-----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, UC8UBsSdMoJysyQ1eIjH8ALfFEVX1CFCJmLy2EQqFOBrbS4cRxkYoACeymnADxlF bWxxMaqQYk+y1Fwf8Nek5Q== 0000910647-99-000020.txt : 19990125 0000910647-99-000020.hdr.sgml : 19990125 ACCESSION NUMBER: 0000910647-99-000020 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19981024 FILED AS OF DATE: 19990122 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-K SEC ACT: SEC FILE NUMBER: 000-15046 FILM NUMBER: 99511351 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-K 1 BODY OF FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark one) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended October 24, 1998 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 041925880 - ---------------------------------------- --------------------------- (State or other jurisdiction of Employer (I.R.S. Identification No.) incorporation or organization) Avon Industrial Park Avon, Massachusetts 02322 02322 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (508) 588 - 7700 ---------------- Securities registered pursuant to Section 12 (b) of the Act: Name of each exchange on Title of each class which registered ------------------- ------------------------- None None Securities registered pursuant to Section 12 (g) of the Act: Common Stock, $.01 par value ---------------- (Title of class) Indicate by a check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period as the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate by a check mark if disclosure of delinquent filers, pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] State the aggregate market value of the voting stock held by non- affiliates of the registrant. The aggregate market value shall be computed by reference to the price at which the stock was sold, or the average bid and asked prices of such stock, as of a specified date within 60 days prior to the date of filing. Aggregate market value as of January 14, 1999.......... $2,341,000 Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, $.01 par value, as of January 14, 1999... 1,917,812 shares DOCUMENTS INCORPORATED BY REFERENCE None. PART I ITEM 1. BUSINESS. General - ------- The Company is primarily engaged in the business of designing, manufacturing and marketing marine engine and air-conditioning products. The Company was organized in 1932 and was re-incorporated in Delaware in 1986. The Company's marine products consist of diesel and gasoline engine- driven electrical generator sets, inboard propulsion engines, self- contained, reverse-cycle air-conditioners, and associated spare parts and accessories. In addition, the Company manufactures and markets electrical generator sets for use in non-marine applications. The Company markets its products throughout the United States and internationally principally for recreational marine applications. Accordingly, the market for the Company's products is dependent on the market for recreational boats, including auxiliary powered sailboats, powerboats, houseboats and other pleasure boats. The market for recreational boats, and consequently the Company's products, may be adversely affected by general economic conditions. Products - -------- The Company's marine engine product line consists of 18 models of electrical generator sets, 18 models of inboard propulsion engines, and associated spare parts and accessories. The Company also offers 11 models of non-marine generator sets. The Company's diesel and gasoline engine-driven marine generator sets are installed in powerboats, houseboats, large sailboats and other pleasure and commercial boats to provide electricity for communication and navigational equipment, lighting, refrigeration and other galley services, and other safety, operating and convenience needs. The Company's present line of generator sets produce from 4.5 to 65 kilowatts of electricity. A generator set consists of an electrical generator and an attached diesel or gasoline engine used to drive the generator. These engines are fresh water cooled and range from two to eight cylinders. The Company's propulsion engines are inboard engines, generally installed as auxiliary power systems for sailboats. The Company's propulsion engines are fresh water cooled and range from two to six cylinders and from 12 to 108 horsepower. Management believes that more than 90% of the propulsion engines produced by the Company are installed in sailboats of up to 50 feet in length. The Company's higher horsepower propulsion engines are also installed in powerboats of up to approximately 30 feet in length such as fishing boats, cruisers and work boats. The Company's product line also includes marine auxiliary engines and associated spare and replacement parts marketed under the Universal(R) name and marine air-conditioning products marketed under the Rotary Aire(R) name. The Company manufactures and markets two self-contained, reverse-cycle air- conditioning units and accessories under the Rotary Aire(R) name. These units can be installed in powerboats, houseboats, sailboats and other pleasure and commercial boats. The Company's product line includes 11 models of non-marine electrical generator sets which may be installed in bus-converted motor coaches, specialty vehicles, such as refrigeration trucks, and ambulances and other emergency vehicles to provide electricity for lighting, refrigeration and other safety, operating and convenience needs. These generators may also be used as stand-by or secondary power sources in the event of power outages or in locations where primary power is not readily available, such as construction sites, rural areas and less developed countries. The Company offers a complete line of spare parts and accessories for its current product lines and for most discontinued models. The Company's line of spare parts includes oil and fuel filters, belts, thermostats, distributor caps, fuses, spark plugs, wiring, alternators, heat exchangers, circuit breakers, water and fuel pumps, starter motors and fuel solenoids. Many basic parts are packaged and sold as spare part kits. Accessories offered by the Company include various control and instrument panels, exhaust silencers and generator sound enclosures. The Company provides its distributors, dealers and final customers with documentation covering operation, maintenance and repair procedures for its products. Management believes that the provision of current and comprehensive documentation enhances the Company's marketing and competitive effectiveness. See "Marketing and Sales" and "Competition" below. Each of the Company's products is covered by a one-year limited warranty covering parts and authorized labor. In addition, the Company offers a five-year limited warranty on certain marine generator sets. Many of the Company's suppliers also warrant their products for parts and labor. Some of the Company's major suppliers warrant their products for the duration of the Company's warranties. The Company believes it has made adequate provisions for warranty claims for the upcoming fiscal year. See Note 1 of Notes to Consolidated Financial Statements included in "Item 8 - Financial Statements and Supplementary Data." The Company's distributors are generally responsible for administering the Company's warranties through the dealer network. See "Marketing and Sales" below. Governmental Regulation - ----------------------- Many of the Company's products are subject to exhaust emission standards pursuant to regulations promulgated by the Environmental Protection Agency (the "EPA"), effective September 1, 1996, and by the State of California, effective August 1, 1995. The emission standards are intended to reduce the emissions of hydrocarbons, nitrogen oxides, carbon monoxide, particulates and smoke. It is anticipated that by January 1, 2000, all of the Company's products will be subject to such regulations. All of the regulations include manufacturer testing requirements, mandated warranties on emissions related components, product labeling and reporting requirements. Additionally, future regulations may include provisions for selective enforcement audits and recall and repair requirements. At this time, all of the Company's products which are subject to these emissions regulations comply with the regulations. Achieving and maintaining this compliance has been accomplished through significant design and development expense. The emission standards established by the regulations will become broader in scope and more stringent regarding emissions levels each year. As a result, research and development expenditures for emissions compliance will continue at a significant level for the foreseeable future. Additionally, if at any time the Company cannot effect the required modifications of its products to meet the required emissions levels within the time frame allowed, the Company could be materially adversely affected. Design and Development - ---------------------- The Company has an ongoing product improvement and development program intended to enhance the reliability, performance and longevity of existing products, and to develop new products. A significant portion of the Company's senior management's time, as well as the efforts of the Company's thirteen person product engineering department, is spent in this area. As part of the Company's ongoing product development program, the Company upgrades its engine products and periodically adds models to its product line. For example, as and when improvements in component parts allow, the Company may manufacture smaller or more light-weight versions of existing models. In fiscal 1998, the product engineering department focused principally on the modernization of the Company's existing product line and modifications which the Company believes will be required as a result of the emissions standards discussed above. In addition, in response to demand, the Company may expand its engine product line by manufacturing generator sets or propulsion engines with different kilowattage or horsepower than its existing models. The Company intends to introduce upgraded and new models as and when developed. The Company's design and engineering focus is on reliability, ease of maintenance, compactness, operating smoothness, safety and longevity, among other technical and performance factors. The Company's technical and performance specifications are utilized by the Company's suppliers in producing certain component parts, metal and nonmetal fabrications and other peripheral equipment that the Company manufactures and assembles into finished products. Generally, the Company retains title to Company- developed drawings, patterns and specifications used by these suppliers. For the three fiscal years ended October 1998, the Company incurred expenses of approximately $3,129,900 for design and development activities as follows: 1998 - $1,180,900, 1997 - $1,030,300 and 1996 - $918,700. All these activities were conducted and sponsored by the Company and the major portion of these expenses was applied toward salaries and other expenses of the Company's product design and engineering personnel. Manufacturing and Sources of Supply - ----------------------------------- The Company's manufacturing activities are conducted in an approximately 37,500 square foot facility owned by the Company. See "Item 2 - - Properties" below. The Company has approximately 61 persons employed in various manufacturing and assembly functions. See "Employees" below. The Company's engine products generally contain from 250 to 500 component parts and assemblies purchased from domestic and foreign manufacturers and suppliers. Some of these component parts are manufactured to Company specifications, while others are further machined and assembled by the Company. The basic component of the Company's engine products is a "long block" engine, which is a complete engine block and head assembly without peripheral equipment. Peripheral equipment added by the Company includes subassemblies (generators, transmissions, alternators, carburetors, motors and pumps), machined castings (flywheels, bellhousings, manifolds, mounts, pulleys, brackets and couplings), sheet metal fabrications (control and instrumentation panels), injection-molded plastic and other non-metallic fabrications (belt guards, drip trays, belts, hoses and panels) and various other component parts (mounts, switches and other electrical devices). The Company purchases "long block" engines from five foreign manufacturers. The Company currently purchases all of its requirements of "long block" engines on a purchase order basis rather than pursuant to long- term supply agreements. In certain cases, the Company has an agreement with its "long block" engine manufacturers to supply these component parts exclusively to the Company for marine products of the type produced by the Company. Orders for "long block" engines are dollar-denominated and therefore fluctuations in the dollar/yen exchange rate have had and will continue to have an effect on the cost of the Company's raw materials. See "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations." The Company believes that the purchase of "long block" engines on a purchase order basis has become the more common industry practice. Interruption of the supply of "long block" engines would have a material adverse effect on the Company if the time to develop new sources of supply and replacement products is longer than the time it takes to exhaust the Company's inventory of existing "long block" engines. The supply of "long block" engines from one vendor stopped in fiscal 1997. See "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations." In addition, the Company does not have long-term supply agreements with other manufacturers of other component parts or peripheral equipment. The Company believes that it can obtain these parts and equipment from a variety of sources on commercially reasonable terms. However, the disruption of its supply of these parts, equipment or "long block" engines would have a material adverse effect on the Company's operations. The lead time between ordering and receipt of component parts varies with the part involved, but generally ranges from a few weeks in the case of unfinished products to three to six months in the case of "long block" engines, generators and transmissions. The Company has not experienced any difficulties in obtaining finished or unfinished components or peripheral equipment on commercially reasonable terms. Most of the Company's purchases of component parts and peripheral equipment from Japanese ("long block" engines), Italian (generators) and other foreign manufacturers are dollar-denominated. Fluctuations in exchange rates have resulted, and may in the future result, in price increases from some of the Company's suppliers. Management believes that to varying degrees the Company's competitors in the engine product markets have been and will be similarly affected since many of its competitors also purchase component parts and peripheral equipment abroad. However, some of the Company's principal competitors are divisions of large and diversified multinational companies with extensive production facilities and sales and marketing staffs and substantially greater financial resources than the Company and therefore may be better situated to accommodate price increases from suppliers due to fluctuations in exchange rates. The engine product markets are price sensitive, and there can be no assurance that the Company will be able to pass on price increases from its suppliers to its customers. The manufacturing of a particular engine product requires the integration of a number of engineering, machining and assembly functions in order to produce high quality components. Prior to final assembly, the Company's manufacturing activities involve machining various metal and nonmetal component parts on computer-controlled and conventional milling machines, lathes, drill presses, welders and other machinery, modification and assembly of electrical and mechanical subassemblies, calibration of electrical devices and components and testing for variances from specifications and operating parameters. The Company has approximately thirteen machine operators who satisfy approximately 95% of the Company's machining needs. The remainder of the machining is performed by independent contractors. The Company has a final assembly line for its engine products where component parts, subassemblies and peripheral equipment are assembled onto "long-block" engines. Following final assembly, each generator set and propulsion engine is tested at increasing loads up to full operating capacity to verify performance and safety features. After product testing, the product is pressure hot water washed, primed and painted, unpainted components are attached, and the product is packed and shipped to the customer, generally via common carrier freight collect. The Company's air-conditioning products are produced on a separate assembly line where component parts (compressors, evaporator and condensing coils, fans, electrical components and plastic housings), purchased from manufacturers and suppliers, are assembled into final units. The Company does not have any long-term supply agreements with the manufacturers of these component parts. However, the Company believes it can obtain most of these parts from a variety of sources on commercially reasonable terms. Following assembly, each air-conditioner is painted and tested for performance, leakage and compliance with safety standards. Management believes that the Company's present facilities are sufficient for the production of its products in the foreseeable future. Any future expansion will be dependent upon future growth in demand for the Company's products. See "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Item 2 - Properties" below. Quality