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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: July 27, 2002
-------------
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
-------
Westerbeke Corporation
----------------------
(Exact name of registrant as specified in its charter)
Delaware 04-1925880
-------- ----------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) Identification No.)
Myles Standish Industrial Park
Taunton, Massachusetts 02780
------------------------------ -----
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (508) 823-7677
--------------
No Change
---------
(Former name, former address and former fiscal year
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was to file such reports.) and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Outstanding at
Class September 3, 2002
----- -----------------
Common Stock, $.01 par value 1,954,809
1
WESTERBEKE CORPORATION AND SUBSIDIARY
INDEX
Page
Part I - Financial Information
Item 1 - Consolidated Financial Statements
Consolidated Balance Sheets as
of July 27, 2002 and
October 27, 2001 4
Consolidated Statements of
Operations for the three
months ended July 27, 2002
and July 28, 2001 5
Consolidated Statements of
Operations for the nine
months ended July 27, 2002
and July 28, 2001 6
Consolidated Statements of
Comprehensive Income for the
three and nine months ended July
27, 2002 and July 28, 2001,
respectively 7
Consolidated Statements of
Cash Flows for the nine
months ended July 27, 2002
and July 28, 2001 8
Notes to Consolidated
Financial Statements 9-13
Item 2 -
Management's Discussion and
Analysis of Financial Condition
and Results of Operations 14-17
Item 3 -
Quantitative and Qualitative Disclosures
About Market Risk 18
Item 4 -
Controls and Procedures 18
Continued
2
Index
Part II - Other Information 19-20
Signatures 21
Certifications 22-26
3
WESTERBEKE CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
July 27, October 27,
2002 2001
-------- -----------
(Unaudited) Audited
ASSETS
Current assets:
Cash and cash equivalents $ 776,300 $ 40,300
Accounts receivable, net of allowance for doubtful accounts
of $115,000 at July 27, 2002 and October 27, 2001 2,541,000 2,131,800
Inventories (Note 2) 4,617,400 7,566,800
Prepaid expenses and other assets 547,200 397,500
Prepaid income taxes 8,500 354,700
Deferred income taxes 844,200 844,200
----------- -----------
Total current assets 9,334,600 11,335,300
----------- -----------
Property, plant and equipment, net (Note 4) 8,508,900 8,862,400
Split dollar premiums (Note 5) 1,013,200 1,237,000
Other assets, net 175,300 190,200
Investments in marketable securities 108,400 109,200
Note receivable - related party 41,300 56,200
Deferred income taxes 182,600 87,400
----------- -----------
$19,364,300 $21,877,700
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (Note 3) $ 334,100 $ 317,900
Revolving demand note payable - 2,500,000
Accounts payable 2,078,300 2,164,300
Accrued expenses and other liabilities 537,800 545,200
----------- -----------
Total current liabilities 2,950,200 5,527,400
----------- -----------
Long-term debt, net of current portion (Note 3) 4,522,700 4,770,400
----------- -----------
Total liabilities 7,472,900 10,297,800
----------- -----------
Stockholders' equity:
Common stock, $.01 par value; authorized 5,000,000 shares;
issued 2,244,682 at July 27, 2002 and 2,225,328 at
October 27, 2001 22,400 22,300
Additional paid-in-capital 6,126,700 6,105,100
Accumulated other comprehensive loss (502,500) (359,800)
Retained earnings 7,052,100 6,619,600
----------- -----------
12,698,700 12,387,200
Less - Treasury shares at cost, 289,873 shares at July 27,
2002 and October 27, 2001 807,300 807,300
----------- -----------
Total stockholders' equity 11,891,400 11,579,900
----------- -----------
$19,364,300 $21,877,700
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
4
WESTERBEKE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
--------------------------
July 27, July 28,
2002 2001
-------- --------
(Unaudited)
Net sales $7,783,900 $6,760,500
Cost of sales 5,953,000 5,128,900
---------- ----------
Gross profit 1,830,900 1,631,600
Selling, general and administrative expense 936,400 1,015,300
