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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: April 26, 2003
--------------
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 May 19, 2003
----- --------------
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
April 26, 2003 and October 26, 2002 3
Consolidated Statements of
Operations for the three
months ended April 26, 2003
and April 27, 2002 4
Consolidated Statements of
Operations for the six
months ended April 26, 2003
and April 27, 2002 5
Consolidated Statements of
Comprehensive Income (Loss) for
the three and six months ended
April 26, 2003 and April 27, 2002,
respectively 6
Consolidated Statements of
Cash Flows for the six
months ended April 26, 2003
and April 27, 2002 7
Notes to Consolidated
Financial Statements 8-13
Item 2 -
Management's Discussion and
Analysis of Financial Condition
and Results of Operations 14-16
Item 3 -
Quantitative and Qualitative Disclosures
About Market Risk 17
Item 4 -
Controls and Procedures 17
Part II - Other Information 18-19
Signatures 20
Certifications 21-25
2
WESTERBEKE CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
April 26, October 26,
2003 2002
--------- -----------
(Unaudited) Audited
ASSETS
Current assets:
Cash and cash equivalents $ 994,100 $ 4,471,100
Accounts receivable, net of allowance for
doubtful accounts and price allowances
of $688,600 at April 26, 2003 and $480,000
at October 26, 2002 2,639,300 2,114,500
Inventories (Note 2) 6,223,400 5,048,300
Prepaid expenses and other assets 410,900 456,800
Prepaid income taxes - 267,800
Deferred income taxes 1,390,200 951,700
----------- -----------
Total current assets 11,657,900 13,310,200
----------- -----------
Property, plant and equipment, net (Note 4) 8,064,200 8,348,600
Split dollar premiums (Note 5) 1,002,900 1,068,300
Other assets, net 160,400 170,300
Investments in marketable securities 108,000 109,900
Note receivable - related party 25,600 36,200
Deferred income taxes 75,200 46,400
----------- -----------
$21,094,200 $23,089,900
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (Note 3) $ 351,600 $ 340,300
Accounts payable 1,714,800 1,385,600
Accrued expenses and other liabilities 913,300 1,237,400
Accrued income taxes - 1,317,700
----------- -----------
Total current liabilities 2,979,700 4,281,000
----------- -----------
Long-term debt, net of current portion (Note 3) 4,256,800 4,430,100
----------- -----------
Total liabilities 7,236,500 8,711,100
----------- -----------
Stockholders' equity:
Preferred stock, $1.00 par value; authorized
1,000,000 shares; none issued or outstanding
Common stock, $.01 par value; authorized
5,000,000 shares; issued 2,244,682 at
April 26, 2003 and October 26, 2002 22,400 22,400
Additional paid-in-capital 6,126,700 6,126,700
Accumulated other comprehensive loss (511,700) (468,600)
Retained earnings 9,027,600 9,505,600
----------- -----------
14,665,000 15,186,100
Less - Treasury shares at cost, 289,873
shares at April 26, 2003 and
October 26, 2002 807,300 807,300
----------- -----------
Total stockholders' equity 13,857,700 14,378,800
----------- -----------
$21,094,200 $23,089,900
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
3
WESTERBEKE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
--------------------------
April 26, April 27,
2003 2002
--------- ---------
(Unaudited)
Net sales $5,248,800 $7,428,600
Cost of sales 4,130,000 5,721,700
---------- ----------
Gross profit 1,118,800 1,706,900
Selling, general and administrative expense 1,246,000 1,237,000
Research and development expense 317,600 282,900
---------- ----------
Income (loss) from operations (444,800) 187,000
---------- ----------
Other income (expense):
Interest expense, net (66,100) (109,200)
Other income 10,000 50,000
---------- ----------
Other expense, net (56,100) (59,200)
---------- ----------
Income (loss) before income taxes (500,900) 127,800
Provision for income taxes (benefit) (Note 6) (200,400) (262,600)
---------- ----------
Net income (loss) $ (300,500) $ 390,400
========== ==========
Income (loss) per common share, basic $ (.15) $ .20
========== ==========
Income (loss) per common share, diluted $ (.15) $ .19
========== ==========
Weighted average common shares, basic 1,954,809 1,951,168
========== ==========
Weighted average common shares, diluted 1,954,809 2,005,318
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
4
WESTERBEKE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months Ended
----------------------------
April 26, April 27,
2003 2002
--------- ---------
(Unaudited)
Net sales $ 9,744,600 $12,103,100
Cost of sales 7,678,900 9,441,200
----------- -----------
Gross profit 2,065,700 2,661,900
Selling, general and administrative expense 2,304,900 2,331,900
Research and development expense 628,400 587,200