Control and Computerization - ----------------------------------- Management believes that maintaining high quality manufacturing standards is important to its competitive position and also believes that the Company has developed a reputation for high quality products. The Company maintains quality control systems and procedures which it reviews with its manufacturing personnel and which it modifies as appropriate. The Company's quality control systems and procedures include the testing of each fully assembled generator set and propulsion engine at increasing loads up to full operating capacity to verify performance and safety features. The checklist includes testing wiring and electrical systems, all connections and fittings, fuel and oil systems, the fresh water cooling system and safety shutdown features. In the case of the Company's generator sets, output current, voltage and frequency are also tested. The results of the tests are recorded and each product is approved by quality assurance personnel before it leaves the testing area. In line with its policy of updating and improving its manufacturing operations, the Company utilizes a computerized manufacturing management system which integrates the Company's inventory control, sales and financial functions with its manufacturing operations. Marketing and Sales - ------------------- The Company's marine engine and air-conditioning products are marketed through a nationwide and international network of distributors and dealers. The Company markets its non-marine engine products through a sales representative and to distributors. In addition, the Company's two sales managers and senior management devote a substantial amount of time to the overall coordination of the Company's sales to distributors, as well as to the Company's direct sales to boat and other manufacturers (OEM's). Direct sales by the Company to OEM's accounted for approximately 40%, 42%, and 34% of total sales for the fiscal years ended October 1998, 1997 and 1996, respectively. The Company's marine products are sold to distributors for resale to manufacturers of powerboats, houseboats, sailboats and other pleasure and commercial boats, and to boat dealers and marinas. Boat manufacturers install the Company's products as original equipment. In addition, the Company's distributors resell the Company's marine products to over 400 authorized dealers (including boatyards and marinas) located on or near major navigable waterways throughout the United States and Canada. These dealers install the Company's generator sets, propulsion engines and air- conditioners as either new or replacement equipment. In addition, many of these dealers maintain inventories of spare parts and accessories in order to maintain and repair the Company's marine products. The Company's distributor network consists of 10 domestic and 53 foreign distributors. The Company's domestic distributors are located along the East, West and Gulf Coasts and in the Great Lakes Region. Two of the Company's foreign distributors are located and operate in Canada, 17 are located and operate in Europe, seven are located and operate in Central and South America, and ten are located and operate in the Far East. The Company also has distributors in Australia, New Zealand, Pakistan, Egypt, Israel, Bahrain, Bermuda, Tahiti, the British West Indies, the U.S. Virgin Islands, British Virgin Islands, Martinique, St. Maarten, Puerto Rico, Mexico, Maldives and the Netherlands Antilles. Each distributor operates in a specified region under a distribution agreement with the Company which assigns to the distributor the nonexclusive responsibility for sales and service of the Company's products in its territory, including warranty administration, accounts receivable collection and other customer related functions. Each distributor maintains inventories of the Company's marine products, including spare parts and accessories, in order to provide boat manufacturers and dealers with prompt delivery of products. Typically, the Company's distributors and dealers also distribute and sell other marine accessories and products. Generally, however, the Company's distributors do not sell products which compete with the Company's products. Sales to international customers totaled $2,305,500 (8.8% of net sales), $2,843,400 (11.5% of net sales) and $2,594,500 (12.6% of net sales) for the fiscal years ended October 1998, 1997 and 1996, respectively. See Note 2 of Notes to Consolidated Financial Statements included in "Item 8 - Financial Statements and Supplementary Data" for additional information concerning sales to international customers for the Company's three most recent fiscal years. Management is not aware of any special tariffs, importation quotas or any other restrictions imposed by the foreign countries in which the Company sells its products. All of the Company's international sales are dollar-denominated which protects the Company to some extent against foreign currency exchange rate fluctuations, although significant increases in the value of the dollar in relation to foreign currencies may adversely impact the Company's ability to market its products abroad. Management believes that, to varying degrees, the Company's competitors in the marine product market are similarly affected since many of its competitors also sell products abroad. However, some of the Company's principal competitors are divisions of large and diversified multinational companies with extensive production facilities and sales and marketing staffs and substantially greater financial resources than the Company and therefore may be better situated to accommodate fluctuations in exchange rates. Management is not aware of any other unusual or special risks associated with this aspect of the Company's business. The Company considers international customers to be an important market for its marine products. An important aspect of the Company's marketing approach and competitive position is the ability of its technical personnel and its distributors to provide technical assistance to boat manufacturers and dealers with a view to developing specifications and performance parameters for unit or serial production of its marine products. To that end, the Company selects its distributors with great care and continually monitors their technical expertise. In addition, at times the Company conducts seminars in each distribution region. These sessions are conducted by personnel from the Company and from its distributors and are open to boat manufacturers, dealers and individual boat owners. The Company occasionally sponsors service schools at its manufacturing facility designed to upgrade a distributor's technical expertise and to introduce product innovations and new products. See "Competition" below. The Company markets the Westerbeke(R), Universal(R) and Rotary Aire(R) names and its marine products through various methods of advertising. Certain advertising is accomplished under a cooperative system with the Company's distributors. Under this system, the Company pays a portion of the cost of and approves the advertising developed by its distributors. Advertisements are placed in trade publications such as Soundings, Motor Boating and Sailing, Sail, Power & Motor Yacht and Cruising World. In addition, a substantial amount of the Company's advertising is conducted through the distribution of technical and sales literature and pamphlets, direct mailings and sponsorship of exhibits at boat shows. During the fiscal years ended October 1998, 1997 and 1996, the Company incurred advertising and promotional expenses of $528,400, $520,900, and $453,200, respectively. For the fiscal year ended October 24, 1998, sales to Sea Ray Boats, Inc. and Marysville Marine Distributors, Inc., accounted for approximately 22.0% and 18.0%, respectively, of the Company's total sales. See Note 2 of Notes to Consolidated Financial Statements included in " Item 8 - Financial Statements and Supplementary Data" and "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations." The Company believes that, if necessary, it could replace any of its distributors or sell the products presently distributed by them directly to boat manufacturers and dealers. However, the loss of these customers or the inability to replace these distributors could have a material adverse effect on the Company. The market for the Company's products is dependent on the market for recreational boats, including auxiliary powered sailboats, powerboats, houseboats and other pleasure boats. In addition, the recreational marine boat business is seasonal in nature and accordingly, the Company's business generally experiences some fluctuations in its business during the course of the year. See Note 14 of Notes to Consolidated Financial Statements included in "Item 8 - Financial Statements and Supplementary Data." Proprietary Rights - ------------------ Although the Company follows a policy of protecting its proprietary rights to its marine engine products and designs, it does not believe that its business, as a whole, is materially dependent upon such protection. The Company has registered the names Westerbeke(R), Universal(R), Rotary Aire(R) and Atomic Four(R) under Federal trademark law. Backlog and Credit Terms - ------------------------ The Company believes that because its production is based upon cancelable purchase orders rather than long-term agreements, the amount of its backlog is not an important indicator of future sales. The Company extends credit to certain of its customers on terms which it believes are normal and customary in the marine industry. Competition - ----------- The business of manufacturing and supplying marine products is extremely competitive. The Company faces competition from a number of companies, including at least seven significant competitors, some of which are divisions of large and diversified multinational companies with extensive production facilities and sales and marketing staffs and substantially greater financial resources than the Company. Such competitors may be better situated to accommodate price increases from suppliers due to fluctuations in exchange rates. In addition, the Company faces competition from similar companies as it expands its product line or seeks other non-marine applications for its product line. Although price is an important competitive factor, the Company believes that its pricing is competitive. The market for the Company's marine products is dependent on the market for recreational boats which may experience contracting sales as a result of general economic conditions. A contracting market may result in additional competition particularly for direct sales to large boat manufacturers. The Company believes that it can compete effectively with all of its present competitors based upon the high quality, reliability, performance and longevity of its products, the comprehensiveness of its line of products, price, the effectiveness of its customer service and the technical expertise of its personnel and that of its distributors. Employees - --------- At December 31, 1998, the Company had 104 full-time employees, including officers and administrative personnel. None of the Company's employees is covered by a collective bargaining agreement and the Company considers its relationship with its employees to be excellent. Directors and Executive Officers of the Company - ----------------------------------------------- The directors and executive officers of the Company are as follows:
Name Position with the Company Age - ---- ------------------------- --- John H. Westerbeke, Jr Chairman, President and 58 Director (Class C) John H. Westerbeke, Sr Director (Class C) 89 Carleton F. Bryant, III Executive Vice President, 53 Treasurer, Chief Operating Officer and Secretary Gerald Bench Director (Class A) 57 Thomas M. Haythe Director (Class B) 59 Nicholas H. Safford Director (Class B) 66 James W. Storey Director (Class B) 64
John H. Westerbeke, Jr. has been President and a director of the Company since 1976. In June 1986, Mr. Westerbeke, Jr. assumed the additional position of Chairman of the Company. Mr. Westerbeke, Jr. has served in various managerial capacities since joining the Company in 1966. John H. Westerbeke, Sr. is the founder of the Company. Mr. Westerbeke, Sr. has served as a director of the Company since 1946 and was Chairman of the Board of Directors of the Company from 1976 until June 1986. Mr. Westerbeke, Sr. is presently employed by the Company in various engineering capacities. Carleton F. Bryant, III has been Executive Vice President, Treasurer, Chief Operating Officer, and Secretary of the Company since May 1993. From October 1987 to May 1993, Mr. Bryant was Director of Business Development for Analysis & Computer Systems, Inc., a developer of computer software and systems. From June 1980 to October 1987, Mr. Bryant held various management positions with Bird-Johnson Company, a manufacturer of ship propellers, bow thrusters and hydraulic actuators. From 1969 to 1980, Mr. Bryant held a variety of management positions with Bath Iron Works Corporation, a shipbuilder. Gerald Bench has been a director of the Company since June 1986. Mr. Bench has been the President and Chief Executive Officer of Hadley Fruit Orchards, Inc. since November 1996 and was a consultant from March 1995 to November 1996. Mr. Bench was a partner in ICAP Marine Group (consulting firm) from November 1993 to February 1995. Mr. Bench was the Chairman and President of TDG Aerospace, Inc. (manufacturer of aircraft de-icing devices) from October 1991 to November 1993. Mr. Bench was the President of Thermion, Inc. (manufacturer of heaters for aircraft de-icing devices) from April 1990 to September 1991. From July 1989 to March 1990, Mr. Bench was the general manager of Lermer Corporation (manufacturer of airline galley equipment). Mr. Bench is the former Chairman of the Board, President, Chief Executive Officer and director of E&B Marine Inc. (marine supplies and accessories). Mr. Bench had held various executive positions with E&B Marine Inc. for more than 30 years. Thomas M. Haythe has been a director of the Company since June 1986. Mr. Haythe has been a partner of the law firm of Haythe & Curley since its formation in February 1982. Mr. Haythe is also a director of Novametrix Medical Systems Inc. (manufacturer of electronic medical instruments), Guest Supply, Inc. (provider of hotel guest room amenities, accessories and products) and Ramsay Youth Services, Inc. (provider of youth and educational services). Nicholas H. Safford has been a director of the Company since February 1991. Mr. Safford has been the President of Nicholas H. Safford & Co., Inc. (investment counselor and private trustee) since 1983 and from 1979 to 1981. From 1982 to 1983, Mr. Safford was the President and a director of Wendell, Safford and Co., Inc. (investment counseling firm). Prior to 1978, Mr. Safford was Vice President and a director of David L. Babson & Co., Inc. (investment counseling firm). James W. Storey has been a director of the Company since June 1986. Mr. Storey was the President of Wellingsley Corporation (private investment management company) from December 1986 through December 1992. Mr. Storey is currently an independent consultant. From 1982 to 1986, Mr. Storey was the President and Chief Executive Officer of Codex Corporation, a subsidiary of Motorola, Inc., and was a Vice President of Motorola, Inc. Mr. Storey had held various managerial positions with Codex Corporation since 1966. Mr. Storey is also a director of Progress Software Corporation (software). ITEM 2. PROPERTIES. The Company's executive and administrative offices and manufacturing operations are located in Avon, Massachusetts in an approximately 37, 500 square foot facility owned by the Company. The Company also leases a warehouse of approximately 26,000 square feet. Management believes that the Company's present facilities are sufficient for the production of its products in the foreseeable future. Any future expansion will be dependent upon future growth in demand for the Company's products. Annual warehouse rent was approximately $141,300 in fiscal 1998 and $137,200 in fiscal 1997. See Notes 8 and 10 of Notes to Consolidated Financial Statements included in "Item 8 - Financial Statements and Supplementary Data." ITEM 3. LEGAL PROCEEDINGS. The Company has initiated arbitration with the American Arbitration Association in New York against Daihatsu Motor Company, Ltd. ("Daihatsu") for breach of contract and other claims. The Company is seeking damages based on Daihatsu's breach of a Component Sales Agreement which also granted the Company rights to certain engines including an engine Daihatsu began marketing in 1993 through a joint venture with Briggs & Stratton Corporation. In a separate but related case pending in the Federal District Court for the District of Massachusetts, the Company is seeking damages from Briggs & Stratton Corporation for tortious interference with the Company's Agreement with Daihatsu and other related claims. In addition, from time to time, the Company is party to certain claims, suits and complaints which arise in the ordinary course of business. Currently, there are no such claims, suits or complaints which, in the opinion of management, would have a material adverse effect on the Company's financial position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's Common Stock is traded in the over-the-counter market on the National Association of Securities Dealers Automated Quotation System ("NASDAQ") under the symbol WTBK. On January 14, 1999, there were approximately 149 shareholders of record. The following table sets forth the range of high and low sales prices per share of the Company's Common Stock from October 27, 1996 through October 24, 1998, on the NASDAQ.