Research and development expense 254,000 358,700
---------- ----------
Income from operations 640,500 257,600
---------- ----------
Other income (expense):
Interest expense, net (89,100) (137,600)
Other income - 18,500
---------- ----------
Other income (expense), net (89,100) (119,100)
---------- ----------
Income before income taxes 551,400 138,500
Provision for income taxes (Note 6) 180,600 55,400
---------- ----------
Net income $ 370,800 $ 83,100
========== ==========
Income per common share, basic $ .19 $ .04
========== ==========
Income per common share, diluted $ .19 $ .04
========== ==========
Weighted average common shares, basic 1,954,809 1,946,281
========== ==========
Weighted average common shares, diluted 1,989,227 2,038,141
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
5
WESTERBEKE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended
--------------------------
July 27, July 28,
2002 2001
-------- --------
(Unaudited)
Net sales $19,887,000 $22,369,700
Cost of sales 15,394,200 17,700,800
----------- -----------
Gross profit 4,492,800 4,668,900
Selling, general and administrative expense 3,268,300 3,431,000
Research and development expense 841,200 1,118,000
----------- -----------
Income from operations 383,300 119,900
----------- -----------
Other income (expense):
Interest expense, net (301,900) (492,200)
Gain on sale of facility - 552,800
Other income (expense) 50,000 9,700
----------- -----------
Other income (expense), net (251,900) 70,300
----------- -----------
Income before income taxes 131,400 190,200
Provision for income taxes (benefit) (Note 6) (301,100) 76,100
----------- -----------
Net income $ 432,500 $ 114,100
=========== ===========
Income per common share, basic $ .22 $ .06
=========== ===========
Income per common share, diluted $ .22 $ .06
=========== ===========
Weighted average common shares, basic 1,947,151 1,939,793
=========== ===========
Weighted average common shares, diluted 1,981,569 2,046,008
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
6
WESTERBEKE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three Months Ended
------------------------------
July 27, 2002 July 28, 2001
------------- -------------
(Unaudited)
Net income $ 370,800 $ 83,100
Unrealized losses on marketable securities, net of income
taxes of $75,200 at July 27, 2002 and $25,900 at
July 28, 2001 (112,600) (38,800)
--------- ---------
Comprehensive income $ 258,200 $ 44,300
========= =========
Nine Months Ended
------------------------------
July 27, 2002 July 28, 2001
------------- -------------
(Unaudited)
Net income $ 432,500 $ 114,100
Unrealized losses on marketable securities, net of income
taxes of $95,200 at July 27, 2002 and $180,400 at
July 28, 2001 (142,700) (270,600)
--------- ---------
Comprehensive income (loss) $ 289,800 $(156,500)
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
7
WESTERBEKE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
----------------------------
July 27, July 28,
2002 2001
-------- --------
(Unaudited)
Cash flows from operating activities:
Net income $ 432,500 $ 114,100
Reconciliation of net income to net cash
provided by operating activities:
Depreciation and amortization 584,300 589,400
Gain on disposal of fixed assets - (554,000)
Changes in operating assets and liabilities:
Accounts receivable (409,200) (85,800)
Inventories 2,949,400 604,300
Prepaid expenses and other assets (149,700) 60,100
Split-dollar premiums - (200,000)
Other assets - 345,800
Accounts payable (86,000) (527,100)
Accrued expenses and other liabilities (7,400) (18,700)
Deferred compensation - (345,800)
Prepaid income taxes 346,200 86,400
----------- -----------
Net cash provided by operating activities 3,660,100 68,700
----------- -----------
Cash flows used in investing activities:
Purchase of property, plant and equipment (215,900) (1,319,900)
Proceeds from sale of fixed assets - 1,241,200
Purchase of marketable securities (13,300) (4,800)
Proceeds from payment of note receivable -
related party 14,900 13,800
----------- -----------
Net cash used in investing activities (214,300) (69,700)
----------- -----------
Cash flows from financing activities:
Exercise of stock options 21,700 46,300
