-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TgBYjUCOoNhHC6R9RfDe6O7MxX18kqbSxn5TwTsnywdhl5bJmqddj/5OvWyQZdMx ERNEnPlKWxmAOuF6/x/oTg== 0000910647-03-000327.txt : 20030909 0000910647-03-000327.hdr.sgml : 20030909 20030909162333 ACCESSION NUMBER: 0000910647-03-000327 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20030726 FILED AS OF DATE: 20030909 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WESTERBEKE CORP CENTRAL INDEX KEY: 0000796502 STANDARD INDUSTRIAL CLASSIFICATION: MOTORS & GENERATORS [3621] IRS NUMBER: 041925880 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15046 FILM NUMBER: 03888249 BUSINESS ADDRESS: STREET 1: AVON INDUSTRIAL PARK STREET 2: 41 LEDIN DRIVE CITY: AVON STATE: MA ZIP: 02322 BUSINESS PHONE: 5085887700 MAIL ADDRESS: STREET 1: AVON INDUSTRIAL PARK CITY: AVON STATE: MA ZIP: 02322 10-Q 1 west-q3.txt BODY OF FORM 10-Q 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 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 -------------- 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 ----- ----- Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act) Yes No X ----- ----- 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 August 25, 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 July 26, 2003 and October 26, 2002 3 Consolidated Statements of Operations for the three months ended July 26, 2003 and July 27, 2002 4 Consolidated Statements of Operations for the nine months ended July 26, 2003 and July 27, 2002 5 Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended July 26, 2003 and July 27, 2002, respectively 6 Consolidated Statements of Cash Flows for the nine months ended July 26, 2003 and July 27, 2002 7 Notes to Consolidated Financial Statements 8 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 14 Item 3 - Quantitative and Qualitative Disclosures About Market Risk 17 Item 4 - Controls and Procedures 17 Part II - Other Information 18 Signatures 21 Exhibit Index 22 2 WESTERBEKE CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
July 26, October 26, 2003 2002 ----------- ----------- (Unaudited) Audited ASSETS Current assets: Cash and cash equivalents $ 1,596,600 $ 4,471,100 Accounts receivable, net of allowance for doubtful accounts and price allowances of $718,000 at July 26, 2003 and $480,000 at October 26, 2002 2,123,800 2,114,500 Inventories (Note 2) 5,561,900 5,048,300 Prepaid expenses and other assets 299,400 456,800 Prepaid income taxes - 267,800 Deferred income taxes 1,275,400 951,700 ----------- ----------- Total current assets 10,857,100 13,310,200 ----------- ----------- Property, plant and equipment, net (Note 4) 7,909,600 8,348,600 Split dollar premiums (Note 5) 1,149,200 1,068,300 Other assets, net 155,500 170,300 Investments in marketable securities 104,600 109,900 Note receivable - related party 20,100 36,200 Deferred income taxes 18,000 46,400 ----------- ----------- $20,214,100 $23,089,900 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt (Note 3) $ 357,600 $ 340,300 Accounts payable 1,189,400 1,385,600 Accrued expenses and other liabilities 788,600 1,237,400 Accrued income taxes - 1,317,700 ----------- ----------- Total current liabilities 2,335,600 4,281,000 ----------- ----------- Long-term debt, net of current portion (Note 3) 4,165,100 4,430,100 ----------- ----------- Total liabilities 6,500,700 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 July 26, 2003 and October 26, 2002 22,400 22,400 Additional paid-in-capital 6,126,700 6,126,700 Accumulated other comprehensive loss (426,000) (468,600) Retained earnings 8,797,600 9,505,600 ----------- ----------- 14,520,700 15,186,100 Less - Treasury shares at cost, 289,873 shares at July 26, 2003 and October 26, 2002 807,300 807,300 ----------- ----------- Total stockholders' equity 13,713,400 14,378,800 ----------- ----------- $20,214,100 $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 ------------------------- July 26, July 27, 2003 2002 -------- -------- (Unaudited) Net sales $5,698,000 $7,783,900 Cost of sales 4,494,000 5,953,000 ---------- ---------- Gross profit 1,204,000 1,830,900 Selling, general and administrative expense (Note 9) 1,241,500 936,400 Research and development expense 272,500 254,000 ---------- ---------- Income (loss) from operations (310,000) 640,500 ---------- ---------- Other income (expense): Interest expense, net (73,400) (89,100) Other expense - - ---------- ---------- Other expense, net (73,400) (89,100) ---------- ---------- Income (loss) before income taxes (383,400) 551,400 Provision for income taxes (benefit) (Note 6) (153,400) 180,600 ---------- ---------- Net income (loss) $ (230,000) $ 370,800 ========== ========== Income (loss) per common share, basic $ (.12) $ .19 ========== ========== Income (loss) per common share, diluted $ (.12) $ .19 ========== ========== Weighted average common shares, basic 1,954,809 1,954,809 ========== ========== Weighted average common shares, diluted 1,954,809 1,989,227 ========== ==========