Common Stock Prices High Low ---- --- FISCAL 1997 First Quarter (October 27, 1996 to January 25, 1997) $2.875 $2.375 Second Quarter (January 26, 1997 to April 26, 1997) 3.312 2.750 Third Quarter (April 27, 1997 to July 26, 1997) 3.750 2.750 Fourth Quarter (July 27, 1996 to October 25, 1997) 5.469 3.500 FISCAL 1998 First Quarter (October 26, 1997 to January 24, 1998) $4.750 $3.750 Second Quarter (January 25, 1998 to April 25, 1998) 4.250 3.250 Third Quarter (April 26, 1998 to July 25, 1998) 4.000 2.938 Fourth Quarter (July 26, 1998 to October 24, 1998) 3.375 2.625
On January 14, 1999, the last high and low sales price for the Company's Common Stock were $2.906 and $2.906, respectively. No dividends have been paid or declared on the Common Stock of the Company and the Company does not expect to pay any dividends on its Common Stock in the foreseeable future. ITEM 6. SELECTED FINANCIAL DATA. Five Year Comparison of Selected Financial Data
October 24, October 25, October 26, October 28, October 29, 1998 1997 1996 1995 1994 ----------------------------------------------------------------------- For the Year: (In thousands, except for per share amount) Net sales $26,202 $24,620 $20,653 $18,794 $15,038 Gross profit 5,966 5,556 4,778 4,292 3,399 Selling, general and administrative expense 3,684 3,106 2,672 2,514 2,223 Research and development expense 1,181 1,030 919 679 488 Income from operations 1,100 1,420 1,187 1,099 688 Interest (income) expense 10 71 (47) (43) (19) Income before cumulative effect of change in accounting principle 644 799 737 698 432 Net income 644 799 737 698 633 Income per share before cumulative effect of change in accounting method 0.31 0.37 0.33 0.31 0.19 Net income per share, diluted* 0.31 0.37 0.33 0.31 0.28 At end of year: Total assets $14,670 $14,811 $12,681 $10,999 $10,264 Working capital 5,650 5,800 6,315 5,908 5,733 Long-term liabilities 893 1,069 520 189 267 Stockholders' equity 10,719 10,136 9,841 9,091 8,319 See Note 1 of Notes to Consolidated Financial Statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Results of Operations: The following table sets forth, for the years indicated, the percentages which the following items in the Consolidated Statements of Operations bear to Net Sales.
Years Ended ----------------------------------------- October 24, October 25, October 26, 1998 1997 1996 ----------------------------------------- Net sales 100.0% 100.0% 100.0% Gross profit 22.8 22.6 23.1 Selling, general and administrative expense 14.1 12.6 12.9 Research and development expense 4.5 4.2 4.4 Income from operations 4.2 5.8 5.7 Interest income (expense), net 0.0 (0.3) 0.2 Provision for income taxes 1.7 2.2 2.4 Net income 2.5 3.2 3.6
Fiscal 1998 compared to Fiscal 1997 - ----------------------------------- Net sales increased $1,581,700 or 6.4% in fiscal 1998 as compared to fiscal 1997. The increase was attributable to higher unit sales of the Company's marine generators, primarily the result of more favorable economic conditions benefiting the pleasure boat industry. International sales were $2,305,500 in 1998, representing 8.8% of net sales, as compared to $2,843,400 in 1997, or 11.5% of net sales. The decrease in 1998 was the result of less than favorable economic conditions in the Far East. Gross profit increased $409,400 or 7.4% in fiscal 1998 as compared to fiscal 1997. Gross profit as a percentage of sales increased to 22.8% in fiscal 1998 as compared to 22.6% in fiscal 1997. Selling, general and administrative expense increased $578,600 or 18.6% in fiscal 1998 as compared to fiscal 1997. The increase was primarily the result of higher legal costs associated with the legal proceeding against one of its former "long block" suppliers and also an increase in the warranty expense during the year. Research and development expense increased $150,600 or 14.6% in fiscal 1998 as compared to fiscal 1997. The increase is due to additional engineering personnel, education and training expenses and costs associated with bringing the replacement "long block" engines into full production. The Company also experienced increased costs to comply with federal and state exhaust requirements for existing and new engines. See "Business - Governmental Regulation." Net interest expense was $9,900 in fiscal 1998 compared to $71,000 in fiscal 1997. The decrease is primarily due to a decrease in the loan balance used for operating purposes during the year. The Company's income tax expense in fiscal 1998 was $446,700 as compared to $550,000 in fiscal 1997. The Company's net income was $643,500 as compared to $798,900 in fiscal 1997. The decrease is mainly attributable to the increase in selling, general and administrative expenses. The Company is currently renegotiating its exclusive agreement with its largest customer. The existing agreement will expire on June 30, 1999. The Company cannot predict the results of these negotiations. The loss of the revenues associated with this agreement would have a material effect on the Company's operating results and financial condition if the Company was unable to replace the business and or reduce operating expenses. Fiscal 1997 compared to Fiscal 1996 - ----------------------------------- Net sales increased $3,967,400 or 19.2% in fiscal 1997 as compared to fiscal 1996. The increase was attributable to higher unit sales of the Company's marine generators. The overall increase is primarily the result of more favorable economic conditions benefiting the pleasure boat industry. International sales were $2,843,400 in 1997, representing 11.5% of net sales, as compared to $2,594,500 in 1996, or 12.6% of net sales. Gross profit increased $778,100 or 16.3% in fiscal 1997 as compared to fiscal 1996. Gross profit as a percentage of sales decreased to 22.6% in fiscal 1997 as compared to 23.1% in fiscal 1996. The decrease in gross profit percentage is primarily due to the costs associated with the cessation of supply of "long block" engines from one supplier and the development of replacement products based on another supplier's engine. Selling, general and administrative expense increased $433,800 or 16.2% in fiscal 1997 as compared to fiscal 1996. The Company incurred higher marketing and promotional expenses due to increased boat show and travel activity. Employee compensation costs were also higher as a result of the Company's improved profitability. In addition, legal expenses increased in fiscal 1997. Research and development expense increased $111,600 or 12.1% in fiscal 1997 as compared to fiscal 1996. The increase is primarily due to the costs of developing products using "long block" engines from a new supplier which will replace the engines that could no longer be obtained from an existing supplier. The Company also experienced increased costs to comply with federal and state exhaust requirements for existing and new engines. See " Business - Governmental Regulation." One of the Company's vendors of "long block" engines stopped supplying engines to the Company in fiscal 1997. The Company's existing inventory of this vendor's engines was nearly exhausted at the end of the fiscal year. The Company was able to obtain similar "long block" engines from another source, but there have been, and will continue to be, added costs associated with making this change. A portion of the costs to obtain replacement "long block" engines from another supplier and to develop replacement products based on those engines are reflected in the decreased gross profit as a percentage of sales and in the increased research and development costs experienced in fiscal 1997. The Company anticipates that there will be added costs in fiscal 1998 associated with bringing the new products into full production and introducing them to the market, which will adversely affect gross margins and research and development costs. Net interest expense was $71,000 in fiscal 1997 compared to net interest income of $47,400 in fiscal 1996. The increase in interest expense is primarily due to the interest expense incurred on the loans used for operating purposes throughout the year. The Company's income tax expense in fiscal 1997 was $550,000 as compared to $497,200 in fiscal 1996. The Company's net income was $798,900 as compared to $737,400 in fiscal 1996. The increase is mainly attributable to higher unit sales throughout fiscal 1997. Liquidity and Capital Resources - ------------------------------- During fiscal 1998, net cash provided by operations was $1,191,600 as compared to $924,000 in fiscal 1997. The decrease in inventories and the increase in accounts payable is primarily the result of the timing of engine purchase order receipts. During fiscal 1998 and 1997, the Company purchased property, plant and equipment of $444,300 and $578,000, respectively. The Company plans capital spending of approximately $500,000 on machinery and equipment during fiscal 1999. The Company has a $4,000,000 Credit Agreement with State Street Bank and Trust Company, collateralized by inventory, accounts receivable and general intangibles. The Credit Agreement was renewed on March 31, 1998, and will expire on March 31, 1999. The Company believes that it will be able to continue to extend the term of the Credit Agreement on commercially reasonable terms. As of October 24, 1998, the Company had approximately $3,459,300 in unused borrowing capacity under the Credit Agreement and approximately $150,900 committed to cover the Company's reimbursement obligations under certain open letters of credit and bankers' acceptances. On April 25, 1997, the Company entered into a $300,000 revolving line of credit agreement (the "1997 Revolving Line of Credit") and term loan facility with State Street Bank and Trust Company, collateralized by various items of emission testing and product development equipment and subject to working capital and equity covenants. On June 30, 1997, the 1997 Revolving Line of Credit terminated and automatically converted into a five-year term loan bearing a fixed interest rate of 8.11%. At October 24, 1998, the outstanding principal amount was $220,800. On January 23, 1996, the Company entered into a $500,000 revolving line of credit agreement (the "Revolving Line of Credit") and term loan facility with State Street Bank and Trust Company, collateralized by various emission testing and product development equipment and subject to working capital and equity covenants. On July 31, 1996, the Revolving Line of Credit terminated and automatically converted into a five year term loan in the principal amount of $491,600 bearing a fixed interest rate of 8.08%. As of October 24, 1998, the outstanding principal amount was $275,900. 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 1999. Domestic inflation is not expected to have a major impact on the Company's operations. The costs of engine blocks and other components are subject to foreign currency fluctuations (primarily the Japanese yen). The value of the U.S. dollar relative to the yen had no material effect on the cost of the Company's products in fiscal 1998. Year 2000 Compliance - -------------------- The Company is aware of the potential for industry wide business disruption which could occur due to problems related to the "Year 2000 Issue." It is the belief of the Company's management that it has a prudent plan to address these issues within the Company and with its suppliers. The components of the Company's plan include an assessment of internal systems for modification and/or replacement, communication with vendors to determine their state of readiness to maintain an uninterrupted supply of goods and services to the Company; an evaluation of the Company's production equipment as to its ability to function properly after the turn of the century; an evaluation of facility related issues; and the development of a contingency plan. State of Readiness The Company has developed a plan to reduce the probability of operational difficulties due to Year 2000 related failures. While there is still a significant amount of work to do, the Company believes that it is on track towards a timely completion. Internal Systems (Information Technology) The Company is in the process of completing its assessment of all information technology systems that could be significantly affected by the Year 2000 issue. The assessment has indicated that certain systems are already Year 2000 compliant while others are still in the process of being remediated. The Company has received from its software vendor the updated software necessary to make its operating system Year 2000 compliant, which the Company anticipates will be installed by the end of its second quarter. Suppliers The Company is in the process of communicating with its external vendors to gain an understanding of their readiness to maintain an uninterrupted supply of goods and services to the Company. The Company has identified vendors it views as critical to its business. The Company is defining a critical vendor as one whose inability to continue to provide goods and services would have a serious adverse impact on the Company's ability to produce, deliver and collect payment. To date, the Company is not aware of any supplier with a Year 2000 issue that would materially impact the results of operations, liquidity or capital resources. However, the Company has no means of ensuring that suppliers will be Year 200 ready. The inability of suppliers to complete their Year 2000 resolution process in a timely fashion could materially impact the Company. Production Equipment The Company has completed an inventory of production equipment currently used at the Company. The Company has determined the Year 2000 readiness of its equipment through communication with the equipment manufacturers and testing where appropriate. The Company is not aware of any production equipment that is effected by the Year 2000 issue. Facility Related Issues The Company is in the process of evaluating facilities related equipment with the potential for Year 2000 related failures. The Company will determine the Year 2000 readiness of its equipment through communication with the equipment manufacturers and testing where appropriate. It is the Company's intention to repair or replace non-compliant equipment prior to operating difficulties. The Company, as in most companies, remains aware of the potential for imbedded logic within microchips to cause equipment failure. The Company believes that it has a prudent approach towards evaluating facilities equipment, however, it