Net repayments under revolving demand note (2,500,000) (648,000)
Proceeds from Massachusetts Development
Finance Agency - 500,000
Purchase of treasury stock - (24,600)
Principal payments on long-term debt and
capital leases (231,500) (250,900)
----------- -----------
Net cash used in financing activities (2,709,800) (377,200)
----------- -----------
Increase (decrease) in cash and cash equivalents 736,000 (378,200)
Cash and cash equivalents, beginning of period 40,300 421,100
----------- -----------
Cash and cash equivalents, end of period $ 776,300 $ 42,900
=========== ===========
Supplemental cash flow disclosures:
Interest paid $ 115,000 $ 483,400
Income taxes paid $ - $ 10,000
Supplemental disclosures of non-cash items:
Decrease in unrealized gains on marketable
securities, net of income taxes $ 8,400 $ 600
Unrealized loss in split-dollar life insurance
investments, net of income taxes $ 134,300 $ 270,000
8
WESTERBEKE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Summary of Significant Accounting Policies:
A. Financial Statements
The condensed consolidated financial statements included herein have been
prepared by Westerbeke Corporation (the "Company"), without audit, pursuant
to the rules and regulations of the Securities and Exchange Commission.
While certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles
generally accepted in the United States of America have been condensed or
omitted pursuant to such rules and regulations, the Company believes that
the disclosures made herein are adequate to make the information presented
not misleading. It is recommended that these condensed financial
statements be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's Annual Report on
Form 10-K for the fiscal year ended October 27, 2001.
In the opinion of management of the Company, all adjustments, consisting
only of normal recurring adjustments necessary to present fairly the
financial position of Westerbeke Corporation and Subsidiary as of July 27,
2002, and the results of their operations and their cash flows, for the
three and nine-month periods then ended, have been included.
The results disclosed in the condensed consolidated financial statements
are not necessarily indicative of the results expected for the full fiscal
year.
B. Basis of Presentation
The condensed consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary, Westerbeke International, Inc. (a
Foreign Sales Corporation). All inter-company transactions and accounts
are eliminated in consolidation.
Continued
9
WESTERBEKE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Unaudited)
C. Earnings 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, except when the effect
would be antidilutive.
For the three months ended:
------------------------------------------------------------------------
July 27, 2002 July 28, 2001
--------------------------------- ---------------------------------
Income Net Income Net
per share Shares Income per share Shares Income
--------- ------ ------ --------- ------ ------
Basic $.19 1,954,809 $370,800 $.04 1,946,281 $83,100
Effect of
Stock options - 34,418 - - 91,860 -
---- --------- -------- ---- --------- -------
Diluted $.19 1,989,227 $370,800 $.04 2,038,141 $83,100
For the nine months ended:
------------------------------------------------------------------------
July 27, 2002 July 28, 2001
--------------------------------- ---------------------------------
Income Net Income Net
per share Shares Income per share Shares Income
--------- ------ ------ --------- ------ ------
Basic $.22 1,947,151 $432,500 $.06 1,939,793 $114,100
Effect of
Stock options - 34,418 - - 106,215 -
---- --------- -------- ---- --------- --------
Diluted $.22 1,981,569 $432,500 $.06 2,046,008 $114,100
At July 27, 2002, there were 183,300 exercisable options outstanding, which
were convertible into 183,300 common shares. There were 33,300 options
excluded from the earnings per share calculation in both the three and
nine-month periods ended July 27, 2002, since their inclusion would have
been antidilutive.
Continued
10
WESTERBEKE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Unaudited)
D. Split-Dollar Life Insurance Agreement
The Company has a split dollar life insurance agreement with John H.