The accompanying notes are an integral part of the consolidated financial statements. 4 WESTERBEKE CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended --------------------------- July 26, July 27, 2003 2002 -------- -------- (Unaudited) Net sales $15,442,600 $19,887,000 Cost of sales 12,172,900 15,394,200 ----------- ----------- Gross profit 3,269,700 4,492,800 Selling, general and administrative expense (Note 9) 3,546,400 3,268,300 Research and development expense 900,900 841,200 ----------- ----------- Income (loss) from operations (1,177,600) 383,300 ----------- ----------- Other income (expense): Interest expense, net (200,000) (301,900) Other income 10,000 50,000 ----------- ----------- Other expense, net (190,000) (251,900) ----------- ----------- Income (loss) before income taxes (1,367,600) 131,400 Provision for income taxes (benefit) (Note 6) (659,600) (301,100) ----------- ----------- Net income (loss) $ (708,000) $ 432,500 =========== =========== Income (loss) per common share, basic $ (.36) $ .22 =========== =========== Income (loss) per common share, diluted $ (.36) $ .22 =========== =========== Weighted average common shares, basic 1,954,809 1,947,151 =========== =========== Weighted average common shares, diluted 1,954,809 1,981,569 =========== ===========
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 ------------------------------- July 26, 2003 July 27, 2002 ------------- ------------- (Unaudited) Net income (loss) $(230,000) $ 370,800 Unrealized gain (loss) on marketable securities, net of income taxes of $57,100 at July 26, 2003 and $75,200 at July 27, 2002 85,700 (112,600) --------- --------- Comprehensive income (loss) $(144,300) $ 258,200 ========= ========= Nine Months Ended ------------------------------- July 26, 2003 July 27, 2002 ------------- ------------- (Unaudited) Net income (loss) $(708,000) $ 432,500 Unrealized gain (loss) on marketable securities, net of income taxes of $28,400 at July 26, 2003 and $95,200 at July 27, 2002 42,600 (142,700) --------- --------- Comprehensive income (loss) $(665,400) $ 289,800 ========= =========
The accompanying notes are an integral part of the consolidated financial statements. 6 WESTERBEKE CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended ---------------------------- July 26, July 27, 2003 2002 -------- -------- (Unaudited) Cash flows from operating activities: Net income (loss) $ (708,000) $ 432,500 Reconciliation of net income (loss) to net cash provided (used) by operating activities: Depreciation and amortization 588,000 584,300 Deferred income taxes 85,200 - Gain on disposal of fixed assets (10,000) - Changes in operating assets and liabilities: Accounts receivable (9,300) (409,200) Inventories (513,600) 2,949,400 Prepaid expenses and other assets (251,500) (149,700) Accounts payable (196,200) (86,000) Accrued expenses and other liabilities (448,800) (7,400) Prepaid income taxes 267,800 346,200 Accrued income taxes payable (1,317,700) - ----------- ----------- Net cash provided (used) by operating activities (2,514,100) 3,660,100 ----------- ----------- Cash flows used in investing activities: Purchase of property, plant and equipment (134,100) (215,900) Proceeds from sale of fixed assets 10,000 - Purchase of marketable securities (4,700) (13,300) Proceeds from payment of note receivable - related party 16,100 14,900 ----------- ----------- Net cash used in investing activities (112,700) (214,300) ----------- ----------- Cash flows from financing activities: Exercise of stock options - 21,700 Net repayments under revolving demand note - (2,500,000) Principal payments on long-term debt and capital leases (247,700) (231,500) ----------- ----------- Net cash used in financing activities (247,700) (2,709,800) ----------- ----------- Increase (decrease) in cash and cash equivalents (2,874,500) 736,000 Cash and cash equivalents, beginning of period 4,471,100 40,300 ----------- ----------- Cash and cash equivalents, end of period $ 1,596,600 $ 776,300 =========== =========== Supplemental cash flow disclosures: Interest paid $ 228,800 $ 115,000 Income taxes paid 1,362,500 - Supplemental disclosures of non-cash items: Unrealized gain (loss) on marketable securities, net of income taxes (6,000) 8,400 Unrealized gain (loss) in split-dollar life insurance investments, net of income taxes 48,600 (134,300)
