess of 10% of net accounts receivable as follows:
$550,700, and $531,100. At October 24, 1998, three customers each accounted
for trade accounts receivable in excess of 10% of net accounts receivable as
follows: $537,700, $490,000, and $308,800. The Company performs ongoing
credit evaluations of its customers and therefore does not require
collateralization of trade receivables.
3. Inventories
Inventories consist of the following:
October 23, 1999 October 24, 1998
---------------- ----------------
Raw materials $4,539,800 $4,416,300
Work-in-process 762,400 530,300
Finished goods 338,000 445,000
---------- ----------
$5,640,200 $5,391,600
========== ==========
The Company uses the last-in, first-out (LIFO) method to value inventory.
The Company believes the LIFO inventory method results in a better matching
of costs and revenues during periods of changing prices. Inventories would
have been $1,078,600 and $892,500 higher at October 23, 1999 and October 24,
1998, respectively, if the first-in, first-out (FIFO) method had been used.
In 1998, inventory was reduced resulting in liquidation of LIFO inventory
layers. The effect of the inventory reductions was to reduce cost of sales
by approximately $176,300. Inventory cost determined on the FIFO method
approximates replacement or current cost.
The basic component of the Company's engine products is a "long block"
engine, which is a complete engine block and head assembly without
peripheral equipment. The Company purchases "long block" engines from five
foreign manufacturers. Interruption of the supply of "long block" engines
would have a material adverse effect on the Company if the time to develop
new sources of supply and replacement products is longer than the time it
takes to exhaust the Company's inventory of existing "long block" engines.
4. Property, Plant and Equipment
Property, plant and equipment, at cost, consists of the following:
October 23, 1999 October 24, 1998
---------------- ----------------
Land $ 48,000 $ 48,000
Building and building improvements 1,386,100 1,352,200
Furniture and fixtures 458,800 447,500
Machinery, patterns and equipment 3,354,100 3,091,800
Transportation equipment 51,500 51,500
Leasehold improvements 20,400 20,400
Equipment under capital lease 769,200 769,200
---------- ----------
6,088,100 5,780,600
Less accumulated depreciation 4,060,800 3,619,100
---------- ----------
$2,027,300 $2,161,500
========== ==========
The Company incurred depreciation expense of approximately $445,100,
$407,100, and $396,000 for fiscal years 1999, 1998, and 1997, respectively.
5. Other Assets
The Company has entered into a split-dollar insurance arrangement with John
H. Westerbeke, Jr., the chairman, president and chief executive officer of
the Company, as part of his employment agreement (see note 10), pursuant to
which the Company will pay the premium costs of certain life insurance
policies. Upon surrender of the policies or payment of the death benefit,
the Company is entitled to repayment of an amount equal to the cumulative
premiums previously paid by the Company, with all remaining payments to be
made to Mr. Westerbeke Jr. or his beneficiaries. Included in other assets
at October 23, 1999 and October 24, 1998 is $1,470,300 and $1,345,000,
respectively, which represents the cumulative value of insurance premiums
paid to date.
6. Note Receivable-Related Party
The Company holds a note receivable from John H. Westerbeke, Jr., the
chairman, president and chief executive officer of the Company. The
principal amount of the secured loan at October 23, 1999 and October 24,
1998 was $93,400 and $108,000, respectively. The loan was used by Mr.
Westerbeke, Jr. to purchase a 40-foot sailboat. The loan bears interest at
7-3/4% per annum, is secured by a security interest in the sailboat and is
payable in monthly installments over a ten year period. The Company has
leased the sailboat from Mr. Westerbeke, Jr. pursuant to a lease expiring in
July 2004 at a rental of $2,793 per month (see Note 10). The Company makes
use of the boat to evaluate the performance of its marine engines and
products and for other corporate matters.
7. Revolving Demand Note Payable
The Company has a $4,000,000 Credit Agreement with Citizens Bank of
Massachusetts (f/k/a State Street Bank and Trust Company), collateralized by
inventory, accounts receivable and general intangibles. The Credit
Agreement was renewed on March 31, 1999 and will expire on March 31, 2000.
The Company believes that it will be able to continue to extend the term of
the Credit Agreement on commercially reasonable terms. As of October 23,
1999, the Company had approximately $3,825,000 in unused borrowing capacity
under the Credit Agreement and approximately $175,000 committed to cover the
Company's reimbursement obligations under certain open letters of credit and
bankers' acceptances.
8. Long-Term Debt
October 23, 1999 October 24, 1998
---------------- ----------------
Term Loan with an interest rate of 8.08% in
1999 and 1998, with repayment terms through
July 2001. $178,500 $275,900
Capital Lease with an interest rate of 8.75%
with repayment terms through September 2001. 75,700 110,400
Term Loan with an interest rate of 8.11% in
1999 and 1998, with repayment terms through
June 2002. 163,200 220,800
----------------------------
417,400 607,100
Less current portion 192,900 189,700
----------------------------
Long term debt net of current portion $224,500 $417,400
============================
Both term loans are collateralized by various emission testing and product
development equipment and subject to working capital and equity covenants.