Westerbeke, Jr., Chairman, President and Chief Executive Officer of the
Company. This agreement allows the premiums paid to be invested in a
select group of mutual funds thus subjecting the total cash value of
premiums paid to market risk.
The cash proceeds the Company would receive depends upon the method of
termination. If termination is initiated by death, the Company would
receive the cumulative value of the premiums paid. If the policy is
terminated for other reasons, the Company would receive the lesser of the
fair value of the mutual funds in which the premiums are invested or the
cumulative value of the premiums paid. The Company accounts for this
arrangement in accordance with SFAS No. 115, Accounting for Certain
Investments in Debt and Equity Securities. The investments are classified
as available for sale and unrealized gains and losses are reflected as a
component of other comprehensive income net of tax.
2. Inventories
The Company uses the last-in, first-out (LIFO) method to value inventory.
Inventories are comprised of the following:
July 27, October 27,
2002 2001
-------- -----------
Raw materials $3,457,000 $5,734,300
Work-in-process 695,800 855,800
Finished goods 464,600 976,700
---------- ----------
$4,617,400 $7,566,800
========== ==========
The Company has estimated the fiscal year-end 2002 inventory levels and the
inflation/deflation that will occur during the fiscal year in determining
their effect on the LIFO reserve at July 27, 2002. As a result, the
Company anticipates a decrease in its LIFO valuation account as of October
26, 2002. Accordingly, the Company has recorded a decrease of $192,800, on
a pro rata basis, in the LIFO reserve during the first nine months of
fiscal 2002. During the first nine months of 2001, the Company recorded,
on a pro rata basis, an increase of $67,500 in the LIFO reserve.
Inventories would have been $725,800 higher at July 27, 2002 and $918,600
higher as of October 27, 2001, if the first-in, first-out (FIFO) method had
been used. Inventory cost determination on the FIFO method approximates
replacement or current cost.
Continued
11
WESTERBEKE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Unaudited)
3. Long-Term Debt
July 27, 2002 October 27, 2001
------------- ----------------
Term Loan with an interest rate of 6.46%,
with repayment terms through April 2015. $4,159,400 $4,313,400
Term Loan with an interest rate of 6.46%,
with repayment terms through April 2007. 290,500 328,800
Term Loan with an interest rate of 8.50%,
with repayment terms through December 2007. 406,900 446,100
---------- ----------
4,856,800 5,088,300
Less current portion 334,100 317,900
---------- ----------
Long term debt, net of current portion $4,522,700 $4,770,400
========== ==========
4. Property, Plant and Equipment
July 27, 2002 October 27, 2001
------------- ----------------
Land $ 921,500 $ 921,500
Building and building improvements 5,658,300 5,630,200
Furniture and fixtures 711,300 706,800
Machinery, patterns and equipment 5,037,200 4,853,800
Transportation equipment 80,400 80,400
Leasehold improvements 20,400 20,400
Equipment under capital lease 769,200 769,200
----------- -----------
13,198,300 12,982,300
Less accumulated depreciation 4,689,400 4,119,900
----------- -----------
$ 8,508,900 $ 8,862,400
=========== ===========
Continued
12
WESTERBEKE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Unaudited)
5. Split-Dollar Premiums
The Company has a split dollar life insurance agreement with John H.
Westerbeke, Jr., Chairman, President and Chief Executive Officer of the
Company. The value reflected on the balance sheet is the lesser of the
fair value of the mutual funds in which the premiums are invested or the
cumulative value of the premiums paid. The Company accounts for this
arrangement in accordance with SFAS No. 115, Accounting for Certain
Investments in Debt and Equity Securities. The investments are classified
as available for sale and unrealized gains and losses are reflected as a
component of other comprehensive income net of tax.
At July 27, 2002 the Company had an unrealized accumulated loss of
$513,800, net of taxes of $342,600, included in accumulated other
comprehensive income.
