-----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, D9dkUoa0Isc8Nz3/32XRp6Z5DNpVJd0JHbOYgUDr/m7SIlGGO6ubJ3r9jH8e36s3 /UTeCCuMbibnL4ptW0zJsA== 0000910647-02-000186.txt : 20020909 0000910647-02-000186.hdr.sgml : 20020909 20020909104227 ACCESSION NUMBER: 0000910647-02-000186 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20020727 FILED AS OF DATE: 20020909 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WESTERBEKE CORP CENTRAL INDEX KEY: 0000796502 STANDARD INDUSTRIAL CLASSIFICATION: MOTORS & GENERATORS [3621] IRS NUMBER: 041925880 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15046 FILM NUMBER: 02759202 BUSINESS ADDRESS: STREET 1: AVON INDUSTRIAL PARK STREET 2: 41 LEDIN DRIVE CITY: AVON STATE: MA ZIP: 02322 BUSINESS PHONE: 5085887700 MAIL ADDRESS: STREET 1: AVON INDUSTRIAL PARK CITY: AVON STATE: MA ZIP: 02322 10-Q 1 west-q3.txt FORM 10-Q FOR JULY 27, 2002 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: July 27, 2002 ------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ Commission file number 0-15046 ------- Westerbeke Corporation ---------------------- (Exact name of registrant as specified in its charter) Delaware 04-1925880 -------- ---------- (State or other jurisdiction of (I.R.S. employer incorporation or organization) Identification No.) Myles Standish Industrial Park Taunton, Massachusetts 02780 ------------------------------ ----- (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code (508) 823-7677 -------------- No Change --------- (Former name, former address and former fiscal year if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was to file such reports.) and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Outstanding at Class September 3, 2002 ----- ----------------- Common Stock, $.01 par value 1,954,809 1 WESTERBEKE CORPORATION AND SUBSIDIARY INDEX Page Part I - Financial Information Item 1 - Consolidated Financial Statements Consolidated Balance Sheets as of July 27, 2002 and October 27, 2001 4 Consolidated Statements of Operations for the three months ended July 27, 2002 and July 28, 2001 5 Consolidated Statements of Operations for the nine months ended July 27, 2002 and July 28, 2001 6 Consolidated Statements of Comprehensive Income for the three and nine months ended July 27, 2002 and July 28, 2001, respectively 7 Consolidated Statements of Cash Flows for the nine months ended July 27, 2002 and July 28, 2001 8 Notes to Consolidated Financial Statements 9-13 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 14-17 Item 3 - Quantitative and Qualitative Disclosures About Market Risk 18 Item 4 - Controls and Procedures 18 Continued 2 Index Part II - Other Information 19-20 Signatures 21 Certifications 22-26 3 WESTERBEKE CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
July 27, October 27, 2002 2001 -------- ----------- (Unaudited) Audited ASSETS Current assets: Cash and cash equivalents $ 776,300 $ 40,300 Accounts receivable, net of allowance for doubtful accounts of $115,000 at July 27, 2002 and October 27, 2001 2,541,000 2,131,800 Inventories (Note 2) 4,617,400 7,566,800 Prepaid expenses and other assets 547,200 397,500 Prepaid income taxes 8,500 354,700 Deferred income taxes 844,200 844,200 ----------- ----------- Total current assets 9,334,600 11,335,300 ----------- ----------- Property, plant and equipment, net (Note 4) 8,508,900 8,862,400 Split dollar premiums (Note 5) 1,013,200 1,237,000 Other assets, net 175,300 190,200 Investments in marketable securities 108,400 109,200 Note receivable - related party 41,300 56,200 Deferred income taxes 182,600 87,400 ----------- ----------- $19,364,300 $21,877,700 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt (Note 3) $ 334,100 $ 317,900 Revolving demand note payable - 2,500,000 Accounts payable 2,078,300 2,164,300 Accrued expenses and other liabilities 537,800 545,200 ----------- ----------- Total current liabilities 2,950,200 5,527,400 ----------- ----------- Long-term debt, net of current portion (Note 3) 4,522,700 4,770,400 ----------- ----------- Total liabilities 7,472,900 10,297,800 ----------- ----------- Stockholders' equity: Common stock, $.01 par value; authorized 5,000,000 shares; issued 2,244,682 at July 27, 2002 and 2,225,328 at October 27, 2001 22,400 22,300 Additional paid-in-capital 6,126,700 6,105,100 Accumulated other comprehensive loss (502,500) (359,800) Retained earnings 7,052,100 6,619,600 ----------- ----------- 12,698,700 12,387,200 Less - Treasury shares at cost, 289,873 shares at July 27, 2002 and October 27, 2001 807,300 807,300 ----------- ----------- Total stockholders' equity 11,891,400 11,579,900 ----------- ----------- $19,364,300 $21,877,700 =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. 4 WESTERBEKE CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended -------------------------- July 27, July 28, 2002 2001 -------- -------- (Unaudited) Net sales $7,783,900 $6,760,500 Cost of sales 5,953,000 5,128,900 ---------- ---------- Gross profit 1,830,900 1,631,600 Selling, general and administrative expense 936,400 1,015,300 Research and development expense 254,000 358,700 ---------- ---------- Income from operations 640,500 257,600 ---------- ---------- Other income (expense): Interest expense, net (89,100) (137,600) Other income - 18,500 ---------- ---------- Other income (expense), net (89,100) (119,100) ---------- ---------- Income before income taxes 551,400 138,500 Provision for income taxes (Note 6) 180,600 55,400 ---------- ---------- Net income $ 370,800 $ 83,100 ========== ========== Income per common share, basic $ .19 $ .04 ========== ========== Income per common share, diluted $ .19 $ .04 ========== ========== Weighted average common shares, basic 1,954,809 1,946,281 ========== ========== Weighted average common shares, diluted 1,989,227 2,038,141 ========== ==========
The accompanying notes are an integral part of the consolidated financial statements. 5 WESTERBEKE CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended -------------------------- July 27, July 28, 2002 2001 -------- -------- (Unaudited) Net sales $19,887,000 $22,369,700 Cost of sales 15,394,200 17,700,800 ----------- ----------- Gross profit 4,492,800 4,668,900 Selling, general and administrative expense 3,268,300 3,431,000 Research and development expense 841,200 1,118,000 ----------- ----------- Income from operations 383,300 119,900 ----------- ----------- Other income (expense): Interest expense, net (301,900) (492,200) Gain on sale of facility - 552,800 Other income (expense) 50,000 9,700 ----------- ----------- Other income (expense), net (251,900) 70,300 ----------- ----------- Income before income taxes 131,400 190,200 Provision for income taxes (benefit) (Note 6) (301,100) 76,100 ----------- ----------- Net income $ 432,500 $ 114,100 =========== =========== Income per common share, basic $ .22 $ .06 =========== =========== Income per common share, diluted $ .22 $ .06 =========== =========== Weighted average common shares, basic 1,947,151 1,939,793 =========== =========== Weighted average common shares, diluted 1,981,569 2,046,008 =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. 6 WESTERBEKE CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three Months Ended ------------------------------ July 27, 2002 July 28, 2001 ------------- ------------- (Unaudited) Net income $ 370,800 $ 83,100 Unrealized losses on marketable securities, net of income taxes of $75,200 at July 27, 2002 and $25,900 at July 28, 2001 (112,600) (38,800) --------- --------- Comprehensive income $ 258,200 $ 44,300 ========= ========= Nine Months Ended ------------------------------ July 27, 2002 July 28, 2001 ------------- ------------- (Unaudited) Net income $ 432,500 $ 114,100 Unrealized losses on marketable securities, net of income taxes of $95,200 at July 27, 2002 and $180,400 at July 28, 2001 (142,700) (270,600) --------- --------- Comprehensive income (loss) $ 289,800 $(156,500) ========= =========
