-----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, NCRHu9K/8KyhjbF+F1OLoPj6VIcwlhYx9EmFW0N1civOlfl8T0q4uXNG9eL/tEOD r5dVWxThaS0/3cuZR70HSg== 0000910647-01-500008.txt : 20010123 0000910647-01-500008.hdr.sgml : 20010123 ACCESSION NUMBER: 0000910647-01-500008 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20001021 FILED AS OF DATE: 20010119 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: 1511476 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 westb-k.txt 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 21, 2000 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) Myles Standish Industrial Park Taunton, Massachusetts 02780 02780 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (508) 823 - 7677 ---------------- 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 8, 2001............ $2,446,700 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 8, 2001..... 1,927,812 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 27 models of electrical generator sets, 22 models of inboard propulsion engines, and associated spare parts and accessories. The Company also offers 9 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 3.8 to 95 kilowatts of electricity. A generator set consists of an electrical generator and an attached diesel or gasoline engine used to drive the generator. These engines are water cooled and range from one to six cylinders. The Company's propulsion engines are inboard engines, generally installed as auxiliary power systems for sailboats. The Company's propulsion engines are water-cooled and range from one to six cylinders and from 7 to 170 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 sizes of 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 9 models of non-marine electrical generator sets which may be installed in fire trucks, rescue vehicles, motor coaches, refrigerated trucks and other specialty vehicles to provide electricity for lighting, refrigeration and other safety, operating and convenience needs. These generators may also be used as stand-by or secondary power sources in the event of power outages or in locations where primary power is not readily available, such as construction sites, rural areas and less developed countries. The Company offers a complete line of spare parts and accessories for its current product lines and for most discontinued models. The Company's line of spare parts includes oil and fuel filters, belts, thermostats, distributor caps, fuses, spark plugs, wiring, alternators, heat exchangers, circuit breakers, water and fuel pumps, starter motors and fuel solenoids. Many basic parts are packaged and sold as spare part kits. Accessories offered by the Company include various control and instrument panels, exhaust silencers and generator sound enclosures. The Company provides all its customers with documentation covering operation, maintenance and repair procedures for its products. Management believes that the provision of current and comprehensive documentation enhances the Company's marketing and competitive effectiveness. See "Marketing and Sales" and "Competition" below. Each of the Company's products is covered by a one-year limited warranty covering parts and authorized labor. In addition, the Company offers a five-year limited warranty on certain marine generator sets. Many of the Company's suppliers also warrant their products for parts and labor. Some of the Company's major suppliers warrant their products for the duration of the Company's warranties. The Company believes it has made adequate provisions for probable warranty claims. See Note 1 of Notes to Consolidated Financial Statements included in "Item 8 - Financial Statements and Supplementary Data." The Company's distributors are generally responsible for administering the Company's warranties through the dealer network. See "Marketing and Sales" below. Governmental Regulation - ----------------------- Many of the Company's products are subject to exhaust emission standards pursuant to regulations promulgated by the Environmental Protection Agency (the "EPA"), effective September 1, 1996, and by the State of California, effective August 1, 1995. The emission standards are intended to reduce the emissions of hydrocarbons, nitrogen oxides, carbon monoxide, particulates and smoke. It is anticipated that by January 1, 2005, all of the Company's products will be subject to such regulations. All of the regulations include manufacturer testing requirements, mandated warranties on emissions related components, product labeling and reporting requirements. Additionally, future regulations may include provisions for selective enforcement audits and recall and repair requirements. At this time, all of the Company's products which are subject to these emissions regulations comply with the regulations. Achieving and maintaining this compliance has been accomplished through significant design and development expense. The emission standards established by the regulations will become broader in scope and more stringent regarding emissions levels each year. As a result, research and development expenditures for emissions compliance will continue at a significant level for the foreseeable future. Additionally, if at any time the Company cannot effect the required modifications of its products to meet the required emissions levels within the time frame allowed, the Company could be materially adversely affected. Design and Development - ---------------------- 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 2000, 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 expanded its engine product line by developing generator sets and propulsion engines with different kilowattage and 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 2000, the Company incurred expenses of approximately $4,047,700 for design and development activities as follows: 2000 - $1,501,500, 1999 - $1,365,300 and 1998 - $1,180,900. 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 110,000 square foot facility owned by the Company. See "Item 2 - - Properties" below. The Company has approximately 92 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 seven foreign manufacturers. The Company currently purchases all of its requirements of "long block" engines on a purchase order basis rather than pursuant to long- term supply agreements. In certain cases, the Company has an agreement with its "long block" engine manufacturers to supply these component parts exclusively to the Company for marine products of the type produced by the Company. Orders for "long block" engines are dollar-denominated however, subsequent purchases are subject to fluctuations in the dollar exchange rate and therefore fluctuations in the dollar exchange rate have had and will continue to have an effect on the cost of the Company's raw materials. See "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations." The Company believes that the purchase of "long block" engines on a purchase order basis has become the more common industry practice. Interruption of the supply of "long block" engines would have a material adverse effect on the Company if the time to develop new sources of supply and replacement products is longer than the time it takes to exhaust the Company's inventory of existing "long block" engines. In addition, the Company does not have long-term supply agreements with other manufacturers of other component parts or peripheral equipment. The Company believes that it can obtain these parts and equipment from a variety of sources on commercially reasonable terms. However, the disruption of its supply of these parts, equipment or "long block" engines would have a material adverse effect on the Company's operations. The lead time between ordering and receipt of component parts varies with the part involved, but generally ranges from a few weeks in the case of unfinished products to three to six months in the case of "long block" engines, generators and transmissions. The Company has not experienced any difficulties in obtaining finished or unfinished components or peripheral equipment on commercially reasonable terms. Most of the Company's purchases of component parts and peripheral equipment from Japanese ("long block" engines), Italian (generators) and other foreign manufacturers are dollar-denominated. Fluctuations in exchange rates have resulted, and may in the future result, in price increases from some of the Company's suppliers. Management believes that to varying degrees the Company's competitors in the engine product markets have been and will be similarly affected since many of its competitors also purchase component parts and peripheral equipment abroad. However, some of the Company's principal competitors are divisions of large and diversified multinational companies with extensive production facilities and sales and marketing staffs and substantially greater financial resources than the Company and therefore may be better situated to accommodate price increases from suppliers due to fluctuations in exchange rates. The engine product markets are price sensitive, and there can be no assurance that the Company will be able to pass on price increases from its suppliers to its customers. The manufacturing of a particular engine product requires the integration of a number of engineering, machining and assembly functions in order to produce high quality components. Prior to final assembly, the Company's manufacturing activities involve machining various metal and nonmetal component parts on computer-controlled and conventional milling machines, lathes, drill presses, welders and other machinery, modification and assembly of electrical and mechanical subassemblies, calibration of electrical devices and components and testing for variances from specifications and operating parameters. The Company has approximately 14 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. 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 sales management and senior management devote a substantial amount of time to the overall coordination of the Company's sales to distributors, as well as to the Company's direct sales to boat and other manufacturers (OEM's). Direct sales by the Company to OEM's accounted for approximately 47%, 44%, and 40% of total sales for the fiscal years ended October 2000, 1999 and 1998, 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 500 authorized dealers (including boatyards and marinas) located on or near major navigable waterways throughout the world. These dealers install the Company's generator sets, propulsion engines and air-conditioners as either new or replacement equipment. In addition, many of these dealers maintain inventories of spare parts and accessories in order to maintain and repair the Company's marine products. The Company's distributor network consists of 9 domestic and 56 foreign distributors. The Company's domestic distributors are located along the East, West and Gulf Coasts and in the Great Lakes Region. The 56 foreign distributors service 66 countries worldwide and 14 islands in the Caribbean. Of the 56 foreign distributors, 23 are located in Europe, the Mid-East and Scandinavia, 11 in South, Central and North America, 10 in the Far East, 8 in the Caribbean, and the remainder in Southern Africa, Australia and New Zealand. 