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 July 26, 2003, 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 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: ------------------------------------------------------------------------- July 26, 2003 July 27, 2002 ---------------------------------- ---------------------------------- Loss Net Income Net per share Shares Loss per share Shares Income --------- ------ ---- --------- ------ ------ Basic $.12 1,954,809 $230,000 $.19 1,954,809 $370,800 Effect of Stock options - - - - 34,418 - -------------------------------- -------------------------------- Diluted $.12 1,954,809 $230,000 $.19 1,989,227 $370,800 For the nine months ended: ------------------------------------------------------------------------- July 26, 2003 July 27, 2002 ---------------------------------- ---------------------------------- Loss Net Income Net per share Shares Loss per share Shares Income --------- ------ ---- --------- ------ ------ Basic $.36 1,954,809 $708,000 $.22 1,947,151 $432,500 Effect of Stock options - - - - 34,418 - -------------------------------- -------------------------------- Diluted $.36 1,954,809 $708,000 $.22 1,981,569 $432,500
At July 26, 2003, there were 33,300 exercisable options outstanding, which were convertible into 33,300 common shares. These shares were excluded from the earnings per share calculation in both the three and nine-month periods ended July 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:
July 26, October 26, 2003 2002 -------- ----------- Raw materials $4,511,600 $3,808,400 Work-in-process 523,900 614,000 Finished goods 526,400 625,900 ---------- ---------- $5,561,900 $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 July 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 $67,500, on a pro rata basis, in the LIFO reserve during the first nine months of fiscal 2003. During the first nine months of 2002, the Company recorded, on a pro rata basis, a decrease of $192,800 in the LIFO reserve. Inventories would have been $1,099,000 higher at July 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 --------------
July 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. $3,942,100 $4,106,400 Term Loan with an interest rate of 6.46%, with repayment terms through April 2007, secured by certain equipment. 236,500 277,300 Term Loan with an interest rate of 8.50%, with repayment terms through October 2007, secured by certain equipment. 344,100 386,700 ---------- ---------- 4,522,700 4,770,400 Less current portion 357,600 340,300 ---------- ---------- Long term debt, net of current portion $4,165,100 $4,430,100 ========== ==========
4. Property, Plant and Equipment
July 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 5,192,500 5,092,000 Transportation equipment 47,000 80,400 Leasehold improvements 20,400 20,400 Equipment under capital lease 769,200 769,200 ----------- ----------- 13,353,800 13,253,100 Less accumulated depreciation 5,444,200 4,904,500 ----------- ----------- $ 7,909,600 $ 8,348,600 =========== ===========
Continued 11 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 July 26, 2003 the Company had an unrealized accumulated loss of $720,400, net of taxes of $288,200, 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 nine-months ended July 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 20% or approximately $1,593,300 of total sales for the three-months ended July 27, 2002 and 22% or approximately $4,507,600 of total sales for the nine-months ended July 27, 2002. Sales to this customer amounted to $1,400 for the three-months ended July 26, 2003 and $17,400 for the nine-months ended July 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 July 26, 2003, the Company had approximately $4,203,200 available for borrowing. As of July 26, 2003, the Company had approximately $3,802,400 in unused borrowing capacity under the Credit Agreement and approximately $400,800 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. The Company has incurred $408,900 of costs to date associated with the proposed merger. Due to uncertainty as to whether the proposed merger transaction will ultimately be completed, the costs incurred to date have been expensed and included in selling, general and administrative expenses. 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. The Company is insured against damages and other costs relating to lawsuits of this nature subject to a retention of $125,000. The Company has incurred approximately $8,000 of costs to date in connection with this lawsuit. 13 WESTERBEKE CORPORATION AND SUBSIDIARY 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. 