6. Taxes on Income
Taxes on income for the nine-months ended July 27, 2002 includes a $353,700
credit received for research and development expenditures. The credits
relate to the years ended October 1996 through October 1998. The Company
initially applied for these credits in the period ended October 2000. Such
amounts were not recorded into income due to an audit being performed by
the Internal Revenue Service (IRS). The Company took the position that
income should not have been recognized until the IRS approved such refund
credits. The IRS concluded its examination on March 14, 2002 without
adjustments and, accordingly, the Company recorded $353,700 as income in
the three months ended April 27, 2002.
7. Major Customer
The Company had sales to one major customer, which represented 19% and 25%
of total sales for the three-months ended July 27, 2002 and July 28, 2001,
respectively. Sales to this customer for the nine months ended July 27,
2002 and July 28, 2001 were 21% and 27% of total sales. On April 19, 2002,
the Company announced that its exclusive agreement with this customer would
not be extended. The agreement expired on June 30, 2002.
8. Subsequent Event
As previously announced, on August 29, 2002 the Federal Court of Appeals
for the Second Circuit reversed the decision of the Federal District Court
for the Southern District of New York, which had previously vacated the
$4.2 million damages award granted to the Company in its arbitration
against Daihatsu Motor Company, Ltd. ("Daihatsu"). The Court of Appeals has
remanded the case to the District Court with instructions for the District
Court to confirm the arbitration award in favor of the Company.
Nevertheless, the Company is unable to predict when, if ever, it will
receive payment of the award, and there can be no assurance that Daihatsu
will not continue to defend enforcement of the award. Therefore, the
Company will not record any recovery until received.
13
Item 2 - Management's Discussion and Analysis
Of Financial Condition and Results Of Operations
Forward Looking Information
This Quarterly Report on Form 10-Q contains forward-looking information
about the Company. In addition to the historical information contained
herein, the discussions contained in this document include statements that
constitute forward-looking statements under the Safe Harbor provisions of
the Private Securities Litigation Reform Act of 1995, including with
respect to the Company's expected cash flow from operations and borrowings
under the Credit Agreement, its listing on Nasdaq and its success in
recovering awarded damages in pending litigation. 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
inability to replace revenues and/or profits associated with the loss of
the exclusive agreement with its largest customer; the unanticipated loss
of a major supplier; the unanticipated required repayment in full of
outstanding amounts under the Company's demand credit facility; changes in
laws and regulations applicable to the Company; the impact of pending or
threatened litigation; the inability of the Company to effect required
modifications of its products to meet governmental regulations with respect
to emission standards; general economic and business conditions; financial
market volatility; 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 and the forward-looking statements contained herein should not be
relied upon as predictions of future results. Furthermore, the Company
undertakes no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or
otherwise.
Results of Operations -
Net sales increased by $1,023,400, or 15%, during the third quarter of
fiscal 2002 and decreased $2,482,700 or 11% for the first nine months of
fiscal 2002 as compared to the same periods in fiscal 2001. The increase
in the third quarter of fiscal 2002 was primarily the result of an increase
in demand for the Company's products. The increase in the three months
ended July 27, 2002 does not offset the decrease the Company realized in
the first six months which was attributable to general business conditions
in the domestic recreational marine market, in particular, a decrease in
unit volume resulting from decreased demand for new boats.
Gross profit increased $199,300 or 12% during the third quarter and
decreased $176,100 or 4% for the first nine months of fiscal 2002 as
compared to the same periods in fiscal 2001. As a percentage of net sales,
gross profit was 24% during the third quarters of both fiscal years 2002
and 2001. For the nine months ended July 27, 2002, gross profit was 23%
compared to 21% for the same period ended July 28, 2001. The increase in
gross profit margin was primarily attributable to the product mix,
decreases in overhead costs and also the decrease in labor costs during the
first quarter of fiscal 2002.