The accompanying notes are an integral part of the consolidated financial statements. 7 WESTERBEKE CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended ---------------------------- July 27, July 28, 2002 2001 -------- -------- (Unaudited) Cash flows from operating activities: Net income $ 432,500 $ 114,100 Reconciliation of net income to net cash provided by operating activities: Depreciation and amortization 584,300 589,400 Gain on disposal of fixed assets - (554,000) Changes in operating assets and liabilities: Accounts receivable (409,200) (85,800) Inventories 2,949,400 604,300 Prepaid expenses and other assets (149,700) 60,100 Split-dollar premiums - (200,000) Other assets - 345,800 Accounts payable (86,000) (527,100) Accrued expenses and other liabilities (7,400) (18,700) Deferred compensation - (345,800) Prepaid income taxes 346,200 86,400 ----------- ----------- Net cash provided by operating activities 3,660,100 68,700 ----------- ----------- Cash flows used in investing activities: Purchase of property, plant and equipment (215,900) (1,319,900) Proceeds from sale of fixed assets - 1,241,200 Purchase of marketable securities (13,300) (4,800) Proceeds from payment of note receivable - related party 14,900 13,800 ----------- ----------- Net cash used in investing activities (214,300) (69,700) ----------- ----------- Cash flows from financing activities: Exercise of stock options 21,700 46,300 Net repayments under revolving demand note (2,500,000) (648,000) Proceeds from Massachusetts Development Finance Agency - 500,000 Purchase of treasury stock - (24,600) Principal payments on long-term debt and capital leases (231,500) (250,900) ----------- ----------- Net cash used in financing activities (2,709,800) (377,200) ----------- ----------- Increase (decrease) in cash and cash equivalents 736,000 (378,200) Cash and cash equivalents, beginning of period 40,300 421,100 ----------- ----------- Cash and cash equivalents, end of period $ 776,300 $ 42,900 =========== =========== Supplemental cash flow disclosures: Interest paid $ 115,000 $ 483,400 Income taxes paid $ - $ 10,000 Supplemental disclosures of non-cash items: Decrease in unrealized gains on marketable securities, net of income taxes $ 8,400 $ 600 Unrealized loss in split-dollar life insurance investments, net of income taxes $ 134,300 $ 270,000
8 WESTERBEKE CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Summary of Significant Accounting Policies: A. Financial Statements The condensed consolidated financial statements included herein have been prepared by Westerbeke Corporation (the "Company"), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. While certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, the Company believes that the disclosures made herein are adequate to make the information presented not misleading. It is recommended that these condensed financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended October 27, 2001. In the opinion of management of the Company, all adjustments, consisting only of normal recurring adjustments necessary to present fairly the financial position of Westerbeke Corporation and Subsidiary as of July 27, 2002, and the results of their operations and their cash flows, for the three and nine-month periods then ended, have been included. The results disclosed in the condensed consolidated financial statements are not necessarily indicative of the results expected for the full fiscal year. B. Basis of Presentation The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Westerbeke International, Inc. (a Foreign Sales Corporation). All inter-company transactions and accounts are eliminated in consolidation. Continued 9 WESTERBEKE CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (Unaudited) C. Earnings per Share Basic income per common share is computed by dividing income available to common stockholders by the weighted average number of shares outstanding for the period. Diluted income per share reflects the maximum dilution that would have resulted from the exercise of stock options. Diluted income per share is computed by dividing net income by the weighted average number of common shares and all dilutive securities, except when the effect would be antidilutive.