Aggregate maturities of long-term debt for each of the ensuing five years
are as follows:
Year Amount
---- ------
2000 192,900
2001 176,500
2002 48,000
--------
$417,400
========
9. Income Taxes
Income tax expense attributable to income from continuing operations
consists of:
Years Ended
--------------------------------------------------------
October 23, 1999 October 24, 1998 October 25, 1997
---------------- ---------------- ----------------
Federal:
Current $413,700 $444,000 $483,200
Deferred (36,300) (111,500) (59,700)
------------------------------------------------
377,400 332,500 423,500
------------------------------------------------
State:
Current 123,200 134,800 144,900
Deferred (11,200) (20,600) (18,400)
------------------------------------------------
112,000 114,200 126,500
------------------------------------------------
Total $489,400 $446,700 $550,000
================================================
The Company has no available book or tax net operating loss carryforwards.
Income tax expense differed from the amounts computed by applying the U.S.
federal income tax rate of 34 percent to pretax income as a result of the
following:
Years Ended
--------------------------------------------------------
October 23, 1999 October 24, 1998 October 25, 1997
---------------- ---------------- ----------------
Provision at statutory rate $437,000 $370,700 $458,600
State tax provision,
net of federal tax benefit 74,000 75,400 83,500
Other, net (21,600) 600 7,900
------------------------------------------------
Total $489,400 $446,700 $550,000
================================================
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at October
23, 1999 and October 24, 1998 are presented below.
October 23, 1999 October 24, 1998
---------------- ----------------
Deferred tax assets:
Accounts receivable reserve $113,600 $112,400
Inventory reserves and capitalization 343,500 333,300
Accrued bonus 197,000 144,400
Warranty reserve 120,800 132,900
----------------------------
Total gross deferred tax assets 774,900 723,000
----------------------------
Deferred tax liabilities:
Fixed assets, principally due to
accelerated depreciation methods (199,200) (197,300)
Unrealized gain on marketable securities (11,400) (102,000)
----------------------------
Total gross deferred tax liabilities (210,600) (299,300)
----------------------------
Net deferred tax assets $564,300 $423,700
============================
There was no net change in the total valuation allowance for the year ended
October 23, 1999. Management believes that the realization of deferred tax
assets is more likely than not because future operations of the Company are
expected to generate sufficient taxable income.
10. Commitments and Contingencies
Lease Obligations
The Company has lease agreements for a warehouse and certain equipment (see
note 6) expiring at various dates through 2004. Rental expense under
operating leases was $173,000, $173,200, and $169,100 for the years ended
October 23, 1999, October 24, 1998 and October 25, 1997, respectively.
The following capital leases are included in property, plant and equipment:
1999 1998
---- ----
Property, plant and equipment $769,200 $769,200
Less accumulated amortization 645,000 627,500
-------- --------
$124,200 $141,700
======== ========
The future minimum lease payments required under operating leases that have
initial or remaining noncancelable lease terms in excess of one year are as
follows:
Year Operating
- ---- ---------
2000 $177,800
2001 182,000
2002 132,600
2003 33,500
2004 33,500
--------
Total future minimum lease payments $559,000
========
Letters of Credit and Bankers' Acceptances
Certain foreign vendors require the Company to provide letters of credit at
the time purchase orders are placed. As of October 23, 1999, the Company
was contingently liable for open letters of credit and bankers' acceptances
of approximately $175,000 (see note 7).
Employment Agreements
In March of 1993, the Company entered into an Employment Agreement (the
"Agreement") with John H. Westerbeke, Jr., the chairman of the board,
president, and chief executive officer of the Company. The Agreement calls
for Mr. Westerbeke, Jr. to be paid an annual salary of $141,750, subject to
increases based upon the Consumer Price Index and at the discretion of the
Company. The Agreement also provides for payment of a bonus at the
discretion of the board of directors of the Company. In September 1996, the
Board of Directors established an incentive plan for Mr. Westerbeke pursuant
to which Mr. Westerbeke will have an annual bonus opportunity, based on net
income and increases in sales, in each of the four years beginning with the
1997 fiscal year. Mr. Westerbeke may elect to have all or any part of his
base salary or bonus paid as deferred compensation in five annual
installments commencing upon his retirement or other termination of
employment, or upon a change of control of the Company, as defined in the
Agreement. Amounts deferred by Mr. Westerbeke are contributed by the
Company to a trust established to hold and invest these funds until such
time as the amounts are payable to Mr. Westerbeke. The Agreement also
requires the Company to pay premiums for certain life insurance policies on
the life of Mr. Westerbeke, Jr. In addition, in the event of a change in
control of the Company, Mr. Westerbeke, Jr. may terminate his employment
during the one year period following such change in control, and in such
event, the Company is required to pay him a lump sum cash payment in an
amount equal to three times his average annual cash compensation during the
most recent five taxable years of the Company. In addition, in such
circumstances, the Company is required to continue to carry group life and
health insurance for Mr. Westerbeke, Jr. for a three year period and is
required to pay any premiums payable on the life insurance policies on his
life for a three year period.