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 proposed merger with Acquisition Corp. (as discussed above); the costs related to such merger; litigation challenging such merger; 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 $2,085,900, or 27%, during the third quarter of fiscal 2003 and decreased by $4,444,400, or 22%, for the first nine months of fiscal 2003 as compared to the same periods in fiscal 2002. The decrease in net sales for both the three and nine-month periods resulted primarily from the loss of the Company's major customer offset by increases in net sales to others. Gross profit decreased $626,900, or 34%, during the third quarter and decreased $1,223,100, or 27%, for the first nine 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 third quarter of fiscal 2003 compared to 24% for the same period in fiscal 2002. For the nine months ended July 26, 2003, gross profit was 21% compared to 23% for the period ended July 27, 2002. Operating expenses, which consist of selling, general and administrative expenses as well as research and development expenses, increased $323,600 for the third quarter and increased $337,800 in the first nine months of fiscal 2003, as compared to the same periods in fiscal 2002. The Company has incurred $408,900 of costs to date associated with the proposed merger. Due to uncertainty as to whether the proposed merger transaction will ultimately be completed, the costs incurred to date have been expensed and included in selling, general and administrative expenses. Net interest expense decreased $15,700 during the third quarter and decreased $101,900 for the first nine 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. 14 WESTERBEKE CORPORATION AND SUBSIDIARY 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. 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 26, 2003, the Company reported a net loss of $230,000, compared to net income of $370,800 for the same period in fiscal 2002. For the nine months ended July 26, 2003, the Company reported a net loss of $708,000 as compared to net income of $432,500 for the nine-months ended July 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 nine months of fiscal 2003, net cash used by operating activities was $2,514,100, compared to net cash provided by operations of $3,660,100 for the first nine 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 nine-months ended July 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 nine months ended July 26, 2003, the Company purchased machinery and equipment in the amount of $134,100. The Company plans additional capital spending of $75,000 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 $3,942,100 outstanding at July 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 $236,500 outstanding at July 26, 2003. The term loan requires monthly payments of $5,900. The Company also has an additional 7-year equipment loan, with $344,100 outstanding at July 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 July 26, 2003, the Company had approximately $4,203,200 available for borrowing. At July 26, 2003, the Company had approximately $400,800 committed to cover the Company's reimbursement obligations under certain letters of credit and 15 WESTERBEKE CORPORATION AND SUBSIDIARY 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. 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 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. As of the end of the Company's fiscal quarter ended July 26, 2003, an evaluation of the effectiveness of the Company's "disclosure controls and procedures" (as such term is defined in Rules 13a- 15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) was carried out by the Company's principal executive officer and principal financial officer. Based upon that evaluation, the Company's principal executive officer and principal financial officer have each concluded that as of the end of that fiscal quarter, the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. It should be noted that while the Company's management believes that the Company's disclosure controls and procedures provide a reasonable level of assurance, they do not expect that the Company's disclosure controls and procedures or internal controls will prevent all error and fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. (b) Changes in internal controls. During the fiscal quarter ended July 26, 2003, there was no change in the Company's internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. 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 with Acquisition Corp., 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. The Company is insured against damages and other costs relating to lawsuits of this nature subject to a retention of $125,000. The Company has incurred approximately $8,000 of costs to date in connection with this 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 See the Exhibit Index to this Form 8-K. (b) Reports on Form 8-K During the fiscal quarter ended July 26, 2003 the Company filed the following Current 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 18 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 the Company and its directors as defendants. The complaint alleges, among other things, that the proposed merger, announced on May 5, 2003, of the Company and Acquisition Corp. 