may be impracticable or impossible to test certain items of equipment for Year 2000 readiness. To the extent such untested equipment is not Year 2000 ready, it may fail to operate on January 1, 2000, resulting in possible interruption of security, heating, telephone and other services. Costs The Company is evaluating the total cost of Year 2000 compliance. At this time, the Company estimates the total cost of Year 2000 related activities to be approximately $75,000. This amount is not incremental spending and has been budgeted within the normal magnitude of Information Technology spending. This amount includes the replacement of hardware and applications that are outdated and were due for replacement regardless of Year 2000 issues. Contingency Plan Although the Company believes that it is taking prudent action related to the identification and resolution of issues related to the Year 2000, its assessment is still in progress. The Company may never be able to know with certainty whether certain key vendors are compliant. Failure of key vendors to make their computer systems Year 2000 compliant could result in delayed deliveries of products to the Company. If such delays are extended they could have a material adverse effect on the Company's business, financial condition and results of operations. The Company continues to evaluate the risks associated with potential Year 2000 related failures. As it better understands the risks within its unique set of business partners, production processes, and internal systems, it will develop a formal contingency plan outlined by April 1999. Until the contingency plan is completed, the Company does not possess the information necessary to estimate the potential impact of Year 2000 compliance issues relating to its Information Technology systems, non-Information Technology systems, its vendors, its customers, and other parties. This Annual Report on Form 10-K may contain forward-looking information about the Company. The Company is hereby setting forth statements identifying important factors that may cause the Company's actual results to differ materially from those set forth in any forward-looking statements made by the Company. Some of the most significant factors include: an unanticipated down-turn in the recreational boating industry resulting in lower demand for the Company's products; the unanticipated loss of, or decline in sales to, a major customer; the unanticipated loss of a major supplier; the inability of the Company to effect required modifications of its products to meet governmental regulations with respect to emission standards; the unanticipated inability of the Company to be Year 2000 compliant; and foreign currency fluctuations resulting in cost increases to the Company for its foreign supplied components. Accordingly, there can be no assurances that any anticipated future results will be achieved. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. WESTERBEKE CORPORATION AND SUBSIDIARY ------------------------------------- CONSOLIDATED FINANCIAL STATEMENTS For the years ended October 24, 1998, October 25, 1997 and October 26, 1996 KPMG Peat Marwick LLP 99 High Street Telephone 617 988 1000 Telefax 617 988 0800 Boston, MA 02110-2371 Independent Auditors' Report ---------------------------- To the Board of Directors and Stockholders of Westerbeke Corporation: We have audited the accompanying consolidated balance sheets of Westerbeke Corporation and subsidiary as of October 24, 1998 and October 25, 1997, and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for each of the years in the three-year period ended October 24, 1998. In connection with our audits of the consolidated financial statements, we have also audited the financial statement schedule as listed in Item 14(a) 2. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Westerbeke Corporation and subsidiary as of October 24, 1998 and October 25, 1997, and the results of their operations and their cash flows for each of the years in the three-year period ended October 24, 1998, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. By /s/ KPMG Peat Marwick LLP ---------------------------- Boston, Massachusetts December 23, 1998 WESTERBEKE CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
October 24, October 25, 1998 1997 ----------- ----------- ASSETS Current assets: Cash and cash equivalents $ 101,900 $ 156,900 Accounts receivable, net of allowance for doubtful accounts of $59,200 and $63,900, respectively (Note 2) 2,292,900 1,949,000 Inventories (Note 3) 5,391,600 6,254,300 Prepaid expenses and other assets 343,000 301,600 Prepaid income taxes - 212,000 Deferred income taxes (Note 9) 578,600 532,200 --------------------------- Total current assets 8,708,000 9,406,000 Property, plant and equipment, net (Notes 4,8 and 10) 2,161,500 2,139,300 Other assets, net (Note 5) 2,002,100 1,597,100 Investments in marketable securities (Note 1) 1,690,700 1,545,500 Note receivable - related party (Note 6) 108,000 122,800 --------------------------- $14,670,300 $14,810,700 =========================== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt (Notes 8 and 10) $ 189,700 $ 213,100 Revolving demand note payable (Note 7) 200,000 600,000 Accounts payable 1,905,900 2,227,900 Accrued expenses and other liabilities 668,900 564,600 Accrued income taxes (Note 9) 93,900 - --------------------------- Total current liabilities 3,058,400 3,605,600 --------------------------- Deferred income taxes (Note 9) 154,900 304,200 Deferred compensation 320,700 159,600 Long-term debt, net of current portion (Notes 8 and 10) 417,400 605,400 --------------------------- 893,000 1,069,200 --------------------------- Commitments and contingencies (Notes 7 and 10) Stockholders' equity (Notes 11 and 12): Common stock, $.01 par value; authorized 5,000,000 shares; issued 2,185,950 shares in 1998 and 2,156,950 in 1997. 21,900 21,600 Additional paid-in-capital 6,025,300 5,996,600 Unrealized gain on marketable securities (Note 1) 151,200 240,700 Retained earnings 5,276,500 4,633,000 --------------------------- 11,474,900 10,891,900 Less - Treasury shares at cost, 268,138 shares in 1998 and 1997 756,000 756,000 --------------------------- Total stockholders' equity 10,718,900 10,135,900 --------------------------- $14,670,300 $14,810,700 ===========================
The accompanying notes are an integral part of the consolidated financial statements. WESTERBEKE CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended ----------------------------------------- October 24, October 25, October 26, 1998 1997 1996 ----------- ----------- ----------- Net sales (Note 2) $26,202,000 $24,620,300 $20,652,900 Cost of sales 20,236,500 19,064,200 15,874,900 ----------------------------------------- Gross profit 5,965,500 5,556,100 4,778,000 Selling, general and administrative expense 3,684,500 3,105,900 2,672,100 Research and development expense 1,180,900 1,030,300 918,700 ----------------------------------------- Income from operations 1,100,100 1,419,900 1,187,200 Interest income (expense), net (9,900) (71,000) 47,400 ----------------------------------------- Income before income taxes 1,090,200 1,348,900 1,234,600 Provision for income taxes (Note 9) 446,700 550,000 497,200 ----------------------------------------- Net income $ 643,500 $ 798,900 $ 737,400 ========================================= Income per common share, basic $ .34 $ .40 $ .36 ========================================= Income per common share, diluted $ .31 $ .37 $ .33 ========================================= Weighted average common shares - diluted basic 1,914,546 1,995,155 2,072,092 ========================================= Weighted average common shares - diluted 2,077,125 2,159,114 2,248,678 =========================================
The accompanying notes are an integral part of the consolidated financial statements. WESTERBEKE CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY Three years ended October 24, 1998
Additional Unrealized Gain Total Common Stock Paid-in on Marketable Retained Treasury Stockholders' Shares Amount Capital Securities Earnings Stock Equity ----------------------------------------------------------------------------------------------- October 28, 1995 2,064,650 $20,600 5,902,100 71,200 3,096,700 - 9,090,600 Exercise of stock options 58,300 600 57,700 - - - 58,300 Repurchase of 44,400 shares - - - - - (133,200) (133,200) Unrealized gain on marketable securities - - - 87,900 - - 87,900 Net Income - - - - 737,400 - 737,400 --------------------------------------------------------------------------------------------- October 26, 1996 2,122,950 21,200 5,959,800 159,100 3,834,100 (133,200) 9,841,000 Exercise of stock options 34,000 400 36,800 - - - 37,200 Repurchase of 223,738 shares - - - - - (622,800) (622,800) Unrealized gain on marketable securities - - - 81,600 - - 81,600 Net Income - - - - 798,900 - 798,900 --------------------------------------------------------------------------------------------- October 25,1997 2,156,950 21,600 5,996,600 240,700 4,633,000 (756,000) 10,135,900 Exercise of stock options 29,000 300 28,700 - - - 29,000 Unrealized loss on marketable securities - - - (89,500) - - (89,500) Net Income - - - - 643,500 - 643,500 --------------------------------------------------------------------------------------------- October 24, 1998 2,185,950 $21,900 6,025,300 151,200 5,276,500 (756,000) 10,718,900 =============================================================================================
The accompanying notes are an integral part of the consolidated financial statements. WESTERBEKE CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended ----------------------------------------- October 24, October 25, October 26, 1998 1997 1996 ----------------------------------------- Cash flows from operating activities: Net income $ 643,500 $ 798,900 $ 737,400 Reconciliation of net income to net cash provided (used) by operating activities: Depreciation and amortization 428,800 417,700 404,700 Loss on disposal of fixed assets 15,000 - - Deferred income taxes (195,700) 87,500 (143,500) Changes in operating assets and liabilities: Accounts receivable (343,900) 369,500 (777,100) Inventories 862,700 (826,300) (1,114,500) Prepaid expenses and other assets (41,400) (52,600) (114,900) Prepaid income taxes 212,000 (212,000) - Other assets (426,700) (414,200) (85,500) Accounts payable (322,000) 597,600 552,700 Accrued expenses and other liabilities 104,300 7,200 177,000 Deferred compensation 161,100 159,600 - Accrued income taxes payable 93,900 (8,900) (217,400) ----------------------------------------- Net cash provided (used) by operating activities 1,191,600 924,000 (581,100) ----------------------------------------- Cash flows from investing activities: Purchase of property, plant and equipment (444,300) (578,000) (570,400) Proceeds from payment of note receivable - related party 14,800 13,800 12,800 Investment in marketable securities (234,700) (541,700) (348,300) ----------------------------------------- Net cash used in investing activities (664,200) (1,105,900) (905,900) ----------------------------------------- Cash flows from financing activities: Exercise of stock options 29,000 37,200 58,300 Net (repayments) borrowings under revolving demand note (400,000) 600,000 - Purchase of treasury stock - (622,800) (133,200) Proceeds from equipment line - 300,000 491,600 Principal payments on long-term debt and capital lease obligations (211,400) (176,100) (51,400) ----------------------------------------- Net cash provided (used) by financing activities (582,400) 138,300 365,300 ----------------------------------------- Decrease in cash and cash equivalents (55,000) (43,600) (1,121,700) Cash and cash equivalents, beginning of year 156,900 200,500 1,322,200 ----------------------------------------- Cash and cash equivalents, end of year $ 101,900 $ 156,900 $ 200,500 ========================================= Supplemental cash flow disclosures: Interest paid $ 167,600 $ 136,600 $ 24,900 Income taxes paid $ 266,000 $ 849,000 $ 857,900 Supplemental disclosures of non-cash flow items: Equipment purchase under capital lease - $ 175,000 - Increase (decrease) in unrealized gains on marketable securities, net of income taxes $ (89,500) $ 81,600 $ 87,900 =========================================
The accompanying notes are an integral part of the consolidated financial statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS October 24, 1998, October 25, 1997 and October 26, 1996 1. Summary of Significant Accounting Policies: The Company is primarily engaged in the business of designing, manufacturing and marketing marine engine and air-conditioning products. Principles of Consolidation The consolidated financial statements include the accounts of Westerbeke Corporation (the "Company"), and its wholly owned subsidiary, Westerbeke International, Inc. (a foreign sales corporation). Westerbeke International, Inc. was inactive during fiscal years 1998, 1997, and 1996. Use of Estimates The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses. Actual results could differ from these estimates. Cash Equivalents All highly liquid investments with an original maturity of three months or less are considered to be cash equivalents. Investments in Marketable Securities Marketable investment securities at October 24, 1998 and October 25, 1997 consist of equity securities in various mutual funds. The Company employs the provisions of Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities (Statement 115). Under Statement 115, the Company classifies its marketable securities in one of two categories: trading or available-for-sale. Trading and available-for-sale securities are recorded at fair value. Unrealized holding gains and losses on trading securities are included in earnings. Unrealized holding gains and losses, on available-for-sale securities are excluded from earnings and are reported as a separate component of stockholders' equity until realized. Transfers of securities between categories are recorded at fair value at the date of transfer. Unrealized holding gains and losses are recognized in earnings for transfers into trading securities. A decline in the market value of any available-for-sale security below cost that is deemed other than temporary is charged to earnings resulting in the establishment of a new cost basis for the security. Dividend and interest income are recognized when earned. Realized gains and losses, if any, for securities classified as available-for-sale are included in earnings with cost determined using the specific identification method. Marketable investment securities at October 24, 1998 include equity securities, principally mutual funds for which the Company has both intent and ability to hold. Equity securities are stated at the fair market value at October 24, 1998 and at October 25, 1997. The total cost of the marketable securities at October 24, 1998 was $1,437,500. The total cost of marketable securities at October 25, 1997 was $1,139,300. Unrealized holding gains in investment securities, net of income taxes, at October 24, 1998 and October 25, 1997 were $151,200 and $240,700, respectively. Inventories Inventories are valued at the lower of cost (determined on the last-in, first-out method) or market. Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of The Company accounts for long-lived assets in accordance with the provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. This Statement requires that long- lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Depreciation and Amortization The Company computes depreciation and amortization expense on a straight- line basis over the following estimated useful lives:
Asset Classification Estimated Useful Lives - -------------------- ---------------------- Building and building improvements 15 - 40 years Machinery and equipment 10 years Patterns 5 years Furniture and fixtures 5 - 10 years Transportation equipment 3 - 5 years Equipment under capital lease 5 - 10 years Intangibles 3 - 17 years
Intangible assets are classified in other assets. Maintenance and repairs are charged to expense in the period incurred. The cost and accumulated depreciation of assets retired or sold are removed from the accounts and any gain or loss is credited or charged to income. Leasehold improvements are amortized on a straight-line basis over the shorter of the life of the lease or their estimated useful lives. Revenue Recognition The Company recognizes revenue upon shipment of product. Fair Value of Financial Instruments Financial instruments of the Company consist of cash, cash equivalents, accounts receivable, accounts payable and accrued liabilities. The carrying value of these financial instruments approximates their fair value because of the short maturity of these instruments. Based upon borrowing rates currently available to the Company for issuance of similar debt with similar terms and remaining maturities, the estimated fair value of long-term debt approximates their carrying amounts. Product Warranty Cost The anticipated costs related to product warranty are expensed at the time of sale of the product. Accrued warranty expense of $330,000 and $225,000 is included in accrued expenses and other liabilities at October 24, 1998 and October 25, 1997, respectively. Income Taxes The Company uses the asset and liability method of accounting for income taxes. Under the asset and liability method of Statement 109, deferred income taxes are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under Statement 109, the effect on deferred taxes of a change in tax rate is recognized in income in the period that includes the enactment date. Net Income Per Share Basic income per common share is computed by dividing income available to common stockholders by the weighted average number of shares outstanding for the period. Diluted income per share reflects the maximum dilution that would have resulted from the exercise of stock options. Diluted income per share is computed by dividing net income by the weighted average number of common shares and all dilutive securities.
For the Twelve Months Ended October 24, 1998 October 25, 1997 ---------------------------------- ---------------------------------- Income Net Income Net per share Shares Income per share Shares Income ---------------------------------------------------------------------------- Basic $ .34 1,914,546 $643,500 $ .40 1,995,155 $798,900 Effect of Stock options (.03) 162,579 - (.03) 163,959 - -------------------------------- -------------------------------- Diluted $ .31 2,077,125 $643,500 $ .37 2,159,114 $798,900
In February 1997, the Financial Accounting Standards Board (FASB) issued Financial Accounting Standard No. 128, "Earnings per Share" (FAS 128). FAS 128 supersedes Accounting Principles Board Opinion No. 15 and specifies the computation, presentation and disclosure requirements for earnings per share. FAS 128 is effective for financial Statements for both interim and annual periods ending after December 15, 1997. Accordingly, the Company has adopted FAS 128 and has restated prior period information as required under the statement. 2. Business Segment The Company has one business segment; the designing, manufacturing and marketing of marine engines and related products. The profitability of the Company is directly tied to the marine industry. The industry is subject to fluctuations in economic conditions that may adversely affect the Company. Four customers accounted for approximately 61%, 58% and 56% of Company revenues for the fiscal years ended 1998, 1997 and 1996, respectively. The loss of one of these customers could adversely affect the Company's profitability. Net sales include export sales, primarily to customers in the Far East, Canada and Europe of approximately $2,305,500, $2,843,400 and $2,594,500 for fiscal years ended October 24, 1998, October 25, 1997, and October 26, 1996, respectively. In fiscal 1998, three customers accounted for sales in excess of 10% of net sales as follows: $5,878,000, $4,827,900 and $2,788,500. In fiscal 1997, two customers accounted for sales in excess of 10% of net sales as follows: $5,656,600 and $4,193,700. In fiscal 1996, three customers accounted for sales in excess of 10% of net sales as follows: $3,928,900, $3,819,600 and $2,265,800. At October 24, 1998, three customers accounted for trade accounts receivable in excess of 10% of net accounts receivable as follows: $537,700, $490,000, and $308,800. At October 25, 1997, three customers accounted for trade accounts receivable in excess of 10% of net accounts receivable as follows: $419,200, $357,800, and $355,200. The Company performs ongoing credit evaluations of its customers and therefore does not require collateralization of trade receivables. 3. Inventories Inventories consist of the following:
October 24, 1998 October 25, 1997 ---------------- ---------------- Raw materials $4,416,300 $5,065,400 Work-in-process 530,700 601,400 Finished goods 445,000 587,500 ---------- ---------- $5,391,600 $6,254,300 ========== ==========
The Company uses the last-in, first-out (LIFO) method to value inventory. The Company believes the LIFO inventory method results in a better matching of costs and revenues during periods of changing prices. Inventories would have been $892,500 and $1,165,000 higher at October 24, 1998 and October 25, 1997, respectively, if the first-in, first-out (FIFO) method had been used. In 1998, inventory was reduced resulting in liquidation of LIFO inventory layers. The effect of the inventory reductions was to reduce cost of sales by approximately $176,300. Inventory cost determined on the FIFO method approximates replacement or current cost. The basic component of the Company's engine products is a "long block" engine, which is a complete engine block and head assembly without peripheral equipment. The Company purchases "long block" engines from five foreign manufacturers. Interruption of the supply of "long block" engines would have a material adverse effect on the Company if the time to develop new sources of supply and replacement products is longer than the time it takes to exhaust the Company's inventory of existing "long block" engines. 4. Property, Plant and Equipment Property, plant and equipment, at cost, consists of the following:
October 24, 1998 October 25, 1997 ---------------- ---------------- Land $ 48,000 $ 48,000 Building and building improvements 1,352,200 1,340,800 Furniture and fixtures 447,500 443,900 Machinery, patterns and equipment 3,266,800 2,822,900 Transportation equipment 51,500 11,700 Leasehold improvements 20,400 20,400 Equipment under capital lease 594,200 1,020,400 --------------------------------- 5,780,600 5,708,100 Less accumulated depreciation 3,619,100 3,568,800 --------------------------------- $2,161,500 $2,139,300 =================================
The Company incurred depreciation expense of approximately $407,100, $396,000, and $383,000 for fiscal years 1998, 1997, and 1996, respectively. 5. Other Assets The Company has entered into a split-dollar insurance arrangement with John H. Westerbeke, Jr., the chairman, president and chief executive officer of the Company, as part of his employment agreement (see note 10), pursuant to which the Company will pay the premium costs of certain life insurance policies. Upon surrender of the policies or payment of the death benefit, the Company is entitled to repayment of an amount equal to the cumulative premiums previously paid by the Company, with all remaining payments to be made to Mr. Westerbeke Jr. or his beneficiaries. Included in other assets at October 24, 1998 and October 25, 1997 is $1,345,000 and $1,200,000, respectively, which represents the cumulative value of insurance premiums paid to date. 6. Note Receivable-Related Party The Company holds a note receivable from John H. Westerbeke, Jr., the chairman, president and chief executive officer of the Company. The principal amount of the secured loan at October 24, 1998 and October 25, 1997 was $108,000 and $122,800, respectively. The loan was used by Mr. Westerbeke, Jr. to purchase a 40 foot sailboat. The loan bears interest at 7-3/4% per annum, is secured by a security interest in the sailboat and is payable in monthly installments over a ten year period. The Company has leased the sailboat from Mr. Westerbeke, Jr. pursuant to a lease expiring in July 1999 at a rental of $2,660 per month (see Note 10). The Company makes use of the boat to evaluate the performance of its marine engines and products and for other corporate matters. 7. Revolving Demand Note Payable The Company has a $4,000,000 Credit Agreement with State Street Bank and Trust Company, collateralized by inventory, accounts receivable and general intangibles. The Credit Agreement was renewed on March 31, 1998 and will expire on March 31, 1999. The Company believes that it will be able to continue to extend the term of the Credit Agreement on commercially reasonable terms. As of October 24, 1998, the Company had approximately $3,459,300 in unused borrowing capacity under the Credit Agreement and approximately $150,900 committed to cover the Company's reimbursement obligations under certain open letters of credit and bankers' acceptances. 8. Long-Term Debt
October 24, 1998 October 25, 1997 ---------------- ---------------- Mortgage note with an interest rate of 5 1/2% with repayment terms through August 1998. - $ 21,300 Term Loan with an interest rate of 8.08% in 1998 and 8.96% in 1997, with repayment terms through July 2001. $275,900 375,000 Capital Lease with an interest rate of 8.75% with repayment terms through September 2001. 110,400 142,200 Term Loan with an interest rate of 8.11% in 1998 and 8.75% in 1997, with repayment terms through June 2002. 220,800 280,000 -------------------------------- 607,100 818,500 Less current portion 189,700 213,100 -------------------------------- $417,400 $605,400 ================================
On January 23, 1996, the Company entered into a $500,000 revolving line of credit agreement (the "Revolving Line of Credit") and term loan facility with State Street Bank and Trust Company, collateralized by various emission testing and product development equipment and subject to working capital and equity covenants. On July 31, 1996, the Revolving Line of Credit terminated and automatically converted into a five year term loan in the principal amount of $491,600. As of October 24, 1998, the outstanding principal amount was $275,900. On April 25, 1997, the Company entered into a $300,000 revolving line of credit agreement (the "1997 Revolving Line of Credit") and term loan facility with State Street Bank and Trust Company, collateralized by various items of emission testing and product development equipment and subject to working capital and equity covenants. On June 30, 1997, the 1997 Revolving Line of Credit terminated and automatically converted into a five-year term loan. At October 24, 1998, the outstanding principal amount was $220,800. Aggregate maturities of long-term debt for each of the ensuing five years are as follows:
Year Amount ---- ------ 1999 $189,700 2000 192,900 2001 176,500 2002 48,000 -------- $607,100
9. Income Taxes Income tax expense attributable to income from continuing operations consists of:
Years Ended -------------------------------------------------------- October 24, 1998 October 25, 1997 October 26, 1996 ---------------- ---------------- ---------------- Federal: Current $444,000 $483,200 $486,700 Deferred (111,500) (59,700) (109,600) ------------------------------------------------- 332,500 423,500 377,100 ------------------------------------------------ State: Current 134,800 144,900 154,000 Deferred (20,600) (18,400) (33,900) ------------------------------------------------- 114,200 126,500 120,100 ------------------------------------------------- Total $446,700 $550,000 $497,200 =================================================
The Company has no available book or tax net operating loss carryforwards. The Internal Revenue Service is currently reviewing the Company's fiscal 1995, 1996 and 1997 tax returns. The Company does not believe the outcome of such audit will have a material effect on its financial condition. Income tax expense differed from the amounts computed by applying the U.S. federal income tax rate of 34 percent to pretax income as a result of the following:
Years Ended -------------------------------------------------------- October 24, 1998 October 25, 1997 October 26, 1996 --------------------------------------------------------- Provision at statutory rate $370,700 $458,600 $419,800 State tax provision, net of federal tax benefit 75,400 83,500 79,300 Other, net 600 7,900 (1,900) ------------------------------------------------ Total $446,700 $550,000 $497,200 ================================================
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at October 24, 1998, and October 25, 1997 are presented below.