----------- -----------
Loss from operations (867,600) (257,200)
----------- -----------
Other income (expense):
Interest expense, net (126,600) (212,800)
Other income 10,000 50,000
----------- -----------
Other expense, net (116,600) (162,800)
----------- -----------
Loss before income taxes (984,200) (420,000)
Provision for income taxes (benefit) (Note 6) (506,200) (481,700)
----------- -----------
Net income (loss) $ (478,000) $ 61,700
=========== ===========
Income (loss) per common share, basic $ (.24) $ .03
=========== ===========
Income (loss) per common share, diluted $ (.24) $ .03
=========== ===========
Weighted average common shares, basic 1,954,809 1,943,322
=========== ===========
Weighted average common shares, diluted 1,954,809 1,997,472
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
5
WESTERBEKE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Three Months Ended
--------------------------------
April 26, 2003 April 27, 2002
-------------- --------------
(Unaudited)
Net income (loss) $(300,500) $ 390,400
Unrealized losses on marketable securities,
net of income taxes of $9,100 at April 26,
2003 and $33,900 at April 27, 2002 (13,600) (50,800)
--------- ---------
Comprehensive income (loss) $(314,100) $ 339,600
========= =========
Six Months Ended
--------------------------------
April 26, 2003 April 27, 2002
-------------- --------------
(Unaudited)
Net income (loss) $(478,000) $ 61,700
Unrealized losses on marketable securities,
net of income taxes of $28,800 at April 26,
2003 and $20,100 at April 27, 2002 (43,100) (30,100)
--------- ---------
Comprehensive income (loss) $(521,100) $ 31,600
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
6
WESTERBEKE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
----------------------------
April 26, April 27,
2003 2002
--------- ---------
(Unaudited)
Cash flows from operating activities:
Net income (loss) $ (478,000) $ 61,700
Reconciliation of net income (loss) to net cash
provided (used) by operating activities:
Depreciation and amortization 394,800 396,300
Deferred income taxes (438,500) -
Gain on disposal of fixed assets (10,000) -
Changes in operating assets and liabilities:
Accounts receivable (524,800) (623,800)
Inventories (1,175,100) 1,345,900
Prepaid expenses and other assets 45,900 (20,100)
Accounts payable 329,200 11,400
Accrued expenses and other liabilities (324,100) 32,300
Prepaid income taxes 267,800 -
Accrued income taxes payable (1,317,700) 165,600
----------- -----------
Net cash provided (used) by operating activities (3,230,500) 1,369,300
----------- -----------
Cash flows used in investing activities:
Purchase of property, plant and equipment (100,400) (147,100)
Proceeds from sale of fixed assets 10,000 -
Purchase of marketable securities (4,700) (13,300)
Proceeds from payment of note receivable - related
party 10,600 9,900
----------- -----------
Net cash used in investing activities (84,500) (150,500)
----------- -----------
Cash flows from financing activities:
Exercise of stock options - 21,700
Net repayments under revolving demand note - (500,000)
Principal payments on long-term debt and capital
leases (162,000) (156,400)
----------- -----------
Net cash used in financing activities (162,000) (634,700)
----------- -----------
Increase (decrease) in cash and cash equivalents (3,477,000) 584,100
Cash and cash equivalents, beginning of period 4,471,100 40,300
----------- -----------
Cash and cash equivalents, end of period $ 994,100 $ 624,400
=========== ===========
Supplemental cash flow disclosures:
Interest paid $ 153,000 $ 238,500
Income taxes paid 1,362,500 -
Supplemental disclosures of non-cash items:
Decrease in unrealized gains on marketable
securities, net of income taxes (3,900) (8,800)
Unrealized loss in split-dollar life insurance
investments, net of income taxes 39,200 21,300
The accompanying notes are an integral part of the consolidated financial
statements.
7
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 26, 2002.
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 April 26,
2003, and the results of their operations and their cash flows, for the
three and six-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
8
WESTERBEKE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Unaudited)
C. Earnings per Share
------------------
Basic income (loss) per common share is computed by dividing income (loss)
available to common stockholders by the weighted average number of shares
outstanding for the period. Diluted income (loss) per share reflects the
maximum dilution that would have resulted from the exercise of stock
options. Diluted income (loss) per share is computed by dividing net income
(loss) by the weighted average number of common shares and all dilutive
securities, except when the effect would be antidilutive.