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 $2,849,400 (8.3% of net sales), $2,591,600 (8.9% of net sales) and $2,305,300 (8.8% of net sales) for the fiscal years ended October 2000, 1999 and 1998, 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, 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 2000, 1999 and 1998, the Company incurred advertising and promotional expenses of $684,600, $647,500, and $528,400, respectively. See Note 1 of Notes to Consolidated Financial Statements included in " Item 8 - Financial Statements and Supplementary Data". For the fiscal year ended October 21, 2000, sales to Sea Ray Boats, Inc. and Marysville Marine Distributors, Inc., accounted for approximately 25.8% and 17.9%, 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 five significant competitors, some of which are divisions of large and diversified multinational companies with extensive production facilities and sales and marketing staffs and substantially greater financial resources than the Company. Such competitors may be better situated to accommodate price increases from suppliers due to fluctuations in exchange rates. In addition, the Company faces competition from similar companies as it expands its product line or seeks other non- marine applications for its product line. Although price is an important competitive factor, the Company believes that its pricing is competitive. The market for the Company's marine products is dependent on the market for recreational boats which may experience contracting sales as a result of general economic conditions. A contracting market may result in additional competition particularly for direct sales to large boat manufacturers. The Company believes that it can compete effectively with all of its present competitors based upon the high quality, reliability, performance and longevity of its products, the comprehensiveness of its line of products, price, the effectiveness of its customer service and the technical expertise of its personnel and that of its distributors. Employees - --------- At December 29, 2000, the Company had 128 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 60 Director (Class C) Carleton F. Bryant, III Executive Vice President, 55 Treasurer, Chief Operating Officer and Secretary Gerald Bench Director (Class A) 59 Thomas M. Haythe Director (Class B) 61 Nicholas H. Safford Director (Class A) 68 James W. Storey Director (Class B) 66
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. Carleton F. Bryant, III has been Executive Vice President, Treasurer, Chief Operating Officer, and Secretary of the Company since May 1993. From October 1987 to May 1993, Mr. Bryant was Director of Business Development for Analysis & Computer Systems, Inc., a developer of computer software and systems. From June 1980 to October 1987, Mr. Bryant held various management positions with Bird-Johnson Company, a manufacturer of ship propellers, bow thrusters and hydraulic actuators. From 1969 to 1980, Mr. Bryant held a variety of management positions with Bath Iron Works Corporation, a shipbuilder. Gerald Bench has been a director of the Company since June 1986. Mr. Bench has been the President of BFT Holdings Co., Inc., a company that invests in emerging growth businesses, since November 1996. Mr. Bench was the President and Chief Executive Officer of Hadley Fruit Orchards, Inc. from November 1996 to June 1999 and was a consultant from March 1995 to November 1996. Mr. Bench was a partner in ICAP Marine Group (consulting firm) from November 1993 to February 1995. Mr. Bench was the Chairman and President of TDG Aerospace, Inc. (manufacturer of aircraft de-icing devices) from October 1991 to November 1993. Mr. Bench was the President of Thermion, Inc. (manufacturer of heaters for aircraft de-icing devices) from April 1990 to September 1991. From July 1989 to March 1990, Mr. Bench was the general manager of Lermer Corporation (manufacturer of airline galley equipment). Mr. Bench is the former Chairman of the Board, President, Chief Executive Officer and director of E&B Marine Inc. (marine supplies and accessories). Mr. Bench had held various executive positions with E&B Marine Inc. for more than 30 years. Thomas M. Haythe has been a director of the Company since June 1986. Mr. Haythe has been a business and legal consultant since February 2000. From 1982 to January 2000, Mr. Haythe was a partner of the law firm of Haythe & Curley (renamed Torys in 2000). Mr. Haythe is also a director of Novametrix Medical Systems Inc. (manufacturer of electronic medical instruments), Guest Supply, Inc. (provider of hotel guest room amenities, accessories and products) and Ramsay Youth Services, Inc. (provider of youth and educational services). Nicholas H. Safford has been a director of the Company since February 1991. Mr. Safford has been the President of Nicholas H. Safford & Co., Inc. (investment counselor and private trustee) since 1983 and from 1979 to 1981. From 1982 to 1983, Mr. Safford was the President and a director of Wendell, Safford and Co., Inc. (investment counseling firm). Prior to 1978, Mr. Safford was Vice President and a director of David L. Babson & Co., Inc. (investment counseling firm). James W. Storey has been a director of the Company since June 1986. Mr. Storey was the President of Wellingsley Corporation (private investment management company) from December 1986 through December 1992. Mr. Storey is currently an independent consultant. From 1982 to 1986, Mr. Storey was the President and Chief Executive Officer of Codex Corporation, a subsidiary of Motorola, Inc., and was a Vice President of Motorola, Inc. Mr. Storey had held various managerial positions with Codex Corporation since 1966. ITEM 2. PROPERTIES. The Company's executive and administrative offices and manufacturing operations are located in Taunton, Massachusetts in an approximately 110,000 square foot facility owned by the Company. The Company also leases a warehouse of approximately 26,000 square feet. Annual warehouse rent was approximately $152,300 in fiscal 2000 and $145,200 in fiscal 1999. See Note 10 of Notes to Consolidated Financial Statements included in "Item 8 - Financial Statements and Supplementary Data." ITEM 3. LEGAL PROCEEDINGS. As previously announced, the Company has received an award of damages in the amount of $4,202,300 in its arbitration against Daihatsu Motor Company, LTD ("Daihatsu") for breach of contract and other claims. The Company will seek to enforce the arbitration award in the United States and in Japan. However, there can be no assurance that Daihatsu will not appeal the award successfully or defend successfully against enforcement of the award. Accordingly, the Company is unable to predict when, if ever, it will receive payment of the award. Therefore, the Company will not record any recovery until received. See Note 10 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". 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 8, 2001, there were approximately 127 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 25, 1998 through October 21, 2000, on the NASDAQ.
Common Stock Prices High Low ---- --- FISCAL 1999 First Quarter (October 25, 1998 to January 23, 1999) $3.000 $2.500 Second Quarter (January 24, 1999 to April 24, 1999) 3.625 2.188 Third Quarter (April 25, 1999 to July 24, 1999) 3.250 2.125 Fourth Quarter (July 25, 1999 to October 23, 1999) 3.000 2.375 FISCAL 2000 First Quarter (October 24, 1999 to January 22, 2000) $2.750 $2.375 Second Quarter (January 23, 2000 to April 22, 2000) 4.438 2.344 Third Quarter (April 23, 2000 to July 22, 2000) 3.250 2.625 Fourth Quarter (July 23, 2000 to October 21, 2000) 3.375 2.500
On January 8, 2001, the last high and low sales price for the Company's Common Stock was $3.000. 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 21, October 23, October 24, October 25, October 26, 2000 1999 1998 1997 1996 ----------------------------------------------------------------------- For the Year: (In thousands, except for per share amount) Net sales $34,528 $29,114 $26,202 $24,620 $20,653 Gross profit 7,752 6,563 5,966 5,556 4,778 Selling, general and administrative expense 5,756 4,359 3,684 3,106 2,672 Research and development expense 1,501 1,365 1,181 1,030 919 Income from operations 494 839 1,100 1,420 1,187 Interest income (expense) (172) 60 (10) (71) 47 Other income (expense) (189) 387 - - - Net income 228 796 644 799 737 Net income per share, diluted* 0.11 0.39 0.31 0.37 0.33 At end of year: Total assets $24,839 $15,384 $14,670 $14,811 $12,681 Working capital 5,537 7,616 5,650 5,800 6,315 Long-term liabilities 5,030 647 893 1,069 520 Stockholders' equity 11,627 11,381 10,719 10,136 9,841 * 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 21, October 23, October 24, 2000 1999 1998 ----------------------------------------- Net sales 100.0% 100.0% 100.0% Gross profit 22.5 22.5 22.8 Selling, general and administrative expense 16.7 15.0 14.1 Research and development expense 4.3 4.7 4.5 Income from operations 1.4 2.9 4.2 Interest income (expense), net (0.5) 0.2 0.0 Other income (expense) (0.5) 1.3 0.0 Provision for income (benefit) taxes (0.3) 1.7 1.7 Net income 0.7 2.7 2.5