Under an employment agreement between the Company and John H. Westerbeke,
Sr., a director of the Company, Mr. Westerbeke, Sr. will be paid $35,000 per
year. This agreement provides that following his retirement, Mr.
Westerbeke, Sr. will act as consultant to the Company at an annual
consulting fee of $30,000.
11. Stockholders' Equity
In June 1986, the board of directors and the stockholders of the Company
adopted the Company's 1986 Stock Option Plan (the "Option Plan"), under
which 300,000 shares of common stock have been made available. The Company
has also reserved 250,000 shares of common stock for issuance in connection
with a Supplemental Stock Option Plan (the "Supplemental Plan"). The
Supplemental Plan permits acceleration of the exercisability of options in
the event of a change in control of the Company with the Company retaining
the right of first refusal with respect to shares issued under this plan.
In March 1996, the board of directors and the stockholders of the Company
adopted the Company's 1996 Stock Option Plan (the "1996 Option Plan"), under
which 150,000 shares of common stock have been made available. As of
October 23, 1999, there has been no activity under the 1996 Option Plan.
Options under the plans may be either nonqualified stock options or
incentive stock options. Options may be granted to eligible employees of
the Company and members of the board of directors.
The price at which the shares may be granted may not be less than the lower
of fair market value or tangible book value in the case of nonqualified
options, or 110% of the fair market value in the case of incentive stock
options. The options generally become exercisable in 20% annual increments
beginning on the date of the grant and expire at the end of ten years.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) No.123 in October 1995, which statement
establishes financial accounting and reporting standards for stock based
employee compensation plans. The Company has adopted the disclosure
requirements of SFAS No.123 and continues to apply the accounting provisions
of Opinion No.25 of the Accounting Principles Board. Accordingly, the
adoption of SFAS No.123 has not had a material impact on the Company's
consolidated financial statements.
Information for fiscal years 1997, 1998 and 1999, with respect to the Option
Plan, is as follows:
Weighted average
exercise price of
Shares shares under plan
------ -----------------
Balance outstanding at October 26, 1996 175,000 $1.125
Exercised (25,000) 1.125
-------
Balance outstanding at October 25, 1997 150,000 1.125
-------
Balance outstanding and exercisable at
October 24, 1998 and October 23, 1999 150,000 $1.125
=======
The outstanding options expire on various dates through May 2003. Options
for 88,100 shares are available for future grant under the Option Plan.
The following table summarizes information concerning currently outstanding
and exercisable options under the Option Plan as of October 23, 1999:
Weighted
average Weighted
Range of remaining average Weighted
exercise Number contractual outstanding Options average
prices outstanding life (years) option price exercisable exercise price
- ----------------------------------------------------------------------------------------
$1.125 150,000 4.4 $1.125 150,000 $1.125
Information for fiscal years 1997, 1998, and 1999, with respect to the
Supplemental Plan, is as follows:
Weighted average
exercise price of
Shares shares under plan
------ -----------------
Balance outstanding at October 26, 1996 156,400 $1.478
Exercised (9,000) 1.000
-------
Balance outstanding at October 25, 1997 147,400 1.507
Exercised (29,000) 1.507
-------
Balance outstanding at October 24, 1998 118,400 1.631
-------
Balance outstanding at October 23, 1999 118,400 1.631
-------
Balance exercisable at October 23, 1999 111,740 $1.549
-------
The following table summarizes information concerning currently outstanding
and exercisable options under the Supplemental Plan as of October 23, 1999:
Weighted
average Weighted
Range of remaining average Weighted
exercise Number contractual outstanding Options average
prices outstanding life (years) option price exercisable exercise price
$.875 - $3.000 118,400 4.0 $1.631 111,740 $1.549
The outstanding options expire on various dates through June 2006. Options
for 41,300 shares are available for future grant under the Supplemental
Plan.
Preferred Stock
As of October 23, 1999 and October 24, 1998, 1,000,000 shares of $1.00 par
value Serial Preferred Stock were authorized; none were issued or
outstanding.
12. 1986 Employee Stock Purchase Plan
In June 1986, the board of directors and the stockholders of the Company
adopted the Company's 1986 Employee Stock Purchase Plan (the "Purchase
Plan"). Under the Purchase Plan, an aggregate of 100,000 shares of common
stock are available for purchase by eligible employees of the Company,
including directors and officers, through payroll deductions over successive
six-month offering periods. The Purchase Plan will become effective when so
declared by the board of directors.
The Purchase Plan is intended to qualify as an "Employee Stock Purchase
Plan" within the meaning of Section 423 of the Internal Revenue Code. The
purchase price of the common stock under the Purchase Plan will be 85% of
the average of the closing high bid and last asked prices per share in the
over-the-counter market on either the first or last day of each six-month
offering period, whichever is less. As of October 23, 1999, there has been
no activity under the Purchase Plan.