For the three months ended:
--------------------------------------------------------------------
April 26, 2003 April 27, 2002
------------------------------- ---------------------------------
Loss Net Income Net
per share Shares Loss per share Shares Income
--------- ------ ---- --------- ------ ------
Basic $.15 1,954,809 $300,500 $ .20 1,951,168 $390,400
Effect of
Stock options - - - (.01) 54,150 -
---- --------- -------- ----- --------- --------
Diluted $.15 1,954,809 $300,500 $ .19 2,005,318 $390,400
==== ========= ======== ===== ========= ========
For the six months ended:
--------------------------------------------------------------------
April 26, 2003 April 27, 2002
------------------------------- ---------------------------------
Loss Net Income Net
per share Shares Loss per share Shares Income
--------- ------ ---- --------- ------ ------
Basic $.24 1,954,809 $478,000 $.03 1,943,322 $61,700
Effect of
Stock options - - - - 54,150 -
---- --------- -------- ---- --------- -------
Diluted $.24 1,954,809 $478,000 $.03 1,997,472 $61,700
==== ========= ======== ==== ========= =======
At April 26, 2003, there were 108,300 exercisable options outstanding, which
were convertible into 108,300 common shares. These shares were excluded
from the earnings per share calculation in both the three and six-month
periods ended April 26, 2003, since their inclusion would have been
antidilutive.
Continued
9
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. Pursuant to the
requirements of the Sarbanes-Oxley Act of 2002, the Company has stopped
paying premiums in connection with such agreement.
2. Inventories
-----------
The Company uses the last-in, first-out (LIFO) method to value inventory.
Inventories are comprised of the following:
April 26, October 26,
2003 2002
--------- -----------
Raw materials $4,842,500 $3,808,400
Work-in-process 557,600 614,000
Finished goods 823,300 625,900
---------- ----------
$6,223,400 $5,048,300
========== ==========
The Company has estimated the fiscal year-end 2003 inventory levels and the
inflation/deflation that will occur during the fiscal year in determining
their effect on the LIFO reserve at April 26, 2003. As a result, the
Company anticipates an increase in its LIFO valuation account as of October
25, 2003. Accordingly, the Company has recorded an increase of $45,000, on
a pro rata basis, in the LIFO reserve during the first six months of fiscal
2003. During the first six months of 2002, the Company recorded, on a pro
rata basis, a decrease of $215,300 in the LIFO reserve. Inventories would
have been $1,076,500 higher at April 26, 2003 and $1,031,500 higher as of
October 26, 2002, if the first-in, first-out (FIFO) method had been used.
Inventory cost determination on the FIFO method approximates replacement or
current cost.
Continued
10
WESTERBEKE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Unaudited)
3. Long-Term Debt
--------------
April 26, 2003 October 26, 2002
-------------- ----------------
Term Loan with an interest rate of 6.46%, with
repayment terms through April 2015, secured
by the Company's facility located at
150 John Hancock Road. $ 3,997,700 $ 4,106,400
Term Loan with an interest rate of 6.46%, with
repayment terms through April 2007, secured
by certain equipment. 250,300 277,300
Term Loan with an interest rate of 8.50%, with
repayment terms through October 2007, secured
by certain equipment. 360,400 386,700
----------- -----------
4,608,400 4,770,400
Less current portion 351,600 340,300
----------- -----------
Long term debt, net of current portion $ 4,256,800 $ 4,430,100
=========== ===========
4. Property, Plant and Equipment
-----------------------------
April 26, 2003 October 26, 2002
-------------- ----------------
Land $ 921,500 $ 921,500
Building and building improvements 5,658,300 5,658,300
Furniture and fixtures 744,900 711,300
Machinery, patterns and equipment 5,158,800 5,092,000
Transportation equipment 47,000 80,400
Leasehold improvements 20,400 20,400
Equipment under capital lease 769,200 769,200
----------- -----------
13,320,100 13,253,100
Less accumulated depreciation 5,255,900 4,904,500
----------- -----------
$ 8,064,200 $ 8,348,600
=========== ===========
Continued
WESTERBEKE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Unaudited)
5. Split-Dollar Premiums
---------------------
As discussed in more detail in note 1, the Company has a split dollar life
insurance agreement with John H. Westerbeke, Jr., Chairman, President and
Chief Executive Officer of the Company. At April 26, 2003 the Company had
an unrealized accumulated loss of $866,700, net of taxes of $346,700,
included in accumulated other comprehensive income. Pursuant to the
requirements of the Sarbanes-Oxley Act of 2002, the Company has stopped
paying premiums in connection with such agreement.
6. Taxes on Income
---------------
Taxes (benefit) on income (loss) for the six-months ended April 26, 2003
includes a $108,500 credit received for research and development
expenditures. The credits relate to the years ended October 1999 and
October 2000. The Company took the position that income should not have
been recognized until the IRS approved such refund credits.