Fiscal 2000 compared to Fiscal 1999 - ----------------------------------- Net sales increased $5,414,700 or 18.6% in fiscal 2000 as compared to fiscal 1999. The increase was attributable to higher unit sales of the Company's products, primarily the result of more favorable economic conditions benefiting the pleasure boat industry. International sales were $2,849,400 in 2000, representing 8.3% of net sales, as compared to $2,591,600 in 1999, or 8.9% of net sales. Gross profit increased $1,188,900 or 18.1% in fiscal 2000 as compared to fiscal 1999. Gross profit as a percentage of sales remained constant at 22.5% in both fiscal 2000 and fiscal 1999. Selling, general and administrative expense increased $1,397,100 or 32.0% in fiscal 2000 as compared to fiscal 1999. The increase was primarily the result of higher legal costs associated with the legal proceeding against the Company's former "long block" supplier, increased hiring expenses and also an increase in sales and marketing costs, offset by a reduction in amounts due under the deferred compensation agreement. Although the Company has been awarded damages of $4,202,300 in connection with its case against a former "long block" supplier it is subject to appeal. Therefore, the Company will not record any recovery until received. Research and development expense increased $136,200 or 10.0% in fiscal 2000 as compared to fiscal 1999. The increase is due to additional engineering personnel. The Company also experienced increased costs to comply with federal and state exhaust requirements for existing and new engines. See "Business - Governmental Regulation." Other expense in the amount of $188,600 is comprised of the net realized losses from the sale of certain investments relating to the deferred compensation agreement. This loss is offset by a benefit in selling, general and administrative expenses. In addition, the Company recognized a loss of $53,900 on the disposal of machinery and equipment. Net interest expense was $171,700 in fiscal 2000 compared to net interest income of $59,700 in fiscal 1999. The increase in interest expense is primarily due to the mortgage on the Company's new Taunton facility and also higher outstanding balances on the revolving loan balance. The Company had an income tax benefit of $94,400 in fiscal 2000 as compared to an expense of $489,400 in fiscal 1999. The income tax benefit in fiscal 2000 was related primarily to state investment tax credits as a result of the acquisition of the Taunton facility. The Company's net income was $228,300 in fiscal 2000 as compared to $796,000 in fiscal 1999. The decrease is mainly attributable to the increase in legal costs and the increase in interest expense during fiscal 2000. Fiscal 1999 compared to Fiscal 1998 - ----------------------------------- Net sales increased $2,911,700 or 11.1% in fiscal 1999 as compared to fiscal 1998. The increase was attributable to higher unit sales of the Company's marine generators and also an increase in the sales of spare parts and accessories, primarily the result of more favorable economic conditions benefiting the pleasure boat industry. International sales were $2,591,600 in 1999, representing 8.9% of net sales, as compared to $2,305,500 in 1998, or 8.8% of net sales. Gross profit increased $597,600 or 10.0% in fiscal 1999 as compared to fiscal 1998. Gross profit as a percentage of sales decreased to 22.5% in fiscal 1999 as compared to 22.8% in fiscal 1998. Selling, general and administrative expense increased $674,700 or 18.3% in fiscal 1999 as compared to fiscal 1998. The increase was primarily the result of higher legal costs associated with the legal proceeding against the Company's former "long block" supplier and also an increase in sales and marketing costs. Research and development expense increased $184,400 or 15.6% in fiscal 1999 as compared to fiscal 1998. The increase is due to the hiring of additional engineering personnel. The Company also experienced increased costs to comply with federal and state exhaust requirements for existing and new engines. See "Business - Governmental Regulation." Other income in the amount of $387,100 is comprised of the realized gains and losses from the sale of marketable securities. Net interest income was $59,700 in fiscal 1999 compared to net interest expense of $9,900 in fiscal 1998. The interest income is primarily due to a decrease in the loan balance used for operating purposes and the increase in cash obtained from the sale of marketable securities during the year. The Company's income tax expense in fiscal 1999 was $489,400 as compared to $446,700 in fiscal 1998. The effective tax rate decreased in fiscal 1999 to 38.1% as compared to 40.9% in fiscal 1998. The Company's net income was $796,000 as compared to $643,500 in fiscal 1998. The increase is mainly attributable to the increase in sales revenues and from the sale of marketable securities. Liquidity and Capital Resources - ------------------------------- During fiscal 2000, net cash used in operations was $2,315,200 as compared to net cash provided by operations of $859,600 in fiscal 1999. The decrease in net cash provided by operations is primarily due to the increase in inventory and also the decrease in net income. The rise in inventories is primarily the result of increased demand and the timing of engine purchase order receipts. During fiscal 2000 and 1999, the Company purchased property, plant and equipment of $7,384,700 and $312,100, respectively. On April 25, 2000, the Company purchased a 110,000 square foot facility located in Taunton, Massachusetts. This facility has enabled the Company to consolidate its current operations into one location. The MassDevelopment Financing Agency approved the Company for a $5,000,000 tax-exempt industrial revenue bond, which has been financed by GE Capital Public Finance. The real estate portion of the loan is $4,600,000 for fifteen years at a fixed rate of 6.46%. The equipment portion of the loan is $400,000 for seven years at a fixed rate of 6.46%. The Company plans capital spending of approximately $600,000 during fiscal 2001. On June 26, 2000, the Company entered into a $5,000,000 Credit Agreement with Brown Brothers Harriman & Co. collateralized by inventory, accounts receivable and general intangibles. The Credit Agreement was increased on September 25, 2000 to $6,000,000. Proceeds from the Credit Agreement were used to repay the Company's outstanding borrowings with Citizens Bank of Massachusetts. At October 21, 2000, the Company had $3,850,000 in outstanding borrowings under the Credit Agreement and approximately $229,700 committed to cover the Company's reimbursement obligations under certain letters of credit and bankers' acceptances. The Credit Agreement does not have an expiration date, but is payable on written demand. Management believes cash flow from operations and borrowings available under the Credit Agreement will provide for working capital needs, principal payments on long-term debt, and capital and operating leases through fiscal 2001. Domestic inflation is not expected to have a major impact on the Company's operations. The costs of engine blocks and other components are subject to foreign currency fluctuations (primarily the Japanese yen). The value of the U.S. dollar relative to the yen had no material effect on the cost of the Company's products in fiscal 2000. 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 unanticipated required repayment in full of outstanding amounts under the Company's demand credit facility; the inability of the Company to effect required modifications of its products to meet governmental regulations with respect to emission standards; and foreign currency fluctuations resulting in cost increases to the Company for its foreign supplied components. Accordingly, there can be no assurances that any anticipated future results will be achieved. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We have not entered into any transactions using derivative financial instruments or derivative commodity instruments and we believe that our exposure to market risk associated with other financial instruments (such as fixed and variable rate borrowings), are not material. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. WESTERBEKE CORPORATION AND SUBSIDIARY ------------------------------------- CONSOLIDATED FINANCIAL STATEMENTS For the years ended October 21, 2000, October 23, 1999 and October 24, 1998 KPMG LLP 99 High Street Telephone 617 988 1000 Boston, MA 02110-2371 Fax 617 988 0800 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 21, 2000 and October 23, 1999, and the related consolidated statements of operations, stockholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended October 21, 2000. 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 in the United States of America. 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 21, 2000 and October 23, 1999, and the results of their operations and their cash flows for each of the years in the three-year period ended October 21, 2000, in conformity with generally accepted accounting principles in the United States of America. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. By /s/ KPMG LLP --------------- Boston, Massachusetts December 15, 2000 WESTERBEKE CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
October 21, October 23, 2000 1999 ----------- ----------- ASSETS Current assets: Cash and cash equivalents $ 421,100 $ 1,739,300 Accounts receivable, net of allowance for doubtful accounts of $115,000 at October 21, 2000 and $59,200 at October 23, 1999 (Note 2) 2,569,700 2,502,100 Inventories (Note 3) 9,040,900 5,640,200 Prepaid expenses and other assets 411,100 476,900 Prepaid income taxes 310,500 35,600 Deferred income taxes (Note 9) 965,100 577,900 -------------------------- Total current assets 13,718,400 10,972,000 Property, plant and equipment, net (Notes 4,8 and 10) 8,863,300 2,027,300 Other assets, net (Note 5) 2,081,000 2,199,400 Investments in marketable securities 101,400 91,400 Note receivable - related party (Note 6) 74,800 93,400 -------------------------- $24,838,900 $15,383,500 ========================== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt (Notes 8 and 10) $ 280,100 $ 192,900 Revolving demand note payable (Note 7) 3,850,000 - Accounts payable 3,159,900 2,248,700 Accrued expenses and other liabilities 891,600 914,000 -------------------------- Total current liabilities 8,181,600 3,355,600 -------------------------- Deferred income taxes (Note 9) 42,200 13,600 Deferred compensation 345,800 409,200 Long-term debt, net of current portion (Notes 8 and 10) 4,642,200 224,500 -------------------------- Total Liabilities 13,211,800 4,002,900 -------------------------- Commitments and contingencies (Notes 7 and 10) Stockholders' equity (Notes 11 and 12): Common stock, $.01 par value; authorized 5,000,000 shares; issued 2,195,950 shares in 2000 and 2,185,950 in 1999. 22,000 21,900 Additional paid-in-capital 6,042,500 6,025,300 Accumulated other comprehensive income 17,800 16,900 Retained earnings 6,300,800 6,072,500 -------------------------- 12,383,100 12,136,600 Less - Treasury shares at cost, 268,138 shares in 2000 and 1999 756,000 756,000 -------------------------- Total stockholders' equity 11,627,100 11,380,600 -------------------------- $24,838,900 $15,383,500 ==========================