13. Employee Benefit Plan
In 1994, the Company started an Employee Deferred Compensation Plan that
covers all employees over 21 years of age who have completed at least 3
months of service with the Company. Contributions by the Company are
discretionary and are determined by the Company's board of directors. The
Company's defined contribution plan, available to substantially all salaried
employees, contains a matched savings provision that permits both pretax and
after-tax employee contributions. Participants can contribute up to 15% of
their annual compensation and receive a 25% matching employer contribution
on up to 8% of their annual compensation. The Company contributed $41,800,
$38,800 and $37,000 for the fiscal years ended October 23, 1999, October 24,
1998 and October 25, 1997, respectively.
14. Quarterly Financial Data (Unaudited)
(In thousands, except per share amounts)
Selected quarterly financial data for the years ended October 23, 1999 and
October 24, 1998 is as follows:
Fiscal
Fiscal 1999: First Second Third Fourth Year
-----------------------------------------------
Net sales $5,447 $7,602 $7,571 $8,494 $29,114
Gross profit 956 1,896 1,838 1,873 6,563
Income (loss) from operations (190) 506 562 (39) 839
Other income (loss) (31) 504 (65) (21) 387
Net income (loss) (110) 581 319 6 796
Net income (loss) per share, diluted (0.06) 0.28 0.16 0.01 0.39
Fiscal
Fiscal 1998: First Second Third Fourth Year
-----------------------------------------------
Net sales $4,960 $7,225 $7,622 $6,395 $26,202
Gross profit 885 1,573 1,863 1,645 5,966
Income from operations (142) 348 642 252 1,100
Net income (54) 173 367 158 644
Net income (loss) per share, diluted (0.03) 0.08 0.18 0.08 0.31
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities" (SFAS 133).
The statement requires companies to recognize all derivatives as either
assets or liabilities with the instruments measured at fair value. The
accounting for changes in fair value gains and losses depends on the
intended use of the derivative and its resulting designation. The statement
is effective for all fiscal quarters of fiscal years beginning after June
15, 2000. The Company does not believe the adoption of SFAS 133 will have a
material impact on the financial statements.
SCHEDULE II
WESTERBEKE CORPORATION AND SUBSIDIARY
VALUATION AND QUALIFYING ACCOUNT
For the years ended October 23, 1999, October 24, 1998
and October 25, 1997
Balance at Charged to Charged Balance
Beginning of Costs and To Other at End
Period Expenses Accounts Deductions of Year
1997
Allowance for doubtful accounts $60,700 - - (3,200) $63,900
1998
Allowance for doubtful accounts $63,900 - - 4,700 $59,200
1999
Allowance for doubtful accounts $59,200 - - - $59,200
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
PART I I I
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Certain biographical information concerning the directors of the
Company as of January 1, 2000 is set forth below. Such information was
furnished by them to the Company.
Certain
Name of Director Age Biographical Information
- ---------------- --- ------------------------
GERALD BENCH 58 President, BFT Holdings Co., Inc. (investor
in emerging growth businesses) since
November 1996; President and Chief
Executive Officer, Hadley Fruit Orchards,
Inc. from November 1996 to June 1999;
Consultant, Hadley Fruit Orchards, Inc.
from March 1995 to November 1996; Partner,
ICAP Marine Group (consulting firm) from
November 1993 to February 1995; Chairman
and President, TDG Aerospace, Inc.
(manufacturer of aircraft de-icing devices)
from October 1991 to November 1993;
President, Thermion, Inc. (manufacturer of
heaters for aircraft de-icing devices) from
April 1990 to September 1991; General
Manager, Lermer Corporation (manufacturer
of airline galley equipment) from June 1989
through March 1990; former Chairman of the
Board, President, Chief Executive Officer
and Director of E&B Marine Inc. (marine
supplies and accessories) from prior to
1988; Director of the Company since June
1986
THOMAS M. HAYTHE 60 Partner, Torys (attorneys) from 1982 to
January 2000; Director: Novametrix Medical
Systems Inc. (manufacturer of electronic
medical instruments), Guest Supply, Inc.
(provider of hotel guest room amenities,
accessories and products) and Ramsay Youth
Services, Inc. (provider of youth and
educational services); Director of the
Company since June 1986.
NICHOLAS H. SAFFORD 67 President, Nicholas H. Safford & Co., Inc.
(investment counselor and private trustee)
since 1983 and from 1979 to 1981; former
president and director of Wendell, Safford
& Co., Inc. (investment counseling firm)
from 1982 to 1983; former vice president
and director of David L. Babson & Co., Inc.
(investment counseling firm) prior to 1978;
Director of the Company since February
1991.
JAMES W. STOREY 65 Consultant since January 1993; President,
Wellingsley Corporation (private investment
management company) from December 1986
through December 1992; President and Chief
Executive Officer of Codex Corporation, a
subsidiary of Motorola, Inc. from 1982 to
1986; Vice President of Motorola, Inc. from
1982 to 1986; Director: Progress Software
Corporation (software); Director of the
Company since June 1986.