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 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. In a Current Report filed on Form 8-K dated June 4, 2003 the Company reported the following: John H. Westerbeke, Jr. ("Mr. Westerbeke"), the Chairman, President and Chief Executive Officer of the Company, received a preliminary inquiry from a private equity firm about the possibility of purchasing Mr. Westerbeke's beneficial interest in the Company on the terms set forth in its letter of such date. Mr. Westerbeke referred this inquiry to the special committee of the Company's Board of Directors. The private equity firm was informed of Mr. Westerbeke's unwillingness to sell any portion of his beneficial interest in the Company to a third party, and since such notification Mr. Westerbeke has not received any further communication from such firm. Also, Mr. Westerbeke received an inquiry from a potential strategic acquiror of the Company regarding the possibility of making an offer to purchase the entire Company at a price in excess of $3.00 per share of common stock. On May 21, 2003, counsel for the potential acquiror sent a letter to Pepe & Hazard LLP (counsel to Mr. Westerbeke and Acquisition Corp.), advising that the acquiror expected to make a formal proposal on the terms set forth in such counsel's letter of such date. The letter was referred to the special committee. Counsel for the special committee subsequently spoke to counsel for the potential acquiror to determine whether the proposal represented the acquiror's highest and best offer. Counsel for the potential acquiror responded that the potential acquiror would consider making a higher offer if, subject to the conditions set forth in such counsel's letter of May 21, 2003, its proposal were to receive the support of Mr. Westerbeke. The special committee also spoke to Mr. Westerbeke, who stated that he would not vote the shares of Company common stock beneficially owned by him (through Acquisition Corp.) in favor of such proposal. Counsel for the special committee informed counsel for the potential acquiror of Mr. Westerbeke's position. On May 27, 2003, the special committee received from the potential acquiror a formal offer to acquire the assets of the Company on the terms set forth in its letter of May 23, 2003, which terms were not materially different from the terms stated in its letter of May 23, 2003. Subsequently, a member of the special committee spoke to Mr. Westerbeke, 19 who again stated that he would not vote the shares of Company common stock beneficially owned by him (through Acquisition Corp.) in favor of such offer. On May 28, 2003, the members of the special committee met and voted unanimously to recommend to the board of directors that the Company not pursue the offer. The basis of the special committee's recommendation was that, under Delaware law, the proposed acquisition would require approval by holders of a majority of the Company's common stock, and that in light of Mr. Westerbeke's stated opposition to the offer, it would be imprudent to expend Company resources pursuing a transaction that could not be consummated. The special committee reported its recommendation to the board of directors of the Company on May 29, 2003. On the same date, the board of directors (with Mr. Westerbeke abstaining), acting subsequent to the recommendation of the special committee, determined not to pursue the proposed transaction for the same reasons stated by the special committee. Thereafter, counsel for the special committee informed counsel for the potential acquiror of Mr. Westerbeke's position with respect to such offer. In addition, on May 29, 2003, the Chairman of the special committee advised the potential acquiror of the decision of the special committee and the board of directors and the reason therefor. In a Current Report filed on Form 8-K dated August 1, 2003 the Company reported the following: The special committee of the board of directors of the Company received from Valley Detroit Diesel Allison ("VDDA"), a potential strategic acquiror of the Company, a letter, dated July 18, 2003, offering to conduct a tender offer to purchase all of the outstanding common stock of the Company at a price of $3.70 per share. The offer was conditioned upon at least 90% of the outstanding shares of common stock of the Company being tendered in the tender offer. Subsequent to receiving the VDDA offer, a member of