The accompanying notes are an integral part of the consolidated financial statements. WESTERBEKE CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended ----------------------------------------- October 21, October 23, October 24, 2000 1999 1998 ----------- ----------- ----------- Net sales (Note 2) $34,528,400 $29,113,700 $26,202,000 Cost of sales 26,776,400 22,550,600 20,236,500 ----------------------------------------- Gross profit 7,752,000 6,563,100 5,965,500 Selling, general and administrative expense 5,756,300 4,359,200 3,684,500 Research and development expense 1,501,500 1,365,300 1,180,900 ----------------------------------------- Income from operations 494,200 838,600 1,100,100 Interest income (expense), net (171,700) 59,700 (9,900) Other income (expense), net (188,600) 387,100 - ----------------------------------------- Income before income taxes 133,900 1,285,400 1,090,200 Provision for income (benefit) taxes (Note 9) (94,400) 489,400 446,700 ----------------------------------------- Net income $ 228,300 $ 796,000 $ 643,500 ========================================= Income per common share, basic $ .12 $ .42 $ .34 ========================================= Income per common share, diluted $ .11 $ .39 $ .31 ========================================= Weighted average common shares - basic 1,920,147 1,917,812 1,914,546 ========================================= Weighted average common shares - diluted 2,057,891 2,055,682 2,077,125 =========================================
The accompanying notes are an integral part of the consolidated financial statements. WESTERBEKE CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME Three years ended October 21, 2000
Accumulated Common Additional Other Stock Paid-in Comprehensive Retained Treasury Stockholders' Comprehensive Amount Capital Income Earnings Stock Equity Income --------------------------------------------------------------------------------------------- October 25, 1997 $21,600 $5,996,600 $240,700 $4,633,000 $(756,000) $10,135,900 Exercise of stock options 300 28,700 - - - 29,000 Unrealized gains on marketable securities - - (89,500) - - (89,500) $(89,500) Net Income - - - 643,500 - 643,500 643,500 ----------------------------------------------------------------------------------------- October 24,1998 21,900 6,025,300 151,200 5,276,500 (756,000) 10,718,900 554,000 Unrealized gains on marketable securities net of reclassification adjustments(see note) - - (134,300) - - (134,300) (134,300) Net Income - - - 796,000 - 796,000 796,000 ----------------------------------------------------------------------------------------- October 23, 1999 21,900 6,025,300 16,900 6,072,500 (756,000) 11,380,600 661,700 Exercise of stock options 100 17,200 - - - 17,300 Unrealized gains on marketable securities - - 900 - - 900 900 Net Income - - - 228,300 - 228,300 228,300 ----------------------------------------------------------------------------------------- October 21, 2000 $22,000 $6,042,500 $ 17,800 $6,300,800 $(756,000) $11,627,100 $229,200 =========================================================================================
Note: (Year ending October 23, 1999) Unrealized holding loss arising during period $ (2,600) Less: reclassification adjustment for gains included in net income (131,700) --------- Net unrealized gains on securities $(134,300) =========
The accompanying notes are an integral part of the consolidated financial statements. WESTERBEKE CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended ----------------------------------------- October 21, October 23, October 24, 2000 1999 1998 ----------- ----------- ----------- Cash flows from operating activities: Net income $ 228,300 $ 796,000 $ 643,500 Reconciliation of net income to net cash (used in) provided by operating activities: Depreciation and amortization 509,200 466,800 428,800 Loss on disposal of fixed assets 53,900 1,300 15,000 Deferred income taxes (358,600) (140,600) (195,700) Changes in operating assets and liabilities: Accounts receivable (67,600) (209,200) (343,900) Inventories (3,400,700) (248,600) 862,700 Prepaid expenses and other assets 65,800 (133,900) (41,400) Prepaid income taxes (274,900) (35,600) 212,000 Other assets 104,000 (219,000) (426,700) Accounts payable 911,200 342,800 (322,000) Accrued expenses and other liabilities (22,400) 245,000 104,300 Deferred compensation (63,400) 88,500 161,100 Accrued income taxes payable - (93,900) 93,900 ----------------------------------------- Net cash (used in) provided by operating activities (2,315,200) 859,600 1,191,600 ----------------------------------------- Cash flows from investing activities: Purchase of property, plant and equipment (7,384,700) (312,100) (444,300) Proceeds from payment of note receivable 18,600 14,600 14,800 Proceeds from sale of marketable securities - 1,465,000 - Purchase of marketable securities (9,100) - (234,700) ----------------------------------------- Net cash (used in) provided by investing activities (7,375,200) 1,167,500 (664,200) ----------------------------------------- Cash flows from financing activities: Exercise of stock options 17,300 - 29,000 Net borrowings (repayments) under revolving demand note 3,850,000 (200,000) (400,000) Proceeds from GE Capital 5,000,000 - - Principal payments on long-term debt and capital lease obligations (495,100) (189,700) (211,400) ----------------------------------------- Net cash provided (used) by financing activities 8,372,200 (389,700) (582,400) ----------------------------------------- Decrease (increase) in cash and cash equivalents (1,318,200) 1,637,400 (55,000) Cash and cash equivalents, beginning of year 1,739,300 101,900 156,900 ----------------------------------------- Cash and cash equivalents, end of year $ 421,100 $ 1,739,300 $ 101,900 ========================================= Supplemental cash flow disclosures: Interest paid $ 185,100 $ 92,500 $ 167,600 Income taxes paid $ 644,000 $ 668,900 $ 266,000 Supplemental disclosures of non-cash flow items: Increase (decrease) in unrealized gains on marketable securities, net of income taxes $ 900 $ (2,600) $ (89,500) Tax benefit from exercise of stock options $ 6,000 - -
The accompanying notes are an integral part of the consolidated financial statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS October 21, 2000, October 23, 1999 and October 24, 1998 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 activated for tax planning purposes for fiscal years 2000, 1999 and 1998. 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 21, 2000 and October 23, 1999 consist of equity securities in various mutual funds. The Company employs the provisions of Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities (Statement 115). Under Statement 115, the Company classifies its marketable securities in one of two categories: trading or available-for-sale. Trading and available-for-sale securities are recorded at fair value. Unrealized holding gains and losses on trading securities are included in earnings. Unrealized holding gains and losses on available-for-sale securities are excluded from earnings and are reported as a separate component of stockholders' equity until realized. Transfers of securities between categories are recorded at fair value at the date of transfer. Unrealized holding gains and losses are recognized in earnings for transfers into trading securities. A decline in the market value of any available-for-sale security below cost that is deemed other than temporary is charged to earnings resulting in the establishment of a new cost basis for the security. Dividend and interest income are recognized when earned. Realized gains and losses, if any, for securities classified as available-for-sale are included in earnings with cost determined using the specific identification method. Marketable investment securities held in connection with the deferred compensation arrangement are classified as trading securities. All other marketable securities are classified as available-for-sale. Equity securities are stated at the fair market value at October 21, 2000 and at October 23, 1999. The total cost of the marketable securities at October 21, 2000 and October 23, 1999 was $65,300. Unrealized holding gains in investment securities, net of income taxes, which is included in accumulated other comprehensive income at October 21, 2000 and October 23, 1999 were $17,800 and $16,900, respectively. Inventories Inventories are valued at the lower of cost (determined on the last-in, first-out method) or market. Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of The Company accounts for long-lived assets in accordance with the provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. This Statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Depreciation and Amortization The Company computes depreciation and amortization expense on a straight- line basis over the following estimated useful lives:
Asset Classification Estimated Useful Lives - -------------------- ---------------------- Building and building improvements 15 - 40 years Machinery and equipment 10 years Patterns 5 years Furniture and fixtures 5 - 10 years Transportation equipment 3 - 5 years Equipment under capital lease 5 - 10 years Intangibles 3 - 17 years
Intangible assets, primarily acquired patents, are classified in other assets. Maintenance and repairs are charged to expense in the period incurred. The cost and accumulated depreciation of assets retired or sold are removed from the accounts and any gain or loss is credited or charged to income. Leasehold improvements are amortized on a straight-line basis over the shorter of the life of the lease or their estimated useful lives. Revenue Recognition The Company recognizes revenue upon shipment of product. Fair Value of Financial Instruments Financial instruments of the Company consist of cash, cash equivalents, accounts receivable, accounts payable and accrued liabilities. The carrying value of these financial instruments approximates their fair value because of the short maturity of these instruments. Based upon borrowing rates currently available to the Company for issuance of similar debt with similar terms and remaining maturities, the estimated fair value of long-term debt approximates their carrying amounts. Product Warranty Cost The anticipated costs related to product warranty are expensed at the time of sale of the product. Accrued warranty expense of $360,000 and $300,000 is included in accrued expenses and other liabilities at October 21, 2000 and October 23, 1999, respectively. Advertising Advertising and promotional expenditures are expensed as incurred. During the fiscal years ended October 2000, 1999 and 1998, the Company incurred advertising and promotional expenses of $684,600, $647,500, and $528,400, respectively. Income Taxes The Company uses the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred income taxes are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred taxes of a change in tax rate is recognized in income in the period that includes the enactment date. Net Income Per Share Basic income per common share is computed by dividing income available to common stockholders by the weighted average number of shares outstanding for the period. Diluted income per share reflects the maximum dilution that would have resulted from the exercise of stock options. Diluted income per share is computed by dividing net income by the weighted average number of common shares and all dilutive securities.