October 24, 1998 October 25, 1997 ------------------------------------- Deferred tax assets: Accounts receivable reserve $ 112,400 $ 66,000 Inventory reserves and capitalization 333,300 324,100 Accrued bonus 144,400 51,500 Warranty reserve 132,900 90,600 ------------------------------ Total gross deferred tax assets 723,000 532,200 ------------------------------ Deferred tax liabilities: Fixed assets, principally due to accelerated depreciation methods (197,300) (138,600) Unrealized gain on marketable securities (102,000) (165,600) ------------------------------ Total gross deferred tax liabilities (299,300) (304,200) ------------------------------ Net deferred tax assets $ 423,700 $ 228,000 ==============================
There was no net change in the total valuation allowance for the year ended October 24, 1998. Management believes that the realization of deferred tax assets is more likely than not because future operations of the Company are expected to generate sufficient taxable income. 10. Commitments and Contingencies Lease Obligations The Company has lease agreements for a warehouse and certain equipment (see note 6) expiring at various dates through 2001. Rental expense under operating leases was $173,200, $169,100, and $110,300 for the years ended October 24, 1998, October 25, 1997 and October 26, 1996, respectively. The following capital leases are included in property, plant and equipment:
1998 1997 ---- ---- Property, plant and equipment $769,200 $1,020,400 Less accumulated amortization 627,500 861,200 ---------------------- $141,700 $ 159,200 ======================
The future minimum lease payments required under operating leases that have initial or remaining noncancelable lease terms in excess of one year are as follows:
Year Operating - ---- --------- 1999 $60,000 ------- Total future minimum lease payments $60,000 =======
Letters of Credit and Bankers' Acceptances Certain foreign vendors require the Company to provide letters of credit at the time purchase orders are placed. As of October 24, 1998, the Company was contingently liable for open letters of credit and bankers' acceptances of approximately $150,900 (see note 7). Employment Agreements In March of 1993, the Company entered into an Employment Agreement (the "Agreement") with John H. Westerbeke, Jr., the chairman of the board, president, and chief executive officer of the Company. The Agreement calls for Mr. Westerbeke, Jr. to be paid an annual salary of $141,750, subject to increases based upon the Consumer Price Index and at the discretion of the Company. The Agreement also provides for payment of a bonus at the discretion of the board of directors of the Company. In September 1996, the Board of Directors established an incentive plan for Mr. Westerbeke pursuant to which Mr. Westerbeke will have an annual bonus opportunity, based on net income and increases in sales, in each of the four years beginning with the 1997 fiscal year. Mr. Westerbeke may elect to have all or any part of his base salary or bonus paid as deferred compensation in five annual installments commencing upon his retirement or other termination of employment, or upon a change of control of the Company, as defined in the Agreement. Amounts deferred by Mr. Westerbeke are contributed by the Company to a trust established to hold and invest these funds until such time as the amounts are payable to Mr. Westerbeke. The Agreement also requires the Company to pay premiums for certain life insurance policies on the life of Mr. Westerbeke, Jr. In addition, in the event of a change in control of the Company, Mr. Westerbeke, Jr. may terminate his employment during the one year period following such change in control, and in such event, the Company is required to pay him a lump sum cash payment in an amount equal to three times his average annual cash compensation during the most recent five taxable years of the Company. In addition, in such circumstances, the Company is required to continue to carry group life and health insurance for Mr. Westerbeke, Jr. for a three year period and is required to pay any premiums payable on the life insurance policies on his life for a three year period. Under an employment agreement between the Company and John H. Westerbeke, Sr., a director of the Company, Mr. Westerbeke, Sr. will be paid $35,000 per year. This agreement provides that following his retirement, Mr. Westerbeke, Sr. will act as consultant to the Company at an annual consulting fee of $30,000. 11. Stockholders' Equity In June 1986, the board of directors and the stockholders of the Company adopted the Company's 1986 Stock Option Plan (the "Option Plan"), under which 300,000 shares of common stock have been made available. The Company has also reserved 250,000 shares of common stock for issuance in connection with a Supplemental Stock Option Plan (the "Supplemental Plan"). The Supplemental Plan permits acceleration of the exercisability of options in the event of a change in control of the Company with the Company retaining the right of first refusal with respect to shares issued under this plan. In March 1996, the board of directors and the stockholders of the Company adopted the Company's 1996 Stock Option Plan (the "1996 Option Plan"), under which 150,000 shares of common stock have been made available. As of October 24, 1998, there has been no activity under the 1996 Option Plan. Options under the plans may be either nonqualified stock options or incentive stock options. Options may be granted to eligible employees of the Company and members of the board of directors. The price at which the shares may be granted may not be less than the lower of fair market value or tangible book value in the case of nonqualified options, or 110% of the fair market value in the case of incentive stock options. The options generally become exercisable in 20% annual increments beginning on the date of the grant and expire at the end of ten years. The Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No.123 in October 1995, which statement establishes financial accounting and reporting standards for stock based employee compensation plans. The Company has adopted the disclosure requirements of SFAS No.123 and continues to apply the accounting provisions of Opinion No.25 of the Accounting Principles Board. Accordingly, the adoption of SFAS No.123 has not had a material impact on the Company's consolidated financial statements. Information for fiscal years 1996, 1997 and 1998, with respect to the Option Plan, is as follows:
Weighted average exercise price of Shares shares under plan ---------------------------- Balance outstanding at October 28, 1995 207,500 $1.105 Exercised (26,100) 1.000 Canceled (6,400) 1.000 ------- Balance outstanding at October 26, 1996 175,000 1.125 Exercised (25,000) 1.125 ------- Balance outstanding at October 25, 1997 150,000 1.125 ------- Balance outstanding and exercisable at October 24, 1998 150,000 $1.125 =======
The outstanding options expire on various dates through May 2003. Options for 88,100 shares are available for future grant under the Option Plan. The following table summarizes information concerning currently outstanding and exercisable options as of October 24, 1998:
Weighted average Weighted Range of remaining average Weighted exercise Number contractual outstanding Options average prices outstanding life (years) option price exercisable exercise price - ---------------------------------------------------------------------------------------- $1.125 150,000 4.4 $1.125 150,000 $1.125
Information for fiscal years 1996, 1997, and 1998, with respect to the Supplemental Plan, is as follows:
Weighted average exercise price of Shares shares under plan ----------------------------- Balance outstanding at October 28, 1995 155,300 $1.044 Exercised (32,200) .961 Granted 33,300 3.000 ------- Balance outstanding at October 26, 1996 156,400 1.478 Exercised (9,000) 1.000 ------- Balance outstanding at October 25, 1997 147,400 1.507 Exercised (29,000) 1.507 ------- Balance outstanding at October 24, 1998 118,400 1.631 ======== Balance exercisable at October 24, 1998 105,080 $1.294 =======
The following table summarizes information concerning currently outstanding and exercisable options as of October 25, 1997:
Weighted average Weighted Range of remaining average Weighted exercise Number contractual outstanding Options average prices outstanding life (years) option price exercisable exercise price - ---------------------------------------------------------------------------------------------- $.875 - $3.000 118,400 4.0 $1.631 105,080 $1.294
The outstanding options expire on various dates through June 2006. Options for 41,300 shares are available for future grant under the Supplemental Plan. Preferred Stock As of October 24, 1998 and October 25, 1997, 1,000,000 shares of $1.00 par value Serial Preferred Stock were authorized; none were issued or outstanding. 12. 1986 Employee Stock Purchase Plan In June 1986, the board of directors and the stockholders of the Company adopted the Company's 1986 Employee Stock Purchase Plan (the "Purchase Plan"). Under the Purchase Plan, an aggregate of 100,000 shares of common stock are available for purchase by eligible employees of the Company, including directors and officers, through payroll deductions over successive six-month offering periods. The Purchase Plan will become effective when so declared by the board of directors. The Purchase Plan is intended to qualify as an "Employee Stock Purchase Plan" within the meaning of Section 423 of the Internal Revenue Code. The purchase price of the common stock under the Purchase Plan will be 85% of the average of the closing high bid and last asked prices per share in the over-the-counter market on either the first or last day of each six-month offering period, whichever is less. As of October 24, 1998, there has been no activity under the Purchase Plan. 13. Employee Benefit Plan In 1994, the Company started an Employee Deferred Compensation Plan that covers all employees over 21 years of age who have completed at least 3 months of service with the Company. Contributions by the Company are discretionary and are determined by the Company's board of directors. The Company's defined contribution plan, available to substantially all salaried employees, contains a matched savings provision that permits both pretax and after-tax employee contributions. Participants can contribute up to 15% of their annual compensation and receive a 25% matching employer contribution on up to 8% of their annual compensation. The Company contributed $38,800, $37,000 and $11,800 for the fiscal years ended October 24, 1998, October 25, 1997 and October 26, 1996, respectively. 14. Quarterly Financial Data (Unaudited) (In thousands, except per share amounts) Selected quarterly financial data for the years ended October 24, 1998 and October 25, 1997 is as follows:
Fiscal Fiscal 1998: First Second Third Fourth Year --------------------------------------------------- Net sales $4,960 $7,225 $7,622 $6,395 $26,202 Gross profit 885 1,573 1,863 1,645 5,966 Income (loss) from operations (142) 348 642 252 1,100 Net income (loss) (54) 173 367 158 644 Net income per share, diluted (0.03) 0.08 0.18 0.08 0.31 Fiscal Fiscal 1997: First Second Third Fourth Year --------------------------------------------------- Net sales $5,195 $6,975 $6,817 $5,633 $24,620 Gross profit 1,093 1,627 1,662 1,174 5,556 Income from operations 126 518 558 218 1,420 Net income 88 289 310 112 799 Net income per share, diluted 0.04 0.14 0.15 0.04 0.37
New Accounting Pronouncements In June 1997, the FASB issued Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (FAS 130) and No. 131, "Disclosure about Segments of an Enterprise and Related Information" (FAS 131), which are effective for fiscal years beginning after December 15, 1997. Unrealized gains on marketable securities is a component of comprehensive income and will be presented accordingly when FAS 130 is adopted. The Company is currently evaluating the effects of FAS 131. In March 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-1 (SOP 98-1), "Accounting for the Costs of Computer Software Developed and Obtained for Internal Use". The statement is effective for fiscal years beginning after December 15, 1998. Earlier application is encouraged in fiscal years for which annual financial statements have not been issued. The statement defines which costs of computer software developed or obtained for internal use are capitalized and which costs are expensed. The Company does not believe the adoption of SOP 98-1 will have a material impact on the financial statements. In April 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-5 (SOP 98-5), "Reporting on the Costs of Start-Up Activities". The statement is effective for fiscal years beginning after December 15, 1998. The statement requires costs of start-up activities and organization costs to be expenses as incurred. The Company does not believe the adoption of SOP 98-5 will have a material impact on the financial statements. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133). The statement requires companies to recognize all derivatives as either assets or liabilities with the instruments measured at fair value. The accounting for changes in fair value gains and losses depends on the intended use of the derivative and its resulting designation. The statement is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. The Company does not believe the adoption of SFAS 133 will have a material impact on the financial statements. SCHEDULE II WESTERBEKE CORPORATION AND SUBSIDIARY VALUATION AND QUALIFYING ACCOUNT For the years ended October 24, 1998, October 25, 1997 and October 26, 1996
Balance at Charged to Charged Balance Beginning of Costs and to Other at End Period Expenses Accounts Deductions of Year 1996 Allowance for doubtful accounts $60,500 - - (200) $60,700 1997 Allowance for doubtful accounts $60,700 - - (3,200) $63,900 1998 Allowance for doubtful accounts $63,900 - - 4,700 $59,200
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Certain biographical information concerning the directors of the Company as of January 1, 1999 is set forth below. Such information was furnished by them to the Company.