Operating expenses, which consist of selling, general and administrative
expenses as well as research and development expenses, decreased $183,600
for the third quarter and decreased $439,500 in the first nine months of
fiscal 2002, as compared to the same periods in fiscal 2001. The reduction
of operating expenses was primarily attributable to a decrease in the
following areas: labor costs as a result of a reduction in personnel,
supplies consumed in research and development activities, the utilization
of outside consultants in engineering and commissions earned on the
decreased sales volume.
14
WESTERBEKE CORPORATION AND SUBSIDIARY
Net interest expense decreased $48,500 during the third quarter and
decreased $190,300 for the first nine months of fiscal 2002 as compared to
the same periods in fiscal 2001. The reduction in interest expense is
related to lower levels of outstanding debt and reduced borrowing costs.
During the second quarter ended April 27, 2002, the Company received
$353,700 of research and development credits from the U.S. Department of
the Treasury.
For the third quarter ended July 27, 2002, the Company reported net income
of $370,800, compared to net income of $83,100 for the same period in
fiscal 2001. For the nine months ended July 27, 2002, the Company reported
net income of $432,500 as compared to net income of 114,100 for the nine-
months ended July 28, 2001. The increase in net income for the three and
nine month periods was from the combination of decreased interest expense,
operating expenses and the reduction of income taxes offset partially by
the gross profit lost from the decreased sales volume.
On April 19, 2002 the Company announced that its exclusive agreement with
its largest customer would not be extended. The agreement expired on June
30, 2002. The Company had anticipated the loss of this agreement and has
undertaken certain cost reduction programs.
Liquidity and Capital Resources
During the first nine months of fiscal 2002, net cash provided by operating
activities was $3,660,100, compared to net cash provided by operations of
$68,700 for the first nine months in fiscal 2001. The increase in cash
provided by operating activities was primarily the result of reduced
inventory levels and the timing of payments related to the split-dollar
insurance arrangement partially offset by the increase in accounts
receivable. The increase in cash was also due to the receipt of research
and development credits and income tax refunds.
During the nine months ended July 27, 2002, the Company purchased machinery
and equipment of $215,900. The Company plans additional capital spending
of $100,000 during the remainder of the fiscal year. On April 25, 2000,
the Company purchased a 110,000 square foot facility located in Taunton,
Massachusetts. This facility has enabled the Company to consolidate its
operations into one location. The MassDevelopment Financing Agency
approved the Company for a $5,000,000 tax-exempt industrial revenue bond,
which has been financed by GE Capital Public Finance. The real estate
portion of the industrial revenue bond is a 15-year mortgage loan, with
$4,159,400 outstanding at July 27, 2002. The loan agreement requires
monthly payments of $40,000. The equipment portion of the industrial
revenue bond is a 7-year term loan, with $290,500 outstanding at July 27,
2002. The term loan requires monthly payments of $5,900. The Company also
has an additional 7-year equipment loan, with $406,900 outstanding at July
27, 2002. This loan agreement requires a monthly payment of $7,900.
On June 26, 2000, the Company entered into a $5,000,000 Credit Agreement
with Brown Brothers Harriman & Co. collateralized by inventory, accounts
receivable and general intangibles. The Credit Agreement was increased on
September 25, 2000 to a maximum availability of $6,000,000. The actual
amount available for borrowing is based on a calculation of eligible
accounts receivable and eligible inventory. Based on this calculation at
July 27, 2002, the Company had approximately $3,720,600 available for
borrowing. At July 27, 2002, the Company had no outstanding borrowings
under the Credit Agreement and approximately $123,200 committed to cover
the Company's reimbursement obligations under certain letters of credit and
bankers' acceptances. The Credit Agreement does not have an expiration
date, but is payable on written demand.
15
WESTERBEKE CORPORATION AND SUBSIDIARY
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 2002.
Domestic inflation is not expected to have a material impact on the
Company's operations.
The cost of engine blocks and other components is 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 during the first nine months of fiscal 2002.