For the twelve months ended: October 21, 2000 October 23, 1999 October 24, 1998 ---------------------------------- ---------------------------------- ---------------------------------- Income Net Income Net Income Net per share Shares Income per share Shares Income per share Shares Income -------------------------------------------------------------------------------------------------------------- Basic $ .12 1,920,147 $228,300 $ .42 1,917,812 $796,000 $ .34 1,914,546 $643,500 Effect of Stock options (.01) 137,744 - (.03) 137,870 - (.03) 162,579 - -------------------------------- -------------------------------- -------------------------------- Diluted $ .11 2,057,891 $228,300 $ .39 2,055,682 $796,000 $ .31 2,077,125 $643,500
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. Net sales include export sales, primarily to customers in the Netherlands, England, Italy, South Africa and Puerto Rico of approximately $2,849,400, $2,591,600 and $2,305,500 for fiscal years ended October 21, 2000, October 23, 1999, and October 24, 1998, respectively. In fiscal 2000, two customers each accounted for sales in excess of 10% of net sales as follows: $8,896,200 and $6,166,700. In fiscal 1999, two customers each accounted for sales in excess of 10% of net sales as follows: $7,657,400 and $5,791,000. In fiscal 1998, three customers each accounted for sales in excess of 10% of net sales as follows: $5,878,000, $4,827,900 and $2,788,500. At October 21, 2000, two customers each accounted for trade accounts receivable in excess of 10% of net accounts receivable as follows: $671,700, and $596,300. At October 23, 1999, two customers each accounted for trade accounts receivable in excess of 10% of net accounts receivable as follows: $550,700, and $531,100. 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 21, 2000 October 23, 1999 ---------------- ---------------- Raw materials $7,260,800 $4,539,800 Work-in-process 617,000 762,400 Finished goods 1,163,100 338,000 ---------- ---------- $9,040,900 $5,640,200 ========== ==========
The Company uses the last-in, first-out (LIFO) method to value inventory. The Company believes the LIFO inventory method results in a better matching of costs and revenues during periods of changing prices. Inventories would have been $1,168,600 and $1,078,600 higher at October 21, 2000 and October 23, 1999, respectively, if the first-in, first-out (FIFO) method had been used. 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 21, 2000 October 23, 1999 ---------------- ---------------- Land $ 969,500 $ 48,000 Building and building improvements 5,302,900 1,386,100 Furniture and fixtures 654,400 458,800 Machinery, patterns and equipment 4,188,900 3,354,100 Transportation equipment 84,900 51,500 Leasehold improvements 20,400 20,400 Equipment under capital lease 769,200 769,200 Construction in progress 1,207,800 - ----------- ---------- 13,198,000 6,088,100 Less accumulated depreciation 4,334,700 4,060,800 ----------- ---------- $ 8,863,300 $2,027,300 =========== ==========
The Company incurred depreciation expense of approximately $494,800, $445,100, and $407,100 for fiscal years 2000, 1999, and 1998, 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 21, 2000 and October 23, 1999 is $1,525,100 and $1,470,300, 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 21, 2000 and October 23, 1999 was $74,800 and $93,400, respectively. The loan was used by Mr. Westerbeke, Jr. to purchase a 40-foot sailboat. The loan bears interest at 7-3/4% per annum, is secured by a security interest in the sailboat and is payable in monthly installments over a ten year period. The Company has leased the sailboat from Mr. Westerbeke, Jr. pursuant to a lease expiring in July 2004 at a rental of $2,793 per month (see Note 10). The Company makes use of the boat to evaluate the performance of its marine engines and products and for other corporate matters. 7. Revolving Demand Note Payable The Company has a $6,000,000 Credit Agreement with Brown Brothers Harriman & Co., collateralized by inventory, accounts receivable and general intangibles. The Credit Agreement was entered into on June 26, 2000. The Agreement does not have an expiration date, but is payable on written demand. As of October 21, 2000, the Company had approximately $1,920,300 in unused borrowing capacity under the Credit Agreement and approximately $229,700 committed to cover the Company's reimbursement obligations under certain open letters of credit and bankers' acceptances. 8. Long-Term Debt
October 21, 2000 October 23, 1999 ---------------- ---------------- Term Loan with an interest rate of 8.08%, with repayment terms through July 2001. $ - $178,500 Term Loan with an interest rate of 8.11%, with repayment terms through June 2002. - 163,200 Term Loan with an interest rate of 6.46%, with repayment terms through April 2015. 4,507,500 - Term Loan with an interest rate of 6.46%, with repayment terms through April 2007. 377,000 - Capital Lease with an interest rate of 8.75% with repayment terms through September 2001. 37,800 75,700 ----------------------------- 4,922,300 417,400 Less current portion 280,100 192,900 ----------------------------- Long term debt net of current portion $4,642,200 $224,500 =============================
Aggregate maturities of long-term debt for each of the ensuing five years are as follows:
Year Amount ---- ------ 2001 $ 280,100 2002 258,500 2003 275,700 2004 294,100 2005 313,600 Thereafter 3,500,300 ---------- $4,922,300 ==========
9. Income Taxes Total income tax benefit for the year ended October 21, 2000 was allocated as follows: Income from continuing operations $ (94,400) Stockholders' equity, for compensation expense for tax purposes in excess of amounts recognized for financial reporting purposes and from the change in comprehensive income (6,600) --------- $(101,000) =========
Income tax (benefit) expense attributable to income from continuing operations consists of:
Years Ended -------------------------------------------------------- October 21, 2000 October 23, 1999 October 24, 1998 ---------------- ---------------- ---------------- Federal: Current $ 217,200 $ 413,700 $ 444,000 Deferred (95,500) (36,300) (111,500) ------------------------------------------------- 121,700 377,400 332,500 ------------------------------------------------- State: Current 47,500 123,200 134,800 Deferred (263,600) (11,200) (20,600) ------------------------------------------------- (216,100) 112,000 114,200 ------------------------------------------------- Total $ (94,400) $ 489,400 $ 446,700 =================================================
The Company has no net operating loss carryforwards and has approximately $212,000 of state tax credits, which are available to offset income taxes over a ten-year period. Income tax (benefit) 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 21, 2000 October 23, 1999 October 24, 1998 ---------------- ---------------- ---------------- Provision at statutory rate $ 45,500 $ 437,000 $370,700 State tax provision, net of federal tax benefit (142,600) 74,000 75,400 Other, net 2,700 (21,600) 600 ------------------------------------------------ Total $ (94,400) $ 489,400 $ 446,700 ================================================
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at October 21, 2000 and October 23, 1999 are presented below.