Certain Name of Director Age Biographical Information ---------------- --- ------------------------ GERALD BENCH 57 President and Chief Executive Officer, Hadley Fruit Orchards, Inc. since November 1996; Consultant, Hadley Fruit Orchards, Inc. from March 1995 to November 1996; Partner, ICAP Marine Group (consulting firm) from November 1993 to February 1995; Chairman and President, TDG Aerospace, Inc. (manufacturer of aircraft de-icing devices) from October 1991 to November 1993; President, Thermion, Inc. (manufacturer of heaters for aircraft de-icing devices) from April 1990 to September 1991; General Manager, Lermer Corporation (manufacturer of airline galley equipment) from June 1989 through March 1990; former Chairman of the Board, President, Chief Executive Officer and Director of E&B Marine Inc. (marine supplies and accessories) from prior to 1988; Director of the Company since June 1986 THOMAS M. HAYTHE 59 Partner, Haythe & Curley (attorneys) since February 1982; Director: Novametrix Medical Systems Inc. (manufacturer of electronic medical instruments), Guest Supply, Inc. (provider of hotel guest room amenities, accessories and products) and Ramsay Youth Services, Inc. (provider of youth and educational services); Director of the Company since June 1986. NICHOLAS H. SAFFORD 66 President, Nicholas H. Safford & Co., Inc. (investment counselor and private trustee) since 1983 and from 1979 to 1981; former president and director of Wendell, Safford & Co., Inc. (investment counseling firm) from 1982 to 1983; former vice president and director of David L. Babson & Co., Inc. (investment counseling firm) prior to 1978; Director of the Company since February 1991. JAMES W. STOREY 64 Consultant since January 1993; President, Wellingsley Corporation (private investment management company) from December 1986 through December 1992; President and Chief Executive Officer of Codex Corporation, a subsidiary of Motorola, Inc. from 1982 to 1986; Vice President of Motorola, Inc. from 1982 to 1986; Director: Progress Software Corporation (software); Director of the Company since June 1986. JOHN H. WESTERBEKE, JR. 58 President of the Company since 1976; Director of the Company since 1976; Chairman of the Board of Directors of the Company since June 1986. JOHN H. WESTERBEKE, SR. 89 Founder of the Company; Presently serving in various engineering capacities with the Company; Chairman of the Board of Directors of the Company from 1946 to June 1986.
For additional information concerning the management of the Company, see "Item 1 - Business - Executive Officers" contained in Part I hereof. The Board of Directors of the Company consists of three classes of directors, Class A, Class B and Class C. Directors in each class are elected for a term of three years. The term of office of the Class A directors will expire at the Annual Meeting of Stockholders to be held in 1999. Class B and Class C directors will be elected at the Annual Meetings to be held in 2000 and 2001, respectively. Mr. Bench is a Class A director, Messrs. Haythe, Safford and Storey are Class B directors and Messrs. Westerbeke, Jr. and Westerbeke, Sr. are Class C directors. The directors and officers of the Company other than Messrs. Bench, Haythe, Safford and Storey are active in the business on a day-to-day basis. Messrs. Westerbeke, Sr. and Westerbeke, Jr. are father and son. No other family relationships exist between any of the directors and officers of the Company. Section 16 (a) of the Securities Exchange Act of 1934 requires the Company's directors and executive officers, and persons who own more than ten percent of the Company's Common Stock, to file with the SEC initial reports of ownership and reports of changes in ownership of Common Stock. Officers, directors and greater than ten percent stockholders are required by SEC regulations to furnish the Company with copies of all Section 16 (a) reports they file. To the Company's knowledge, based solely on a review of the copies of such reports furnished to the Company and representations that no other reports were required, during the fiscal year ended October 24, 1998 all Section 16 (a) filing requirements applicable to its officers, directors and greater than ten percent beneficial owners were complied with. ITEM 11. EXECUTIVE COMPENSATION The following table sets forth information for the fiscal years ended October 24, 1998, October 25, 1997 and October 26, 1996 concerning the compensation paid or awarded to the Chief Executive Officer and the other executive officer of the Company. SUMMARY COMPENSATION TABLE
Fiscal Name and Year Annual Compensation Principal Ended --------------------------- All Other Position October Salary Bonus Compensation - ----------------------------------------------------------------------------------------------- John H. Westerbeke, Jr. 1998 $214,488(1) $ 53,838(2) $31,622(6) President, Chairman of the Board 1997 206,852(3) 130,447(4) 37,262(6) of Directors and Class C Director 1996 151,531 80,696(5) 38,647(6) Carleton F. Bryant, III 1998 $ 94,500 $ 72,998 - Executive Vice President, 1997 94,500 44,545 - Treasurer, Chief Operating Officer 1996 94,500 24,532 - and Secretary - -------------------- Includes $61,842 of salary earned in fiscal year 1998, payment of which has been deferred. Includes a $49,628 bonus earned in fiscal year 1998, payment of which has been deferred. Includes $53,762 of salary earned in fiscal year 1997, payment of which has been deferred. Includes a $125,571 bonus earned in fiscal year 1997, payment of which has been deferred. Includes a $75,000 bonus earned in fiscal year 1996, payment of which has been deferred. Includes amounts ($18,062, $14,750 and $20,357 in fiscal 1998, 1997 and 1996, respectively) reflecting the current dollar value of the benefit to Mr. Westerbeke of premiums paid by the Company with respect to a split-dollar insurance arrangement (see "Employment Agreements" below for a description of such arrangement). Such benefit was determined by calculating the time value of money (using the applicable federal rates) of the premiums paid by the Company in the fiscal years ended October 24, 1998, October 25, 1997 and October 26, 1996 for the period from the date on which each premium was paid until March 31, 2001 (which is the earliest date on which the Company could terminate the agreement and request a refund of premiums paid).
The Company did not grant any stock options to the executive officers named in the Summary Compensation Table during the fiscal year ended October 24, 1998. The following table sets forth the number and value of options exercised by the executive officers named in the Summary Compensation Table during the fiscal year ended October 24, 1998 and the number and value of options held by such executive officers at October 24, 1998. OPTION EXERCISES IN FISCAL 1998 AND OPTION VALUES AT OCTOBER 24, 1998
Value of Number of Unexercised Unexercised In-the-Money(1) Options at Options at October 24, 1998 October 24, 1998 Shares Acquired Value ---------------------------- ---------------------------- Name On Exercise Realized Exercisable Unexercisable Exercisable Unexercisable - ---------------------------------------------------------------------------------------------------------------------- John H. Westerbeke, Jr. 20,000 $63,800 150,000 - $231,300 - Carleton F. Bryant, III - - 75,000 - $115,600 - In-the-money options are those where the fair market value of the underlying Common Stock exceeds the exercise price of the option. The value of in-the-money options is determined in accordance with regulations of the Securities and Exchange Commission by subtracting the aggregate exercise price of the option from the aggregate year-end value of the underlying Common Stock.
Employment Agreements - --------------------- The Company has an Employment Agreement (the "Agreement") with John H. Westerbeke, Jr., the Chairman of the Board, President and Chief Executive Officer of the Company, which provides for his employment by the Company at an annual base salary, subject to increases based upon the Consumer Price Index and at the discretion of the Company. During fiscal 1998, Mr. Westerbeke's salary was $212,488, which included $61,842 of salary which has been deferred. The Agreement also provides for payment of a bonus at the discretion of the Board of Directors of the Company. In September 1996, the Board of Directors established an incentive plan for Mr. Westerbeke pursuant to which Mr. Westerbeke will have an annual bonus opportunity, based on net income and increases in sales, in each of the four years beginning with the 1997 fiscal year. Mr. Westerbeke may elect to have all or any part of his base salary or bonus paid as deferred compensation in five annual installments commencing upon his retirement or other termination of employment, or upon a change of control of the Company, as defined in the Agreement. Amounts deferred by Mr. Westerbeke are contributed by the Company to a trust established to hold and invest these funds until such time as the amounts are payable to Mr. Westerbeke. The Agreement also requires the Company to pay premiums for certain life insurance policies on the life of Mr. Westerbeke as described below. The Agreement may be terminated by the Company upon the disability of Mr. Westerbeke, by the Company with or without cause, and by Mr. Westerbeke in the event there has occurred a constructive termination of employment by the Company. In addition, in the event of a change in control of the Company, as defined in the Agreement, Mr. Westerbeke may terminate his employment during the one year period following such change in control, and in such event, the Company will be required to pay him a lump sum cash payment in an amount equal to three times his annual cash compensation during the most recent five taxable years of the Company, less $1,000. In addition, in such circumstances, the Company is required to continue to carry group life and health insurance for Mr. Westerbeke for a three year period and is required to pay any premiums payable on the split-dollar life insurance policies on his life for a three year period. Under the Agreement, Mr. Westerbeke has agreed not to compete with the Company for a period of one year following termination of his employment. The Company has entered into a split-dollar insurance arrangement with Mr. Westerbeke, Jr., pursuant to which the Company will pay the premium costs of certain life insurance policies that pay a death benefit of not less than $4,889,403 in the aggregate upon the death of Mr. Westerbeke. Upon surrender of the policies or payment of the death benefit thereunder, the Company is entitled to repayment of an amount equal to the cumulative premiums previously paid by the Company, with all remaining payments to be made to Mr. Westerbeke or his beneficiaries. See footnote (6) to the "Summary Compensation Table" above for further information on premium payments made by the Company. The Company has an agreement with Carleton F. Bryant, III, the Executive Vice President, Treasurer and Chief Operating Officer of the Company, which provides for his employment by the Company at an annual salary of $94,500. Under a related agreement Mr. Bryant agrees not to compete with the Company for a period of three years following the termination of his employment. The Company has an agreement with John H. Westerbeke, Sr., a director of the Company, which provides for his employment by the Company at an annual salary of $35,000 until Mr. Westerbeke, Sr. retires. This agreement also provides that following his retirement, Mr. Westerbeke, Sr. will act as consultant to the Company at an annual consulting fee of $30,000. The Company paid Mr. Westerbeke, Sr. $35,000 during fiscal 1998. Compensation Committee Interlocks and Insider Participation - ----------------------------------------------------------- Thomas M. Haythe, a director of the Company and a member of the Compensation Committee, is a partner of the New York City law firm of Haythe & Curley, which firm acted as legal counsel to the Company during the past fiscal year. It is expected that Haythe & Curley will continue to render legal services to the Company in the future. Compensation of Directors - ------------------------- The Company currently pays its directors a fee of $2,000 for attending each meeting of the Board of Directors of the Company. Termination of Employment and Change of Control Arrangements - ------------------------------------------------------------ See "Employment Agreements" above for information concerning certain change of control arrangements with respect to John H. Westerbeke, Jr., the Chairman of the Board, President and Chief Executive Officer of the Company. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The shareholders (including any "group" as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934) who, to the knowledge of the Board of Directors of the Company, owned beneficially more than five percent of any class of the outstanding voting securities of the Company as of January 1, 1999, each director and each executive officer named in the Summary Compensation Table of the Company who owned beneficially shares of Common Stock and all directors and executive officers of the Company as a group, and their respective shareholding as of such date (according to information furnished by them to the Company), are set forth in the following table. Except as indicated in the footnotes to the table, all of such shares are owned with sole voting and investment power.