7. Major Customer
--------------
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. The Company had sales to this customer, which represented 26% or
approximately $1,680,300 of total sales for the three-months ended April 27,
2002 and 23% or approximately $2,914,300 of total sales for the six-months
ended April 27, 2002. Sales to this customer amounted to $13,000 for the
three-months ended April 26, 2003 and $16,000 for the six-months ended April
26, 2003.
8. Revolving Demand Note Payable
-----------------------------
The Company has a $6,000,000 Credit Agreement with Brown Brothers Harriman &
Co., collateralized by inventory, accounts receivable and general
intangibles. The actual amount available for borrowing is based on a
calculation of eligible accounts receivable and eligible inventory. Based
on this calculation, at April 26, 2003, the Company had approximately
$4,636,200 available for borrowing. As of April 26, 2003, the Company had
approximately $4,256,500 in unused borrowing capacity under the Credit
Agreement and approximately $379,700 committed to cover the Company's
reimbursement obligations under certain open letters of credit and bankers'
acceptances. The Agreement does not have an expiration date, but is payable
on written demand.
9. Subsequent Events
-----------------
As previously announced, on May 2, 2003, the Company entered into a
definitive merger agreement with Westerbeke Acquisition Corporation
("Acquisition Corp."). Under the terms of the merger agreement, each of the
approximately 850,000 shares of Westerbeke common stock not owned by
Acquisition Corp. will be converted upon completion of the merger into the
right to receive $3.00 per share in cash. Acquisition Corp. is a
corporation formed and wholly owned
Continued
12
WESTERBEKE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Unaudited)
by Westerbeke's Chairman, President and Chief Executive Officer, John H.
Westerbeke, Jr. Acquisition Corp. owns approximately 56.2% of the
outstanding shares of Westerbeke common stock.
On May 12, 2003, the Company announced that a purported class action lawsuit
has been filed naming the Company and its directors as defendants. The
complaint alleges, among other things, that the proposed merger, as
discussed above, is being advanced through "unfair procedures" and the
consideration offered in the merger is "grossly unfair, inadequate and
provides value to [Westerbeke] stockholders substantially below the fair or
inherent value of the Company" and "does not constitute maximization of
stockholder value". The complaint also alleges breaches by the defendants
of their fiduciary duties to the Company's public stockholders in connection
with the proposed merger. The lawsuit seeks to enjoin the merger or, if it
is consummated, to recover damages. The Company believes that the lawsuit
lacks merit and intends to vigorously defend the lawsuit.
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 may contain 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 Reform Act of 1995. 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; the inability of the
Company to effect required modifications of its products to meet
governmental regulations with respect to emission standards; failure of the
requisite number of Westerbeke stockholders to approve the transaction; the
costs related to the transaction; litigation challenging the transaction;
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.
Results of Operations -
- -----------------------
Net sales decreased by $2,179,800, or 29%, during the second quarter of
fiscal 2003 and decreased by $2,358,500, or 19%, for the first six months of
fiscal 2003 as compared to the same periods in fiscal 2002. The decrease in
net sales for both the three and six-month periods resulted primarily from
the loss of the Company's major customer offset by increases in net sales to
others.
Gross profit decreased $588,100, or 34%, during the second quarter and
decreased $596,200, or 22%, for the first six months of fiscal 2003 as
compared to the same period in fiscal 2002. As a percentage of net sales,
gross profit was 21% during the second quarter of fiscal 2003 and 23%
compared to the same period in fiscal 2002. For the six months ended April
26, 2003, gross profit was 21% compared to 22% for the same period ended
April 27, 2002.
Operating expenses, which consist of selling, general and administrative
expenses as well as research and development expenses, increased $43,700 for
the second quarter and increased $14,200 in the first six months of fiscal
2003, as compared to the same periods in fiscal 2002. The increase in
operating expenses was primarily attributable to increases in the
utilization of outside consultants in engineering and also to an increase in
advertising expenditures.
Net interest expense decreased $43,100 during the second quarter and
decreased $86,200 for the first six months of fiscal 2003 as compared to the
same periods in fiscal 2002. The reduction in interest expense is related
to lower levels of outstanding debt and reduced borrowing costs.
Other income in fiscal year 2003 is from the sale of a vehicle. Other
income in fiscal 2002 is from a patent settlement awarded to the Company.
During the first quarter of fiscal 2003, the Company received and recorded a
credit to its tax provision amounting to $108,500 of research and
development credits from the U.S. Department of the Treasury.