the special committee spoke to Mr. Westerbeke, who informed the special committee on July 28, 2003 that he would not tender the shares of the Company's common stock beneficially owned by him (through Acquisition Corp.) in connection with the VDDA offer. On July 28, 2003, the members of the special committee met and voted unanimously to recommend to the board of directors of the Company that the Company not pursue the VDDA proposal. The basis of the special committee's recommendation was that under the terms of the offer, the proposed acquisition would require the tender of at least 90% of the shares of the Company's outstanding common stock, and such condition could not be achieved given Mr. Westerbeke's stated unwillingness to tender the shares of the Company's common stock beneficially owned by him in connection with the offer. The special committee determined that it would be imprudent to expend the Company's resources pursuing a transaction that could not be consummated. On July 31, 2003, the Chairman of the special committee sent a letter, dated July 31, 2003, to VDDA informing VDDA of Mr. Westerbeke's position and the resulting determination by the special committee. On August 1, 2003, the board of directors of the Company (with Mr. Westerbeke abstaining), acting subsequent to the recommendation of the special committee, determined not to pursue the proposed transaction for the same reasons stated by the special committee. 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, 2003 /s/ John H. Westerbeke, Jr. ----------------- ------------------------------------ John H. Westerbeke, Jr. Chairman of the Board, President and Principal Executive Officer Dated September 9, 2003 /s/ Gregory Haidemenos ----------------- ------------------------------------ Gregory Haidemenos Principal Financial and Accounting Officer 21 EXHIBIT INDEX Exhibit Description - ------- ----------- 31.1 Certification of Chief Executive Officer Pursuant to Rule 13e-14(a) 31.2 Certification of Chief Financial Officer Pursuant to Rule 13e-14(a) 32.1 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 22 EX-31 3 west3311.txt EXHIBIT 31.1 Exhibit 31.1 CERTIFICATIONS -------------- I, John H. Westerbeke, Jr., certify that: 1. I have reviewed this quarterly report on Form 10-Q of Westerbeke Corporation; 2. Based on my knowledge, this 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under one supervisor, 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 and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, 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 and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and 23 (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Dated: September 9, 2003 /s/ John H. Westerbeke, Jr. ------------------------------------ John H. Westerbeke, Jr. Chairman of the Board, President and Chief Executive Officer 24 EX-31 4 west3312.txt EXHIBIT 31.2 Exhibit 31.2 CERTIFICATIONS I, Gregory Haidemenos, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Westerbeke Corporation; 2. Based on my knowledge, this 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under one supervisor, 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 and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, 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 and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and 25 (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Dated: September 9 2003 /s/ Gregory Haidemenos ------------------------------------ Gregory Haidemenos Chief Financial Officer and Treasurer 26 EX-32 5 west3321.txt EXHIBIT 32.1 Exhibit 32.1 CERTIFICATION PURSUANT TO 18 U.S.C SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Westerbeke Corporation (the "Company") on Form 10-Q for the period ended July 26, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, John H. Westerbeke, Jr., Chairman of the Board, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: 1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. By: /s/ John H. Westerbeke, Jr. --------------------------- John H. Westerbeke, Jr. Chairman of the Board, President and Chief Executive Officer September 9, 2003 27 EX-32 6 west3322.txt EXHIBIT 32.2 Exhibit 32.2 CERTIFICATION PURSUANT TO 18 U.S.C SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Westerbeke Corporation (the "Company") on Form 10-Q for the period ended July 26, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Gregory Haidemenos, Chief Financial Officer and Treasurer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: 1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. By: /s/ Gregory Haidemenos ---------------------- Gregory Haidemenos Chief Financial Officer and Treasurer September 9, 2003 28 -----END PRIVACY-ENHANCED MESSAGE-----