Shares of Common Stock Name and Address Owned Beneficially Percent of Class - ---------------- ---------------------- ---------------- Paul B. Luber............................. 133,255(1) 6.9% 4201 North Oakland Avenue Shorewood, Wisconsin 53211 Gerald Bench.............................. 6,660(2) * 17 1/2 Passaic Avenue Spring Lake, New Jersey 07762 Thomas M. Haythe.......................... 11,660(3) * 237 Park Ave. New York, New York 10017 Nicholas H. Safford....................... 10,100(4) * 9 Cleaves Street Rockport, Massachusetts 01966 James W. Storey........................... 15,660(5) * 3 Saddle Ridge Road Dover, Massachusetts 02030 John H. Westerbeke, Jr.................... 1,248,250(6) 60.4% Avon Industrial Park Avon, Massachusetts 02322 John H. Westerbeke, Sr.................... 0 - Avon Industrial Park Avon, Massachusetts 02322 Carleton F. Bryant, III................... 75,000(7) 3.8% Avon Industrial Park Avon, Massachusetts 02322 All Directors and Officers as a Group 1,367,330(2) 62.9% (seven persons) (3)(4)(5)(6)(7) - -------------------- Less than one percent. Information as to these holdings is based upon a report on Schedule 13D filed with the Securities and Exchange Commission by Mr. Paul B. Luber. Such report indicates that Mr. Luber has sole voting and dispositive power with respect to 133,255 shares, of which 53,555 shares are directly owned by Mr. Luber and 79,700 shares are owned by Great Lakes Capital Holdings, LLP, a limited liability partnership of which Mr. Luber is a general partner. Consists of 6,660 shares issuable upon the exercise of presently exercisable stock options held by Mr. Bench. Includes 6,660 shares issuable upon the exercise of presently exercisable stock options held by Mr. Haythe. Consists of 10,100 shares issuable upon the exercise of presently exercisable stock options held by Mr. Safford. Includes 6,660 shares issuable upon the exercise of presently exercisable stock options held by Mr. Storey. Includes 150,000 shares issuable upon the exercise of presently exercisable stock options held by Mr. Westerbeke, Jr. Consists of 75,000 shares issuable upon the exercise of presently exercisable stock options held by Mr. Bryant.
To the Company's knowledge, there have been no significant changes in stock ownership or control of the Company as set forth above since January 1, 1999. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The Company leases a 40-foot sailboat from Mr. Westerbeke, Jr. the Chairman of the Board, President and Chief Executive Officer of the Company, pursuant to a lease expiring in July 1999. The Company pays an annual rental to him of $31,920 and also pays approximately $10,000 to $15,000 of annual expenses in connection with the operation and maintenance of the sailboat. The Company makes use of the sailboat to evaluate the performance of its marine engine products and for other corporate purposes. In July 1994, Mr. Westerbeke, Jr. executed a promissory note payable to the Company in the principal amount of $165,000. The proceeds of the loan were used by Mr. Westerbeke, Jr. to purchase the sailboat which is leased to the Company as described above. The loan, which is due June 1, 2004, is payable in equal monthly installments which commenced on July 1, 1994, together with interest at 7.75% per annum and is secured by the sailboat. Management of the Company believes that the terms of the lease and of the secured loan are no less favorable to the Company than it could obtain from an unrelated party. Thomas M. Haythe, a Class B director of the Company, is a partner of the New York City law firm of Haythe & Curley, which firm has acted as legal counsel to the Company during the past fiscal year. It is expected that Haythe & Curley will continue to render legal services to the Company in the future. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) 1. Financial Statements: Included in PART II of this report: Page ---- Report of KPMG Peat Marwick LLP................... 25 Consolidated Balance Sheets at October 24, 1998 and October 25, 1997............. 26 Consolidated Statements of Operations for the three years in the period ended October 24, 1998.................................. 27 Consolidated Statements of Changes in Stockholders' Equity for the three years in the period ended October 24, 1998.............. 28 Consolidated Statements of Cash Flow for the three years in the period ended October 24, 1998.................................. 29 Notes to Consolidated Financial Statements........ 30 2. Financial Statement Schedule: Included in PART II of this report: Schedule II - Valuation and Qualifying Account for the three years in the period ended October 24, 1998............................ 42 Schedules other than those listed above are omitted because they are not applicable, or the required information is shown in the Consolidated Financial Statements or Notes thereto. Columns omitted from schedules filed have been omitted because the information is not applicable. 3. Exhibits: The exhibits required to be filed as part of this Annual Report on Form 10-K are listed in the attached Index to Exhibits. (b) Current Reports on Form 8-K: During the fiscal quarter ended October 24, 1998, the Company did not file any Current Reports on Form 8-K. * * * Copies of the exhibits filed with this Annual Report on Form 10-K or incorporated by reference herein do not accompany copies hereof for distribution to stockholders of the Company. The Company will furnish a copy of any of such exhibits to any stockholder requesting the same for a nominal charge to cover duplicating costs. POWER OF ATTORNEY The registrant and each person whose signature appears below hereby appoint John H. Westerbeke, Jr. and Thomas M. Haythe as attorney-in-fact with full power of substitution, severally, to execute in the name and on behalf of the registrant and each such person, individually and in each capacity stated below, one or more amendments to this Annual Report on Form 10-K, which amendments may make such changes in this Annual Report as the attorney-in-fact acting in the premises deems appropriate and to file any such amendment(s) to this Annual Report with the Securities and Exchange Commission. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: January 22, 1999 WESTERBEKE CORPORATION By /s/ John H. Westerbeke, Jr. --------------------------- John H. Westerbeke, Jr. Chairman of the Board and President Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Dated: January 22, 1999 By /s/ John H. Westerbeke, Jr. --------------------------- John H. Westerbeke, Jr. Chairman of the Board, President and Principal Executive Officer Dated: January 22, 1999 By /s/ Carleton F. Bryant III -------------------------- Carleton F. Bryant III Executive Vice President, Chief Operating Officer and Principal Financial and Accounting Officer Dated: January 22, 1999 By /s/ Gerald Bench ---------------- Gerald Bench Director Dated: January 22, 1999 By /s/ Thomas M. Haythe -------------------- Thomas M. Haythe Director Dated: January 22, 1999 By /s/ Nicholas H. Safford ----------------------- Nicholas H. Safford Director Dated: January 22, 1999 By /s/ James W. Storey ------------------- James W. Storey Director Dated: January 22, 1999 By /s/ John H. Westerbeke , Sr. ---------------------------- John H. Westerbeke, Sr. Director Index to Exhibits -----------------
Exhibit No. Name of Exhibit Page - ------- --------------- ---- 2 Agreement and Plan of Merger between the Company and J.H. Westerbeke Corporation, a Massachusetts corporation.......................................... (1) 3(a) Certificate of Incorporation of the Company (as amended)............................................. (1) 3(b) By-Laws of the Company............................... (2) 10(a) Agreement dated as of June 30, 1986 by and between the Company and John H. Westerbeke, Sr....... (1) 10(b) 1986 Stock Option Plan of the Company as amended on January 6, 1987 and on May 26, 1988....... (2) 10(c) 1986 Employee Stock Purchase Plan of the Company.............................................. (1) 10(d) Supplemental Stock Option Plan of the Company.............................................. (2) 10(e) 1996 Stock Option Plan of the Company................ (5) 10(f) Agreement dated as of June 1, 1986 by and among the Company, Ruth A. Westerbeke, John H. Westerbeke, Jr., John H. Westerbeke, Sr. and Ruth A. Westerbeke, as trustees...................... (1) 10(g) Form of Agreement with Distributors - Domestic............................................. (3) 10(h) Form of Agreement with Distributors - International........................................ (1) 10(i) Supplemental Medical Insurance Policy................ (1) 10(j) Letter Agreement dated March 20, 1996 between the Company and State Street Bank and Trust Company.............................................. (5) 10(k) Note of the Company dated March 29, 1996, due March 31, 1997 in the principal amount of $3,000,000 payable to the order of State Street Bank and Trust Company............................... (5) 10(l) Loan Facility Agreement dated January 23, 1996 between the Company and State Street Bank and Trust Company.................................... (4) 10(m) Security Agreement dated January 23, 1996 by the Company in favor of State Street Bank and Trust Company.................................... (4) 10(n) Note of the Company dated January 23, 1996, due June 30, 2001 in the principal amount of $500,000 payable to the order of State Street Bank and Trust Company.................................... (4) 10(o) Asset Purchase Agreement dated as of January 5, 1990 by and among the Company, Westerbeke Rotary Aire, Inc., Rotary Marine, Inc., Eugene Whipp and Arville J. Collins......................... (2) 10(p) Convertible Subordinated Note of the Company and Westerbeke Rotary Aire, Inc. dated January 5, 1990 in the principal amount of $115,000 payable to Rotary Marine, Inc................................ (2) 10(q) Lease dated November 4, 1987 by and between GBD/Odyssey Associates Limited Partnership and the Company.......................................... (2) 10(r) Lease Amendment Agreement dated April 29, 1991 by and between GBD/Odyssey Associates Limited Partnership and the Company.......................... (5) 10(s) Third Lease Amendment Agreement dated February 20, 1996 by and between GBD/Odyssey Associates Limited Partnership and the Company.................. (5) 10(t) Subordination, Nondisturbance and Attornment Agreement dated November 8, 1994 by and among the Company, New Avon Limited Partnership and UNUM Life Insurance Company of America............... (2) 10(u) Lease dated January 22, 1997 by and between New Avon Limited Partnership and the Company.......................................... (6) 10(v) Loan Facility Agreement dated April 25, 1997 between the Company and State Street Bank and Trust Company.................................... (6) 10(w) Note of the Company dated April 25, 1997, due June 30, 2002 in the principal amount of $300,000 payable to the order of State Street Bank and Trust Company.................................... (6) 10(x) Letter Agreement dated April 25, 1997 between the Company and State Street Bank and Trust Company.............................................. (6) 10(y) Note of the Company dated April 4,1997, due March 31, 1998 in the principal amount of $4,000,000 payable to the order of State Street Bank and Trust Company............................... (6) 10(z) Loan Facility Agreement dated April 23, 1998 between the Company and State Street Bank and Trust Company.................................... (7) 10(aa) Letter Agreement dated April 8, 1998 between the Company and State Street Bank and Trust Company.............................................. (7) 10(bb) Note of the Company dated April 3,1998, due March 31, 1999 in the principal amount of $4,000,000 payable to the order of State Street Bank and Trust Company............................... (7) 21 Subsidiary of the Company............................ 23 Consent of KPMG Peat Marwick LLP..................... 24 Power of Attorney.................................... (See Page 55 of Annual Report on Form 10-K) 27 Financial Data Schedule.............................. - -------------------- Incorporated by reference to Exhibits to Registration Statement No. 33-6972 filed with the Securities and Exchange Commission. Incorporated by reference to Exhibits to Annual Report on Form 10-K for fiscal year ended October 29, 1994. Incorporated by reference to Exhibits to Annual Report on Form 10-K for fiscal year ended October 28, 1995. Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for fiscal quarter ended January 27, 1996. Incorporated by reference to Exhibits to Annual Report on Form 10-K for fiscal year ended October 26, 1996. Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for fiscal quarter ended April 26, 1997. Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for fiscal quarter ended April 25, 1998.
EX-21 2 SUBSIDIARY OF THE COMPANY Exhibit 21 Subsidiary of Westerbeke Corporation ------------------------------------ Westerbeke International, Inc., a U.S. Virgin Islands corporation, which qualifies as a foreign sales corporation. EX-23 3 CONSENT OF INDEPENDENT AUDITORS Exhibit 23 KPMG Peat Marwick LLP 99 High Street Telephone 617 988 1000 Telefax 617 988 0800 Boston, MA 02110-2371 Consent of Independent Auditors ------------------------------- The Board of Directors and Stockholders of Westerbeke Corporation: We consent to the incorporation by reference in the Registration Statements (File No. 33-24435 and 333-25687) on Form S-8 of Westerbeke Corporation of our report dated December 23, 1998 relating to the consolidated balance sheets of Westerbeke Corporation and subsidiary as of October 24, 1998 and October 25, 1997, and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for each of the years in the three-year period ended October 24, 1998, and related schedule, which report appears in the October 24, 1998 annual report on Form 10-K of Westerbeke Corporation. By /s/ KPMG Peat Marwick LLP ---------------------------- Boston, Massachusetts January 20, 1999 EX-27 4 FINANCIAL DATA SCHEDULE
5 0000796502 WESTERBEKE CORP. 12-MOS OCT-24-1998 OCT-24-1998 101,900 0 2,292,900 59,200 5,391,600 8,708,000 5,780,600 3,619,100 14,670,300 3,058,400 0 0 0 21,900 10,697,000 14,814,700 26,202,000 26,202,000 20,236,500 20,236,500 4,865,400 0 9,900 1,090,200 446,700 643,500 0 0 0 643,500 .34 .31
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