New Accounting Pronouncements
In July 2001, the FASB issued SFAS No. 141, "Business Combinations", and
SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141
provides new guidance on the accounting for a business combination at the
date a business combination is completed. Specifically, it requires use of
the purchase method of accounting for all business combinations initiated
after June 30, 2001, thereby eliminating use of the pooling-of-interests
method. The provisions of SFAS No. 141 are effective immediately, except
with regard to business combinations initiated prior to June 30, 2001.
SFAS No. 142 will be effective as of January 1, 2002. Goodwill and other
intangible assets determined to have an indefinite useful life that are
acquired in a business combination completed after July 1, 2001, will
not be amortized, but will continue to be evaluated for impairment in
accordance with appropriate pre-SFAS 142 accounting literature. Goodwill
and other intangible assets acquired in business combinations completed
before July 1, 2001 will continue to be amortized prior to the adoption of
SFAS No. 142. SFAS No. 142 establishes new guidance on how to account for
goodwill and intangible assets after a business combination is completed.
Among other things, it requires that goodwill and certain other intangible
assets will no longer be amortized and will be tested for impairment at
least annually and written down only when impaired. This statement will
apply to existing goodwill and intangible assets beginning with fiscal
years starting after December 15, 2001. The Company does not believe there
will be a material effect from the adoption of these new standards.
On August 16, 2001, FASB issued Statement No. 143, "Accounting for Asset
Retirement Obligations." The standard requires entities to record the fair
value of a liability for an asset retirement obligation in the period in
which it is incurred. When the liability is initially recorded, the entity
capitalizes a cost by increasing the carrying amount of the related long-
lived asset. Over time, the liability is accreted to its present value
each period, and the capitalized cost is depreciated over the useful life
of the related asset. Upon settlement of the liability, an entity either
settles the obligation for its recorded amount or incurs a gain or loss
upon settlement. The standard will apply to the Company effective October
27, 2002. The Company does not believe there will be a material effect
from the adoption of this new standard.
On October 3, 2001, FASB issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," that replaced FASB Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets To Be Disposed Of." The primary objectives of this project
were to develop one accounting model based on the framework established in
Statement No. 121 for long-lived assets to be disposed of by sale and to
address significant implementation issues. The accounting model for long-
lived assets to be disposed of by sale applies to all long-lived assets,
including discontinued operations, and replaces the provisions of APB
Opinion No. 30, Reporting Results of Operations-Reporting the Effects of
Disposal of a Segment of a Business, for the disposal of segments of a
business. Statement No. 144 requires that those long-lived assets be
measured at the lower of carrying amount or fair value less cost to sell,
whether reported in continuing operations or in
16
WESTERBEKE CORPORATION AND SUBSIDIARY
discontinued operations. Therefore, discontinued operations will no longer
be measured at net realizable value or include amounts for operating losses
that have not yet occurred. The provisions of Statement No. 144 will apply
to the Company effective October 27, 2002. The Company does not believe
there will be a material effect from the adoption of this new standard.
In June 2002, FASB issued Statement No. 146, "Accounting for Costs
associated with Exit or Disposal Activities". The standard addresses
financial accounting and reporting for costs associated with exit or
disposal activities and nullifies Emerging Issues Task Force (EITF) Issue
No. 94-3, "Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." Statement No. 146 states that a liability for a cost
associated with an exit or disposal activity shall be recognized and
measured initially at its fair value in the period in which the liability
is incurred, except for a liability for one-time termination benefits that
are incurred over a period of time. The standard will apply to the Company
effective December 31, 2002. The Company does not believe there will be a
material effect from the adoption of this new standard.
17
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
There are no material changes to the disclosure made in the Annual Report
on Form 10-K for the year ended October 27, 2001 regarding this matter.