JOHN H. WESTERBEKE, JR. 59 President of the Company since 1976;
Director of the Company since 1976;
Chairman of the Board of Directors of the
Company since June 1986.
JOHN H. WESTERBEKE, SR. 90 Founder of the Company; Presently serving
in various engineering capacities with the
Company; Chairman of the Board of Directors
of the Company from 1946 to June 1986.
For additional information concerning the management of the Company,
see "Item 1 - Business - Executive Officers" contained in Part I hereof.
The Board of Directors of the Company consists of three classes of
directors, Class A, Class B and Class C. Directors in each class are
elected for a term of three years. The term of office of the Class B
directors will expire at the Annual Meeting of Stockholders to be held in
2000. Class C and Class A directors will be elected at the Annual Meetings
to be held in 2001 and 2002, respectively. Mr. Bench and Mr. Safford are
Class A directors, Messrs. Haythe and Storey are Class B directors and
Messrs. Westerbeke, Jr. and Westerbeke, Sr. are Class C directors.
The directors and officers of the Company other than Messrs. Bench,
Haythe, Safford and Storey are active in the business on a day-to-day basis.
Messrs. Westerbeke, Sr. and Westerbeke, Jr. are father and son. No other
family relationships exist between any of the directors and officers of the
Company.
Section 16 (a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than
ten percent of the Company's Common Stock, to file with the SEC initial
reports of ownership and reports of changes in ownership of Common Stock.
Officers, directors and greater than ten percent stockholders are required
by SEC regulations to furnish the Company with copies of all Section 16 (a)
reports they file.
To the Company's knowledge, based solely on a review of the copies of
such reports furnished to the Company and representations that no other
reports were required, during the fiscal year ended October 23, 1999 all
Section 16 (a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information for the fiscal years ended
October 23, 1999, October 24, 1998 and October 25, 1997 concerning the
compensation paid or awarded to the Chief Executive Officer and the other
executive officer of the Company.
SUMMARY COMPENSATION TABLE
Annual Compensation
-------------------------
Fiscal
Name and Year
Principal Ended All Other
Position October Salary Bonus Compensation
- ----------------------------------------------------------------------------------------
John H. Westerbeke, Jr. 1999 $226,190(1) $ 84,723(2) $ 33,385(7)
President, Chairman of the Board 1998 214,488(3) 53,838(4) 31,622(7)
of Directors and Class C Director 1997 206,852(5) 130,447(6) 37,262(7)
Carleton F. Bryant, III 1999 $ 94,500 $ 61,115 -
Executive Vice President, 1998 94,500 72,998 -
Treasurer, Chief Operating Officer 1997 94,500 44,545 -
and Secretary
- --------------------
Includes $73,100 of salary earned in fiscal year 1999, payment of
which has been deferred.
Includes a $79,682 bonus earned in fiscal year 1999, payment of which
has been deferred.
Includes $61,842 of salary earned in fiscal year 1998, payment of
which has been deferred.
Includes a $49,628 bonus earned in fiscal year 1998, payment of which
has been deferred.
Includes $53,762 of salary earned in fiscal year 1997, payment of
which has been deferred.
Includes a $125,571 bonus earned in fiscal year 1997, payment of which
has been deferred.
Includes amounts ($19,825, $18,062 and $14,750 in fiscal 1999, 1998
and 1997, respectively) reflecting the current dollar value of the
benefit to Mr. Westerbeke of premiums paid by the Company with respect
to a split-dollar insurance arrangement (see "Employment Agreements"
below for a description of such arrangement). Such benefit was
determined by calculating the time value of money (using the
applicable federal rates) of the premiums paid by the Company in the
fiscal years ended October 23, 1999, October 24, 1998 and October 25,
1997 for the period from the date on which each premium was paid
until March 31, 2001 (which is the earliest date on which the Company
could terminate the agreement and request a refund of premiums paid).
The Company did not grant any stock options to the executive officers
named in the Summary Compensation Table during the fiscal year ended October
23, 1999.
The following table sets forth the number and value of options held by
the executive officers named in the Summary Compensation Table during the
fiscal year ended October 23, 1999.
OPTION VALUES AT OCTOBER 23, 1999
Number of Value of Unexercised
Unexercised In-the-Money(1)
Options at Options at
October 23, 1999 October 23, 1999
------------------------------------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- -----------------------------------------------------------------------------------------
John H. Westerbeke, Jr. 150,000 - $249,000 -
Carleton F. Bryant, I I I 75,000 - $122,600 -
- --------------------
In-the-money options are those where the fair market value of the
underlying Common Stock exceeds the exercise price of the option.
The value of in-the-money options is determined in accordance with
regulations of the Securities and Exchange Commission by subtracting
the aggregate exercise price of the option from the aggregate year-end
value of the underlying Common Stock.