October 21, 2000 October 23, 1999 ---------------- ---------------- Deferred tax assets: Accounts receivable $ 133,400 $ 113,600 Inventory 558,800 343,500 Accrued bonus 139,300 197,000 Warranty 145,000 120,800 Massachusetts investment tax credit 139,900 - ----------------------------- Total gross deferred tax assets 1,116,400 774,900 ----------------------------- Deferred tax liabilities: Fixed assets, principally due to accelerated depreciation methods (181,500) (199,200) Unrealized gain on marketable securities (12,000) (11,400) ----------------------------- Total gross deferred tax liabilities (193,500) (210,600) ----------------------------- Net deferred tax assets $ 922,900 $ 564,300 =============================
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 2005. Rental expense under operating leases was $185,800, $173,000, and $173,200 for the years ended October 21, 2000, October 23, 1999 and October 24, 1998, respectively. The following capital leases are included in property, plant and equipment:
October 21, 2000 October 23, 1999 ---------------- ---------------- Property, plant and equipment $769,200 $769,200 Less accumulated amortization 662,500 645,000 -------- -------- $106,700 $124,200 ======== ========
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 - ---- --------- 2001 $185,400 2002 135,900 2003 36,800 2004 36,800 2005 2,500 -------- Total future minimum lease payments $397,400 ========
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 21, 2000, the Company was contingently liable for open letters of credit and bankers' acceptances of approximately $229,700 (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. Legal Proceedings An arbitrator has awarded the Company $4,202,300 in connection with a dispute with a supplier. The Company will seek to enforce the arbitration award in both the United States and Japan. However, there can be no assurance that the supplier will not appeal the award successfully or defend successfully against enforcement of the award. Accordingly, the Company has not recorded the award in the accompanying financial statements. 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 21, 2000, 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. Proforma disclosure required under SFAS 123 is not provided as no stock options have been granted for the three years ended October 21, 2000. Information for fiscal years 1998, 1999 and 2000, with respect to the Option Plan, is as follows:
Weighted average exercise price of Shares shares under plan ------ ----------------- Balance outstanding at October 25, 1997, October 24, 1998 and October 23, 1999 150,000 $1.125 Exercised (10,000) 1.125 ------- Balance outstanding and exercisable at October 21, 2000 140,000 $1.125 =======
The outstanding options expire on various dates through May 2003. Options for 88,100 shares are available for future grant under the Option Plan. The following table summarizes information concerning currently outstanding and exercisable options under the Option Plan as of October 21, 2000:
Weighted average Weighted Range of remaining average Weighted exercise Number contractual outstanding Options average prices outstanding life (years) option price exercisable exercise price - ---------------------------------------------------------------------------------------- $1.125 140,000 2.4 $1.125 140,000 $1.125
Information for fiscal years 1998, 1999, and 2000, with respect to the Supplemental Plan, is as follows:
Weighted average exercise price of Shares shares under plan ------ ----------------- Balance outstanding at October 25, 1997 147,400 $1.507 Exercised (29,000) 1.000 ------- Balance outstanding at October 24, 1998, October 23, 1999 and October 21, 2000 118,400 1.631 ------- Balance exercisable at October 21, 2000 118,400 $1.631 =======
The following table summarizes information concerning currently outstanding and exercisable options under the Supplemental Plan as of October 21, 2000:
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 3.0 $1.631 118,400 $1.631
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 21, 2000 and October 23, 1999, 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 21, 2000, 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 $46,600, $41,800 and $38,800 for the fiscal years ended October 21, 2000, October 23, 1999 and October 24, 1998, respectively. 14. Quarterly Financial Data (Unaudited) (In thousands, except per share amounts) Selected quarterly financial data for the years ended October 21, 2000 and October 23, 1999 is as follows:
Fiscal Fiscal 2000: First Second Third Fourth Year ----------------------------------------------- Net sales $8,791 $9,103 $8,892 $7,742 $34,528 Gross profit 2,150 1,968 2,002 1,632 7,752 Income (loss) from operations 597 337 272 (712) 494 Other income (loss) (10) (97) - (82) (189) Net income (loss) 353 126 131 (382) 228 Net income (loss) per share, diluted 0.17 0.06 0.06 (0.18) 0.11 Fiscal Fiscal 1999: First Second Third Fourth Year ----------------------------------------------- Net sales $5,447 $7,602 $7,571 $8,494 $29,114 Gross profit 956 1,896 1,838 1,873 6,563 Income (loss) from operations (190) 506 562 (39) 839 Other income (loss) (31) 504 (65) (21) 387 Net income (loss) (111) 581 319 7 796 Net income (loss) per share, diluted (0.06) 0.28 0.16 0.01 0.39
New Accounting Pronouncements Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities" establishes accounting and reporting standards for derivatives and hedging activities. In June 2000, the Financial Accounting Standards Board issued SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities," and amendment to SFAS No. 133. These statements require that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. We are currently evaluating SFAS No. 133 and SFAS No. 138. We do not expect these new statements to have a material effect on our consolidated financial position, results of operations or cash flow. SCHEDULE II WESTERBEKE CORPORATION AND SUBSIDIARY VALUATION AND QUALIFYING ACCOUNT For the years ended October 21, 2000, October 23, 1999 and October 24, 1998
Balance at Charged to Charged Balance Beginning of Costs and To Other at End Period Expenses Accounts Deductions of Year 1998 Allowance for doubtful accounts $63,900 - - 4,700 $ 59,200 1999 Allowance for doubtful accounts $59,200 - - - $ 59,200 2000 Allowance for doubtful accounts $59,200 62,500 - 6,700 $115,000
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. PART I I I ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Certain biographical information concerning the directors of the Company as of January 1, 2001 is set forth below. Such information was furnished by them to the Company.
Certain Name of Director Age Biographical Information - ---------------- --- ------------------------ GERALD BENCH 59 President, BFT Holdings Co., Inc. (investor in emerging growth businesses) since November 1996; President and Chief Executive Officer, Hadley Fruit Orchards, Inc. from November 1996 to June 1999; Consultant, Hadley Fruit Orchards, Inc. from March 1995 to November 1996; Partner, ICAP Marine Group (consulting firm) from November 1993 to February 1995; Chairman and President, TDG Aerospace, Inc. (manufacturer of aircraft de-icing devices) from October 1991 to November 1993; President, Thermion, Inc. (manufacturer of heaters for aircraft de-icing devices) from April 1990 to September 1991; General Manager, Lermer Corporation (manufacturer of airline galley equipment) from June 1989 through March 1990; former Chairman of the Board, President, Chief Executive Officer and Director of E&B Marine Inc. (marine supplies and accessories) from prior to 1988; Director of the Company since June 1986 THOMAS M. HAYTHE 61 Business and Legal Consultant since February 2000: Partner, Haythe & Curley (attorneys) (renamed Torys in 2000) from 1982 to January 2000; Director: Novametrix Medical Systems Inc. (manufacturer of electronic medical instruments), Guest Supply, Inc. (provider of hotel guest room amenities, accessories and products) and Ramsay Youth Services, Inc. (provider of youth and educational services); Director of the Company since June 1986. NICHOLAS H. SAFFORD 68 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 66 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 of the Company since June 1986. JOHN H. WESTERBEKE, JR. 60 President of the Company since 1976; Director of the Company since 1976; Chairman of the Board of Directors of the Company since 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 C directors will expire at the Annual Meeting of Stockholders to be held in 2001. Class A and Class B directors will be elected at the Annual Meetings to be held in 2002 and 2003, respectively. Mr. Bench and Mr. Safford are Class A directors, Messrs. Haythe and Storey are Class B directors and Messrs. Westerbeke, Jr. is a Class C director. 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. 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 21, 2000 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 21, 2000, October 23, 1999 and October 24, 1998 concerning the compensation paid or awarded to the Chief Executive Officer and the other executive officer of the Company. SUMMARY COMPENSATION TABLE
Annual Compensation Fiscal -------------------------- Name and Year Principal Ended All Other Position October Salary Bonus Compensation ----------------------------------------------------------------------------------------- John H. Westerbeke, Jr. 2000 $228,359(1) $134,247(2) $38,549(7) President, Chairman of the Board 1999 226,190(3) 84,723(4) 33,385(7) of Directors and Class C Director 1998 214,488(5) 53,838(6) 31,622(7) Carleton F. Bryant, III 2000 $ 94,500 $ 60,633 - Executive Vice President, 1999 94,500 61,115 - Treasurer, Chief Operating Officer 1998 94,500 72,998 - and Secretary - -------------------- Includes $75,300 of salary earned in fiscal year 2000, payment of which has been deferred. Includes a $126,692 bonus earned in fiscal year 2000, payment of which has been deferred. Includes $73,100 of salary earned in fiscal year 1999, payment of which has been deferred. Includes a $79,682 bonus earned in fiscal year 1999, payment of which has been deferred. Includes $61,842 of salary earned in fiscal year 1998, payment of which has been deferred. Includes a $49,628 bonus earned in fiscal year 1998, payment of which has been deferred. Includes amounts ($22,750, $19,825 and $18,062 in fiscal 2000, 1999 and 1998, 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 21, 2000, October 23, 1999 and October 24, 1998 for the period from the date on which each premium was paid until March 31, 2002 (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 21, 2000. The following table sets forth the number and value of options held by the executive officers named in the Summary Compensation Table during the fiscal year ended October 21, 2000. OPTION VALUES AT OCTOBER 21, 2000