Item 4 - Controls and Procedures
(a) Evaluation of disclosure controls and procedures. Based on their
evaluation, as of a date within 90 days prior to the date of the
filing of this Form 10-Q, of the effectiveness of the Company's
disclosure controls and procedures (as defined in Rules 13a-14(c) and
15d-14(c) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the principal executive officer and the principal
financial officer of the Company have each concluded that such
disclosure controls and procedures are effective and sufficient to
ensure that information required to be disclosed by the Company in
the reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time periods
specified by the Securities and Exchange Commission's rules and
forms.
(b) Changes in internal controls. Subsequent to the date of their
evaluation, there have not been any significant changes in the
Company's internal controls or in other factors that could
significantly affect these controls, including any corrective action
with regard to significant deficiencies and material weaknesses.
18
Part II. Other Information
Item 1 Legal Proceedings
As previously announced, on August 29, 2002 the Federal Court of
Appeals for the Second Circuit reversed the decision of the Federal
District Court for the Southern District of New York, which had
previously vacated the $4.2 million damages award granted to the
Company in its arbitration against Daihatsu Motor Company, Ltd.
("Daihatsu"). The Court of Appeals has remanded the case to the
District Court with instructions for the District Court to confirm
the arbitration award in favor of the Company. Nevertheless, the
Company is unable to predict when, if ever, it will receive payment
of the award, and there can be no assurance that Daihatsu will not
continue to defend enforcement of the award. Therefore, the Company
will not record any recovery until received.
Item 2 Changes in Securities
None to report
Item 3 Default Upon Senior Securities
None to report
Item 4 Submissions of Matters to a Vote of Security Holders
None to report
Item 5 Other Information
(a) Possible Nasdaq Delisting
On August 29, 2002, the Company received a notice from the
Nasdaq Stock Market regarding the listing of its common stock.
The notice asserted that the Company's common stock has not
maintained, for the last 30 consecutive trading days, a minimum
market value of publicly held shares of $1,000,000, as required
by NASD Marketplace Rule 4310(c)(7). The Company was provided
a 90 calendar day "grace period" to regain compliance with the
minimum market value requirement, which period expires on
November 27, 2002. In order to comply with the applicable
Rule, the market value of the Company's publicly held shares
must be at least $1,000,000 for a minimum of 10 consecutive
trading days during the grace period. If compliance with the
applicable Rule cannot be demonstrated by the end of the grace
period, the notice indicated that the Company would receive a
delisting notice from Nasdaq. There can be no assurance that
the Company will be able to comply with the applicable Rule in
a timely fashion, or that the Company will not be delisted by
Nasdaq.
(b) Split-Dollar Life Insurance Agreement
The Company has a split-dollar life insurance agreement with
John H. Westerbeke, Jr., Chairman, President and Chief
Executive Officer of the Company. Pursuant to the requirements
of the Sarbanes-Oxley Act of 2002, the Company has stopped
paying premiums in connection with such agreement.
19
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
See Exhibit Index
(b) Reports on Form 8-K
None to report
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WESTERBEKE CORPORATION
(Registrant)
Dated September 9, 2002 /s/ John H. Westerbeke, Jr.
----------------- ------------------------------
John H. Westerbeke, Jr.
Chairman of the Board,
President and Principal
Executive Officer
Dated September 9, 2002 /s/ Gregory Haidemenos
----------------- ------------------------------
Gregory Haidemenos
Principal Financial
and Accounting Officer
21
CERTIFICATIONS
I, John H. Westerbeke, Jr., Chairman of the Board, President and Chief
Executive Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Westerbeke
Corporation.
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons performing
the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
Date: September 9, 2002
/s/ John H. Westerbeke, Jr.
------------------------------
John H. Westerbeke, Jr.
Principal Executive Officer
22
I, Gregory Haidemenos, Chief Financial Officer and Treasurer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Westerbeke
Corporation.
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons performing
the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
Date: September 9, 2002
/s/ Gregory Haidemenos
------------------------------
Gregory Haidemenos
Principal Financial Officer
23
EXHIBIT INDEX
Exhibit Description
- ------- -----------
99.1 Certification of Chief Executive Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
99.2 Certification of Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
25