Employment Agreements
- ---------------------
The Company has an Employment Agreement (the "Agreement") with John H.
Westerbeke, Jr., the Chairman of the Board, President and Chief Executive
Officer of the Company, which provides for his employment by the Company at
an annual base salary, subject to increases based upon the Consumer Price
Index and at the discretion of the Company. During fiscal 1999, Mr.
Westerbeke's salary was $226,190, which included $73,100 of salary which has
been deferred. The Agreement also provides for payment of a bonus at the
discretion of the Board of Directors of the Company. In September 1996, the
Board of Directors established an incentive plan for Mr. Westerbeke pursuant
to which Mr. Westerbeke will have an annual bonus opportunity, based on net
income and increases in sales, in each of the four years beginning with the
1997 fiscal year. Mr. Westerbeke may elect to have all or any part of his
base salary or bonus paid as deferred compensation in five annual
installments commencing upon his retirement or other termination of
employment, or upon a change of control of the Company, as defined in the
Agreement. Amounts deferred by Mr. Westerbeke are contributed by the
Company to a trust established to hold and invest these funds until such
time as the amounts are payable to Mr. Westerbeke. The Agreement also
requires the Company to pay premiums for certain life insurance policies on
the life of Mr. Westerbeke as described below. The Agreement may be
terminated by the Company upon the disability of Mr. Westerbeke, by the
Company with or without cause, and by Mr. Westerbeke in the event there has
occurred a constructive termination of employment by the Company. In
addition, in the event of a change in control of the Company, as defined in
the Agreement, Mr. Westerbeke may terminate his employment during the one
year period following such change in control, and in such event, the Company
will be required to pay him a lump sum cash payment in an amount equal to
three times his annual cash compensation during the most recent five taxable
years of the Company, less $1,000. In addition, in such circumstances, the
Company is required to continue to carry group life and health insurance for
Mr. Westerbeke for a three year period and is required to pay any premiums
payable on the split-dollar life insurance policies on his life for a three
year period. Under the Agreement, Mr. Westerbeke has agreed not to compete
with the Company for a period of one year following termination of his
employment.
The Company has entered into a split-dollar insurance arrangement with
Mr. Westerbeke, Jr., pursuant to which the Company will pay the premium
costs of certain life insurance policies that pay a death benefit of not
less than $4,889,403 in the aggregate upon the death of Mr. Westerbeke.
Upon surrender of the policies or payment of the death benefit thereunder,
the Company is entitled to repayment of an amount equal to the cumulative
premiums previously paid by the Company, with all remaining payments to be
made to Mr. Westerbeke or his beneficiaries. See footnote (6) to the
"Summary Compensation Table" above for further information on premium
payments made by the Company.
The Company has an agreement with Carleton F. Bryant, III, the
Executive Vice President, Treasurer and Chief Operating Officer of the
Company, which provides for his employment by the Company at an annual
salary of $94,500. Under a related agreement Mr. Bryant agrees not to
compete with the Company for a period of three years following the
termination of his employment.
The Company has an agreement with John H. Westerbeke, Sr., a director
of the Company, which provides for his employment by the Company at an
annual salary of $35,000 until Mr. Westerbeke, Sr. retires. This agreement
also provides that following his retirement, Mr. Westerbeke, Sr. will act as
consultant to the Company at an annual consulting fee of $30,000. The
Company paid Mr. Westerbeke, Sr. $35,000 during fiscal 1999.
Compensation Committee Interlocks and Insider Participation
- -----------------------------------------------------------
During the Company's past fiscal year, Thomas M. Haythe, a director of
the Company and a member of the Compensation Committee, was a partner of the
law firm of Torys, which firm acted as legal counsel to the Company during
the past fiscal year. It is expected that Torys will continue to render
legal services to the Company in the future.
Compensation of Directors
- -------------------------
The Company currently pays its directors a fee of $2,000 for attending
each meeting of the Board of Directors of the Company.
Termination of Employment and Change of Control Arrangements
- ------------------------------------------------------------
See "Employment Agreements" above for information concerning certain
change of control arrangements with respect to John H. Westerbeke, Jr., the
Chairman of the Board, President and Chief Executive Officer of the Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The shareholders (including any "group" as that term is used in
Section 13(d)(3) of the Securities Exchange Act of 1934) who, to the
knowledge of the Board of Directors of the Company, owned beneficially more
than five percent of any class of the outstanding voting securities of the
Company as of January 1, 2000, each director and each executive officer
named in the Summary Compensation Table of the Company who owned
beneficially shares of Common Stock and all directors and executive officers
of the Company as a group, and their respective shareholding as of such date
(according to information furnished by them to the Company), are set forth
in the following table. Except as indicated in the footnotes to the table,
all of such shares are owned with sole voting and investment power.