14
WESTERBEKE CORPORATION AND SUBSIDIARY
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 second quarter ended April 26, 2003, the Company reported a net loss
of $300,500, compared to net income of $390,400 for the same period in
fiscal 2002. For the six months ended April 26, 2003, the Company reported
a net loss of $478,000 as compared to net income of $61,700 for the six-
months ended April 27, 2002.
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 six months of fiscal 2003, net cash used by operating
activities was $3,230,500, compared to net cash provided by operations of
$1,369,300 for the first six months of fiscal 2002. The increase in cash
used by operating activities was primarily the result of increases in
inventory and accounts receivable and from the payment of income taxes. The
accrued income tax payments of $1,317,700 paid during the six-months ended
April 26, 2003, relate to the arbitration award previously discussed in the
Company's Annual Report on Form 10-K for the fiscal year ended October 26,
2002.
During the six months ended April 26, 2003, the Company purchased machinery
and equipment in the amount of $100,400. 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
$3,997,700 outstanding at April 26, 2003. The loan agreement requires
monthly payments of $40,000. The equipment portion of the industrial
revenue bond is a 7-year term loan, with $250,300 outstanding at April 26,
2003. The term loan requires monthly payments of $5,900. The Company also
has an additional 7-year equipment loan, with $360,400 outstanding at April
26, 2003. 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
April 26, 2003, the Company had approximately $4,636,200 available for
borrowing. At April 26, 2003, the Company had approximately $379,700
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.
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
2003.
15
WESTERBEKE CORPORATION AND SUBSIDIARY
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 six months of fiscal 2003.
16
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 26, 2002 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.
17
Part II. Other Information
Item 1 Legal Proceedings
- -------------------------
As previously announced, on May 12, 2003, a purported class action lawsuit
has been filed naming the Company and its directors as defendants. The
complaint alleges, among other things, that the proposed merger, as
discussed above, is being advanced through "unfair procedures" and the
consideration offered in the merger is "grossly unfair, inadequate and
provides value to [Westerbeke] stockholders substantially below the fair or
inherent value of the Company" and "does not constitute maximization of
stockholder value". The complaint also alleges breaches by the defendants
of their fiduciary duties to the Company's public stockholders in connection
with the proposed merger. The lawsuit seeks to enjoin the merger or, if it
is consummated, to recover damages. The Company believes that the lawsuit
lacks merit and intends to vigorously defend the lawsuit.
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) 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.
Item 6 Exhibits and Reports on Form 8-K
- ----------------------------------------
(a) Exhibits
None to report
18
(b) Reports on Form 8-K
In a Current Report filed on Form 8-K dated May 5, 2003, the Company
announced that it has entered into a definitive merger agreement with
Westerbeke Acquisition Corporation ("Acquisition Corp."). Under the
terms of the merger agreement, each of the approximately 850,000
shares of Westerbeke common stock not owned by Acquisition Corp. will
be converted upon completion of the merger into the right to receive
$3.00 per share in cash. Acquisition Corp. is a corporation formed
and wholly owned by Westerbeke's Chairman, President and Chief
Executive Officer, John H. Westerbeke, Jr. Acquisition Corp. owns
approximately 56.2% of the outstanding shares of Westerbeke common
stock.
In a Current Report filed on Form 8-K dated May 12, 2003, the Company
announced that a purported class action lawsuit has been filed naming
Westerbeke Corporation (the "Company") and its directors as defendents.
The complaint alleges, among other things, that the proposed merger,
announced on May 5, 2003, of the Company and Westerbeke Acquisition
Corporation is being advanced through "unfair practices" and the
consideration offered in the merger is "grossly unfair, inadequate and
provides value to [Westerbeke] stockholders substantially below the
fair or inherent value of the Company" and "does not constitute
maximization of stockholder value." The complaint also alleges
breaches by the defendants of their fiduciary duties to the Company's
public stockholders in connection with the proposed merger. The
lawsuit seeks to enjoin the proposed merger or, if it is consummated,
to recover damages. The Company believes that the lawsuit lacks merit
and intends to vigorously defend the lawsuit.
19
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 May 23, 2003 /s/ John H. Westerbeke, Jr.
------------ ------------------------------------
John H. Westerbeke, Jr.
Chairman of the Board,
President and Principal
Executive Officer
Dated May 23, 2003 /s/ Gregory Haidemenos
------------ ------------------------------------
Gregory Haidemenos
Principal Financial
and Accounting Officer
20
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: May 23, 2003
/s/ John H. Westerbeke, Jr.
------------------------------------
John H. Westerbeke, Jr.
Principal Executive Officer
21
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: May 23, 2003
/s/ Gregory Haidemenos
------------------------------------
Gregory Haidemenos
Principal Financial Officer
22
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
23