Number of Value of Unexercised Unexercised In-the-Money(1) Options at Options at October 21, 2000 October 21, 2000 ---------------------------- ---------------------------- Name Exercisable Unexercisable Exercisable Unexercisable - ----------------------------------------------------------------------------------------- John H. Westerbeke, Jr. 150,000 - $206,200 - Carleton F. Bryant, I I I 65,000 - $ 89,400 - - -------------------- 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 2000, Mr. Westerbeke's salary was $228,359, which included $75,300 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 $6,150,000 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. Compensation Committee Interlocks and Insider Participation - ----------------------------------------------------------- During the Company's past fiscal year, Thomas M. Haythe, a director of the Company and a member of the Compensation Committee, was a partner of the law firm of Haythe & Curley (renamed Torys in 2000), which firm acted as legal counsel to the Company during the past fiscal year. It is expected that Torys will continue to render legal services to the Company in the future. Mr. Haythe, who retired from Torys in January 2000, acts as the Company's general counsel and is expected to continue to do so 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, 2001, 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 11,100 (2) * 17 1/2 Passaic Avenue Spring Lake, New Jersey 07762 Thomas M. Haythe 16,100 (3) * Myles Standish Industrial Park Taunton, Massachusetts 02780 Nicholas H. Safford 10,100 (4) * 9 Cleaves Street Rockport, Massachusetts 01966 James W. Storey 20,100 (5) 1.0% 3 Saddle Ridge Road Dover, Massachusetts 02030 John H. Westerbeke, Jr 1,248,250 (6) 60.1% Myles Standish Industrial Park Taunton, Massachusetts 02780 Carleton F. Bryant, III 65,000 (7) 3.3% Myles Standish Industrial Park Taunton, Massachusetts 02780 All Directors and Officers as a Group 1,370,650 (2) (3) (4) (5) (6) (7) 63.0% (seven persons) - -------------------- (*) Less than one percent. Information as to these holdings is based upon a report on Schedule 13D filed with the Securities and Exchange Commission by Mr. Paul B. Luber. Such report indicates that Mr. Luber has sole voting and dispositive power with respect to 133,255 shares, of which 53,555 shares are directly owned by Mr. Luber and 79,700 shares are owned by Great Lakes Capital Holdings, LLP, a limited liability partnership of which Mr. Luber is a general partner. Consists of 11,100 shares issuable upon the exercise of presently exercisable stock options held by Mr. Bench. Includes 11,100 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 11,100 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 65,000 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, 2001. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The Company leases a 40-foot sailboat from Mr. Westerbeke, Jr. the Chairman of the Board, President and Chief Executive Officer of the Company, pursuant to a lease expiring in July 2004. The Company pays an annual rental to him of $33,500 and also pays approximately $10,000 to $15,000 of annual expenses in connection with the operation and maintenance of the sailboat. The Company makes use of the sailboat to evaluate the performance of its marine engine products and for other corporate purposes. In July 1994, Mr. Westerbeke, Jr. executed a promissory note payable to the Company in the principal amount of $165,000. The proceeds of the loan were used by Mr. Westerbeke, Jr. to purchase the sailboat which is leased to the Company as described above. The loan, which is due June 1, 2004, is payable in equal monthly installments which commenced on July 1, 1994, together with interest at 7.75% per annum and is secured by the sailboat. Management of the Company believes that the terms of the lease and of the secured loan are no less favorable to the Company than it could obtain from an unrelated party. During the Company's past fiscal year, Thomas M. Haythe, a Class B director of the Company, was a partner of the law firm of Haythe & Curley (renamed Torys in 2000), which firm has acted as legal counsel to the Company during the past fiscal year. It is expected that Torys will continue to render legal services to the Company in the future. Mr. Haythe, who retired in January 2000, acted as the Company's general counsel and is expected to continue to do so in the future. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) 1. Financial Statements: Included in PART II of this report: Page Report of KPMG LLP 24 Consolidated Balance Sheets at October 21, 2000 and October 23, 1999 25 Consolidated Statements of Operations for the three years in the period ended October 21, 2000 26 Consolidated Statements of Stockholders' Equity and Comprehensive Income for the three years in the period ended October 21, 2000 27 Consolidated Statements of Cash Flow for the three years in the period ended October 21, 2000 28 Notes to Consolidated Financial Statements 29 2. Financial Statement Schedule: Included in PART II of this report: Schedule II - Valuation and Qualifying Account for the three years in the period ended October 21, 2000 41 Schedules other than those listed above are omitted because they are not applicable, or the required information is shown in the Consolidated Financial Statements or Notes thereto. Columns omitted from schedules filed have been omitted because the information is not applicable. 3. Exhibits: The exhibits required to be filed as part of this Annual Report on Form 10-K are listed in the attached Index to Exhibits. (b) Current Reports on Form 8-K: During the fiscal quarter ended October 21, 2000, 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 19, 2001 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 19, 2001 By /s/ John H. Westerbeke, Jr. --------------------------- John H. Westerbeke, Jr. Chairman of the Board, President and Principal Executive Officer Dated: January 19, 2001 By /s/ Carleton F. Bryant III -------------------------- Carleton F. Bryant III Executive Vice President, Chief Operating Officer and Principal Financial and Accounting Officer Dated: January 19, 2001 By /s/ Gerald Bench ---------------- Gerald Bench Director Dated: January 19, 2001 By /s/ Thomas M. Haythe -------------------- Thomas M. Haythe Director Dated: January 19, 2001 By /s/ Nicholas H. Safford ----------------------- Nicholas H. Safford Director Dated: January 19, 2001 By /s/ James W. Storey ------------------- James W. Storey 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 (4) 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 (4) 10 (c) 1986 Employee Stock Purchase Plan of the Company (1) 10 (d) Supplemental Stock Option Plan of the Company (4) 10 (e) 1996 Stock Option Plan of the Company (2) 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) Supplemental Medical Insurance Policy (1) 10 (h) Employment Agreement dated March 24, 1993 between the Company and John H. Westerbeke, Jr., Chairman, President and Chief Executive Officer of the Company (4) 10 (i) Employment Agreement dated May 14, 1993 and Confidentiality Agreement dated May 14, 1993 between the Company and Carleton F. Bryant III, Chief Operating Officer of the Company (4) 10 (j) Lease dated February 3, 1999 by and between Urban Equities and the Company (3) 10 (k) Purchase and Sale Agreement dated March 1, 2000 between the Company and Dead River Company (5) 10 (l) Real Estate Loan Agreement dated April 24, 2000 among the Company, 150 John Hancock LLP, GE Capital Public Finance, Inc. and Massachusetts Development Finance Agency (5) 10 (m) Equipment Loan Agreement dated April 24, 2000 between the Company, GE Capital Public Finance, Inc. and Massachusetts Development Finance Agency (5) 10 (n) Mortgage Security Agreement, Assignment of Leases and Rents and Fixture Filing dated April 24, 2000 between the Company and GE Capital Public Finance, Inc (5) 10 (o) Loan and Security Agreement dated June 26, 2000 between the Company and Brown Brothers Harriman & Co (6) 10 (p) Revolving Credit Note dated June 26, 2000 between the Company and Brown Brothers Harriman & Co (6) 10 (q) Amendment dated September 2000 to Loan and Security Agreement dated June 26, 2000 between the Company and Brown Brothers Harriman Co 10 (r) Amendment dated September 2000 to Revolving Credit Note dated June 26, 2000 between the Company and Brown Brothers Harriman & Co 21 Subsidiary of the Company 23 Consent of KPMG LLP 24 Power of Attorney (See Page 54 of Annual Report on Form 10-K) [FN] - -------------------- Incorporated by reference to Exhibits to Registration Statement No. 33-6972 filed with the Securities and Exchange Commission. Incorporated by reference to Exhibits to Annual Report on Form 10-K for fiscal year ended October 26, 1996. Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for fiscal quarter ended January 23, 1999. Incorporated by reference to Exhibits to Annual Report on Form 10-K for fiscal year ended October 23, 1999. Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for fiscal quarter ended April 22, 2000. Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for fiscal quarter ended July 22, 2000. EX-10 2 wes-10r.txt EXHIBIT 10(R) Exhibit 10(r) AMENDMENT TO LOAN AND SECURITY AGREEMENT DATED JUNE 26, 2000 ------------------------------------------------------------ BETWEEN ------- BROWN BROTHERS HARRIMAN & CO. ----------------------------- AND --- WESTERBEKE CORPORATION ---------------------- This Amendment to Loan and Security Agreement (hereinafter, this "Amendment") is made as of this __ day of September, 2000 by and between WESTERBEKE CORPORATION, a Delaware corporation with its principal executive office at 150 John Hancock Road, Myles Standish Industrial Park, Taunton, Massachusetts (hereinafter, the Borrower") and BROWN BROTHERS HARRIMAN & CO. (hereinafter, the "Lender"), in consideration of the mutual covenants contained herein and the benefits to be derived herefrom. Unless otherwise specified herein, all capitalized terms shall have the same meaning as set forth in the Loan Agreement (as defined hereinbelow). W I T N E S S E T H: -------------------- WHEREAS, the Borrower executed and delivered to the Lender a certain Loan and Security Agreement dated June 26, 2000 (hereinbefore and hereinafter, the "Loan Agreement") pursuant to which, among other things, the Lender extended in favor of the Borrower a Revolving Credit in the original maximum principal amount of $5,000,000.00; and WHEREAS, the Borrower has requested that the Lender (i) amend the Loan Agreement to increase the Availability from $5,000,000.00 to $6,000,000.00, and (ii)otherwise amend the Loan Agreement as provided for herein; and WHEREAS, the Lender has indicated its willingness to do so, BUT ONLY on the terms and conditions contained in this Amendment; and WHEREAS, the Borrower has determined that this Amendment is in the Borrower's best interest. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. The Borrower hereby certifies to the Lender that, to the best of the Borrower's knowledge and belief after due inquiry, the representations and warranties contained in the Loan Agreement, as modified by this Amendment, are true as of the date hereof and that no Event of Default under the Loan Agreement or any document executed in connection therewith has occurred and is continuing. 2. The Borrower acknowledges and agrees that the Borrower has no offsets, defenses, claims or counterclaims against the Lender with respect to the Loan Agreement, this Amendment or any other document, instrument or agreement executed and delivered by Borrower to the Lender in connection therewith and, to the extent that the Borrower has any such offsets, defenses, claims or counterclaims, the Borrower hereby affirmatively WAIVES any such offsets, defenses, claims or counterclaims and specifically RELEASES the Lender from any such liability on account thereof. 3. Section 2-1(b)(i)(A) of the Loan Agreement is hereby amended by deleting same in its entirety and substituting the following therefor: "(A) Six Million Dollars($6,000,000.00). Minus" 4. This Amendment shall become effective as of the date hereof upon the satisfaction of the following conditions: (a) Loan Documents. The Lender shall have received this Amendment and an Amendment to Revolving Credit Note each executed and delivered to the Lender by a duly authorized officer of the Borrower. (b) Corporate Proceedings of Borrower. The Lender shall have received resolutions of the Borrower authorizing the execution, delivery and performance of this Amendment and all transactions contemplated hereby. (c) Additional Assurances. The Borrower shall have delivered to the Lender such additional documents, instruments or agreements as the Lender may reasonably require in order to give effect to the terms of this Amendment. (d) Fees. The Borrower shall have paid to the Lender all fees and expenses due by the Borrower to the Lender including without limitation, all fees and expenses of the Lender's attorneys. 5. This Amendment and all other documents, instruments or agreements executed in connection herewith incorporate all discussions and negotiations between the Borrower and the Lender, either expressed or implied, concerning the matters included herein, any statute, custom, or usage to the contrary notwithstanding. No such discussions or negotiations shall limit, modify or otherwise affect the provisions hereof. No modification, amendment, or waiver of any provision of this Amendment or the Loan Agreement or any provision under any other agreement, document or instrument between the Borrower and the Lender shall be effective unless executed in writing by the party to be charged with such modification, amendment or waiver, and if such party be the Lender, then by a duly authorized officer thereof. 6. Except as specifically modified herein, the Loan Agreement shall remain in full force and effect as originally written and the Borrower hereby ratifies and confirms all terms and conditions contained therein and further ratifies and reaffirms all representations and warranties made therein as of the date hereof. 7. This Amendment shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts and shall take effect as a sealed instrument. 8. This Amendment may be executed in one or more counterparts, each of which shall be deemed to be an original and all of which, when taken together, shall be deemed to be one and the same instrument. IN WITNESS WHEREOF, the parties have hereunto set their hands and seals as of the date first written above. WESTERBEKE CORPORATION By: /s/ Carleton F. Bryant III -------------------------- Carleton F. Bryant, III Executive Vice President, Treasurer and Secretary ACKNOWLEDGED AND AGREED: BROWN BROTHERS HARRIMAN & CO. By: /s/ Timothy T. Telman ------------------------- Timothy T. Telman Vice President EX-10 3 wes-10s.txt EXHIBIT 10(S) Exhibit 10(s) AMENDMENT TO REVOLVING CREDIT NOTE ---------------------------------- DATED JUNE 26, 2000 MADE BY WESTERBEKE CORPORATION -------------------------------------------------- PAYABLE TO ---------- BROWN BROTHERS HARRIMAN & CO. ----------------------------- This Amendment to Revolving Credit Note (hereinafter, this "Amendment") is made as of this __ day of September, 2000 by and between WESTERBEKE CORPORATION, a Delaware corporation with its principal place of business at 150 John Hancock Road, Myles Standish Industrial Park, Taunton, Massachusetts (hereinafter, the Borrower") and BROWN BROTHERS HARRIMAN & CO. (hereinafter, the "Lender"), in consideration of the mutual covenants contained herein and the benefits to be derived herefrom. Unless otherwise specified herein, all capitalized terms shall have the same meaning as set forth in the Loan Agreement (as defined hereinbelow). W I T N E S S E T H: -------------------- WHEREAS, the Borrower executed and delivered to the Lender a certain Revolving Credit Note dated June 26, 2000 in the original principal amount of $5,000,000.00 made by the Borrower payable to the Lender (hereinafter, the "Note") in connection with a certain Loan and Security Agreement also dated June 26, 2000 (hereinbefore and hereinafter, as amended of even date, the "Loan Agreement") pursuant to which, among other things, the Lender extended in favor of the Borrower a revolving line of credit in the original maximum principal amount of $5,000,000.00; and WHEREAS, the Borrower has requested that the Lender (i) amend the Note to increase the maximum principal amount thereof from $5,000,000.00 to $6,000,000.00, and (ii)otherwise amend the Note as provided for herein; and WHEREAS, the Lender has indicated its willingness to do so, BUT ONLY on the terms and conditions contained in this Amendment; and WHEREAS, the Borrower has determined that this Amendment is in the Borrower's best interest. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 9. The face amount of the Note is hereby amended and increased from $5,000,000.00 to $6,000,000.00 and any and all references in the Note to "$5,000,000.00" shall mean and refer to "$6,000,000.00". 10. Borrower hereby certifies to the Lender that, to the best of the Borrower's knowledge and belief after due inquiry, the representations and warranties contained in the Loan Agreement and the Note, as modified by this Amendment, are true as of the date hereof and that no Event of Default under the Note or Loan Agreement or any document executed in connection therewith has occurred and is continuing. 11. The Borrower acknowledges and agrees that the Borrower has no offsets, defenses, claims or counterclaims against the Lender with respect to the Loan Agreement, the Note, this Amendment or any other document, instrument or agreement executed and delivered by Borrower to the Lender in connection therewith and, to the extent that the Borrower has any such offsets, defenses, claims or counterclaims, the Borrower hereby affirmatively WAIVES any such offsets, defenses, claims or counterclaims and specifically RELEASES the Lender from any such liability on account thereof. 12. This Amendment and all other documents, instruments or agreements executed in connection herewith incorporate all discussions and negotiations between the Borrower and the Lender, either expressed or implied, concerning the matters included herein, any statute, custom, or usage to the contrary notwithstanding. No such discussions or negotiations shall limit, modify or otherwise affect the provisions hereof. No modification, amendment, or waiver of any provision of this Amendment, the Note or the Loan Agreement or any provision under any other agreement, document or instrument between the Borrower and the Lender shall be effective unless executed in writing by the party to be charged with such modification, amendment or waiver, and if such party be the Lender, then by a duly authorized officer thereof. 13. Except as specifically modified herein, the Note shall remain in full force and effect as originally written and the Borrower hereby ratifies and confirms all terms and conditions contained therein and further ratifies and reaffirms all representations and warranties made therein as of the date hereof. 14. This Amendment shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts and shall take effect as a sealed instrument. 15. This Amendment may be executed in one or more counterparts, each of which shall be deemed to be an original and all of which, when taken together, shall be deemed to be one and the same instrument. IN WITNESS WHEREOF, the parties have hereunto set their hands and seals as of the date first written above. WESTERBEKE CORPORATION By: /s/ Carleton F. Bryant III -------------------------- Carleton F. Bryant, III Executive Vice President, Treasurer and Secretary ACKNOWLEDGED AND AGREED: BROWN BROTHERS HARRIMAN & CO. By: /s/ Timothy T. Telman --------------------- Timothy T. Telman Vice President EX-21 4 west-x21.txt EXHIBIT 21 Exhibit 21 Subsidiary of Westerbeke Corporation ------------------------------------ Westerbeke International, Inc., a U.S. Virgin Islands corporation, which qualifies as a foreign sales corporation. EX-23 5 west-x23.txt EXHIBIT 23 Exhibit 23 KPMG 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 15, 2000 relating to the consolidated balance sheets of Westerbeke Corporation and subsidiary as of October 21, 2000 and October 23, 1999, and the related consolidated statements of operations, stockholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended October 21, 2000, and related schedule, which report appears in the October 21, 2000 annual report on Form 10-K of Westerbeke Corporation. By /s/ KPMG LLP --------------- Boston, Massachusetts January 19, 2001 -----END PRIVACY-ENHANCED MESSAGE-----