Shares of Common Stock
Name and Address Owned Beneficially Percent of Class
- ------------------------------------------------------------------------------------------
Paul B. Luber 133,255 (1) 6.9%
4201 North Oakland Avenue
Shorewood, Wisconsin 53211
Gerald Bench 8,880 (2) *
17 1/2 Passaic Avenue
Spring Lake, New Jersey 07762
Thomas M. Haythe 13,880 (3) *
Avon Industrial Park
Avon, Massachusetts 02322
Nicholas H. Safford 10,100 (4) *
9 Cleaves Street
Rockport, Massachusetts 01966
James W. Storey 17,880 (5) *
3 Saddle Ridge Road
Dover, Massachusetts 02030
John H. Westerbeke, Jr 1,248,250 (6) 60.4%
Avon Industrial Park
Avon, Massachusetts 02322
John H. Westerbeke, Sr 0 -
Avon Industrial Park
Avon, Massachusetts 02322
Carleton F. Bryant, III 75,000 (7) 3.8%
Avon Industrial Park
Avon, Massachusetts 02322
All Directors and Officers as a Group 1,373,990(2)(3)(4)(5)(6)(7) 63.0%
(seven persons)
- --------------------
Less than one percent.
Information as to these holdings is based upon a report on Schedule
13D filed with the Securities and Exchange Commission by Mr. Paul B.
Luber. Such report indicates that Mr. Luber has sole voting and
dispositive power with respect to 133,255 shares, of which 53,555
shares are directly owned by Mr. Luber and 79,700 shares are owned by
Great Lakes Capital Holdings, LLP, a limited liability partnership of
which Mr. Luber is a general partner.
Consists of 8,880 shares issuable upon the exercise of presently
exercisable stock options held by Mr. Bench.
Includes 8,880 shares issuable upon the exercise of presently
exercisable stock options held by Mr. Haythe.
Consists of 10,100 shares issuable upon the exercise of presently
exercisable stock options held by Mr. Safford.
Includes 8,880 shares issuable upon the exercise of presently
exercisable stock options held by Mr. Storey.
Includes 150,000 shares issuable upon the exercise of presently
exercisable stock options held by Mr. Westerbeke, Jr.
Consists of 75,000 shares issuable upon the exercise of presently
exercisable stock options held by Mr. Bryant.
To the Company's knowledge, there have been no significant changes in
stock ownership or control of the Company as set forth above since January
1, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company leases a 40-foot sailboat from Mr. Westerbeke, Jr. the
Chairman of the Board, President and Chief Executive Officer of the Company,
pursuant to a lease expiring in July 2004. The Company pays an annual
rental to him of $33,500 and also pays approximately $10,000 to $15,000 of
annual expenses in connection with the operation and maintenance of the
sailboat. The Company makes use of the sailboat to evaluate the performance
of its marine engine products and for other corporate purposes. In July
1994, Mr. Westerbeke, Jr. executed a promissory note payable to the Company
in the principal amount of $165,000. The proceeds of the loan were used by
Mr. Westerbeke, Jr. to purchase the sailboat which is leased to the Company
as described above. The loan, which is due June 1, 2004, is payable in
equal monthly installments which commenced on July 1, 1994, together with
interest at 7.75% per annum and is secured by the sailboat. Management of
the Company believes that the terms of the lease and of the secured loan are
no less favorable to the Company than it could obtain from an unrelated
party.
During the Company's past fiscal year, Thomas M. Haythe, a Class B
director of the Company, was a partner of the law firm of Torys, which firm
has acted as legal counsel to the Company during the past fiscal year. It
is expected that Torys will continue to render legal services to the Company
in the future.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K.
(a) 1. Financial Statements:
Included in PART II of this report: Page
Report of KPMG LLP 24
Consolidated Balance Sheets at
October 23, 1999 and October 24, 1998 25
Consolidated Statements of Operations
for the three years in the period ended
October 23, 1999 26
Consolidated Statements of Stockholders'
Equity and Comprehensive Income for the
three years in the period ended October 23, 1999 27
Consolidated Statements of Cash Flow
for the three years in the period ended
October 23, 1999 28
Notes to Consolidated Financial Statements 29
2. Financial Statement Schedule:
Included in PART II of this report:
Schedule II - Valuation and Qualifying
Account for the three years in the period
ended October 23, 1999 41
Schedules other than those listed above are omitted because
they are not applicable, or the required information is shown in
the Consolidated Financial Statements or Notes thereto. Columns
omitted from schedules filed have been omitted because the
information is not applicable.
3. Exhibits:
The exhibits required to be filed as part of this Annual
Report on Form 10-K are listed in the attached Index to Exhibits.
(b) Current Reports on Form 8-K:
During the fiscal quarter ended October 23, 1999, the
Company did not file any Current Reports on Form 8-K.
* * *
Copies of the exhibits filed with this Annual Report on Form 10-K or
incorporated by reference herein do not accompany copies hereof for
distribution to stockholders of the Company. The Company will furnish a
copy of any of such exhibits to any stockholder requesting the same for a
nominal charge to cover duplicating costs.
POWER OF ATTORNEY
The registrant and each person whose signature appears below hereby
appoint John H. Westerbeke, Jr. and Thomas M. Haythe as attorney-in-fact
with full power of substitution, severally, to execute in the name and on
behalf of the registrant and each such person, individually and in each
capacity stated below, one or more amendments to this Annual Report on Form
10-K, which amendments may make such changes in this Annual Report as the
attorney-in-fact acting in the premises deems appropriate and to file any
such amendment(s) to this Annual Report with the Securities and Exchange
Commission.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Annual Report to
be signed on its behalf by the undersigned thereunto duly authorized.
Dated: January 21, 2000
WESTERBEKE CORPORATION
By /s/ John H. Westerbeke, Jr.
---------------------------
John H. Westerbeke, Jr.
Chairman of the Board
and President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Annual Report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
Dated: January 21, 2000
By /s/ John H. Westerbeke, Jr.
---------------------------
John H. Westerbeke, Jr.
Chairman of the Board,
President and Principal
Executive Officer
Dated: January 21, 2000 By /s/ Carleton F. Bryant III
--------------------------
Carleton F. Bryant III
Executive Vice President,
Chief Operating Officer and
Principal Financial
and Accounting Officer
Dated: January 21, 2000 By /s/ Gerald Bench
----------------
Gerald Bench
Director
Dated: January 21, 2000 By /s/ Thomas M. Haythe
--------------------
Thomas M. Haythe
Director
Dated: January 21, 2000 By /s/ Nicholas H. Safford
-----------------------
Nicholas H. Safford
Director
Dated: January 21, 2000 By /s/ James W. Storey
--------------------
James W. Storey
Director
Dated: January 21, 2000 By /s/ John H. Westerbeke , Sr.
----------------------------
John H. Westerbeke, Sr.
Director
Index to Exhibits
-----------------
Exhibit
No. Name of Exhibit Page
- ------- --------------- ----
2 Agreement and Plan of Merger between the Company
and J.H. Westerbeke Corporation, a Massachusetts
corporation (1)
3(a) Certificate of Incorporation of the Company (as
amended) (1)
3(b) By-Laws of the Company
10(a) Agreement dated as of June 30, 1986 by and
between the Company and John H. Westerbeke, Sr (1)
10(b) 1986 Stock Option Plan of the Company as
amended on January 6, 1987 and on May 26, 1988
10(c) 1986 Employee Stock Purchase Plan of the
Company (1)
10(d) Supplemental Stock Option Plan of the
Company
10(e) 1996 Stock Option Plan of the Company (4)
10(f) Agreement dated as of June 1, 1986 by and among
the Company, Ruth A. Westerbeke, John H.
Westerbeke, Jr., John H. Westerbeke, Sr. and
Ruth A. Westerbeke, as trustees (1)
10(g) Form of Agreement with Distributors - Domestic (2)
10(h) Form of Agreement with Distributors - International (1)
10(i) Supplemental Medical Insurance Policy (1)
10(j) Employment Agreement dated March 24, 1993
between the Company and John H. Westerbeke, Jr.,
Chairman, President and Chief Executive Officer of
the Company
10(k) Employment Agreement dated May 14, 1993
and Confidentiality Agreement dated May 14, 1993
between the Company and Carleton F. Bryant III,
Chief Operating Officer of the Company
10(l) Security Agreement dated January 23, 1996
by the Company in favor of State Street Bank
and Trust Company (3)
10(m) Note of the Company dated January 23, 1996,
due June 30, 2001 in the principal amount of
$500,000 payable to the order of State Street Bank
and Trust Company (3)
10(n) Note of the Company dated April 25, 1997,
due June 30, 2002 in the principal amount of
$300,000 payable to the order of State Street Bank
and Trust Company (5)
10(o) Loan Facility Agreement dated April 23, 1998
between the Company and State Street Bank
and Trust Company (6)
10(p) Letter Agreement dated April 8, 1998 between
the Company and State Street Bank and Trust
Company (6)
10(q) Note of the Company dated April 3,1998,
due March 31, 1999 in the principal amount of
$4,000,000 payable to the order of State Street
Bank and Trust Company (6)
10(r) Lease dated February 3, 1999 by and between
Urban Equities and the Company (7)
21 Subsidiary of the Company
23 Consent of KPMG Peat Marwick LLP
24 Power of Attorney (See Page 54
of Annual
Report on
Form 10-K)
27 Financial Data Schedule
[FN]
- --------------------
Incorporated by reference to Exhibits to Registration Statement
No. 33-6972 filed with the Securities and Exchange Commission.
Incorporated by reference to Exhibits to Annual Report on Form 10-K
for fiscal year ended October 28, 1995.
Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q
for fiscal quarter ended January 27, 1996.
Incorporated by reference to Exhibits to Annual Report on Form 10-K
for fiscal year ended October 26, 1996.
Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q
for fiscal quarter ended April 26, 1997.
Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q
for fiscal quarter ended April 25, 1998.
Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q
for fiscal quarter ended January 23, 1999.