For the three months ended: ------------------------------------------------------------------------ July 27, 2002 July 28, 2001 --------------------------------- --------------------------------- Income Net Income Net per share Shares Income per share Shares Income --------- ------ ------ --------- ------ ------ Basic $.19 1,954,809 $370,800 $.04 1,946,281 $83,100 Effect of Stock options - 34,418 - - 91,860 - ---- --------- -------- ---- --------- ------- Diluted $.19 1,989,227 $370,800 $.04 2,038,141 $83,100 For the nine months ended: ------------------------------------------------------------------------ July 27, 2002 July 28, 2001 --------------------------------- --------------------------------- Income Net Income Net per share Shares Income per share Shares Income --------- ------ ------ --------- ------ ------ Basic $.22 1,947,151 $432,500 $.06 1,939,793 $114,100 Effect of Stock options - 34,418 - - 106,215 - ---- --------- -------- ---- --------- -------- Diluted $.22 1,981,569 $432,500 $.06 2,046,008 $114,100
At July 27, 2002, there were 183,300 exercisable options outstanding, which were convertible into 183,300 common shares. There were 33,300 options excluded from the earnings per share calculation in both the three and nine-month periods ended July 27, 2002, since their inclusion would have been antidilutive. Continued 10 WESTERBEKE CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (Unaudited) D. Split-Dollar Life Insurance Agreement The Company has a split dollar life insurance agreement with John H. Westerbeke, Jr., Chairman, President and Chief Executive Officer of the Company. This agreement allows the premiums paid to be invested in a select group of mutual funds thus subjecting the total cash value of premiums paid to market risk. The cash proceeds the Company would receive depends upon the method of termination. If termination is initiated by death, the Company would receive the cumulative value of the premiums paid. If the policy is terminated for other reasons, the Company would receive the lesser of the fair value of the mutual funds in which the premiums are invested or the cumulative value of the premiums paid. The Company accounts for this arrangement in accordance with SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities. The investments are classified as available for sale and unrealized gains and losses are reflected as a component of other comprehensive income net of tax. 2. Inventories The Company uses the last-in, first-out (LIFO) method to value inventory. Inventories are comprised of the following:
July 27, October 27, 2002 2001 -------- ----------- Raw materials $3,457,000 $5,734,300 Work-in-process 695,800 855,800 Finished goods 464,600 976,700 ---------- ---------- $4,617,400 $7,566,800 ========== ==========
The Company has estimated the fiscal year-end 2002 inventory levels and the inflation/deflation that will occur during the fiscal year in determining their effect on the LIFO reserve at July 27, 2002. As a result, the Company anticipates a decrease in its LIFO valuation account as of October 26, 2002. Accordingly, the Company has recorded a decrease of $192,800, on a pro rata basis, in the LIFO reserve during the first nine months of fiscal 2002. During the first nine months of 2001, the Company recorded, on a pro rata basis, an increase of $67,500 in the LIFO reserve. Inventories would have been $725,800 higher at July 27, 2002 and $918,600 higher as of October 27, 2001, if the first-in, first-out (FIFO) method had been used. Inventory cost determination on the FIFO method approximates replacement or current cost. Continued 11 WESTERBEKE CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (Unaudited) 3. Long-Term Debt
July 27, 2002 October 27, 2001 ------------- ---------------- Term Loan with an interest rate of 6.46%, with repayment terms through April 2015. $4,159,400 $4,313,400 Term Loan with an interest rate of 6.46%, with repayment terms through April 2007. 290,500 328,800 Term Loan with an interest rate of 8.50%, with repayment terms through December 2007. 406,900 446,100 ---------- ---------- 4,856,800 5,088,300 Less current portion 334,100 317,900 ---------- ---------- Long term debt, net of current portion $4,522,700 $4,770,400 ========== ==========
4. Property, Plant and Equipment
July 27, 2002 October 27, 2001 ------------- ---------------- Land $ 921,500 $ 921,500 Building and building improvements 5,658,300 5,630,200 Furniture and fixtures 711,300 706,800 Machinery, patterns and equipment 5,037,200 4,853,800 Transportation equipment 80,400 80,400 Leasehold improvements 20,400 20,400 Equipment under capital lease 769,200 769,200 ----------- ----------- 13,198,300 12,982,300 Less accumulated depreciation 4,689,400 4,119,900 ----------- ----------- $ 8,508,900 $ 8,862,400 =========== ===========
Continued 12 WESTERBEKE CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (Unaudited) 5. Split-Dollar Premiums The Company has a split dollar life insurance agreement with John H. Westerbeke, Jr., Chairman, President and Chief Executive Officer of the Company. The value reflected on the balance sheet is the lesser of the fair value of the mutual funds in which the premiums are invested or the cumulative value of the premiums paid. The Company accounts for this arrangement in accordance with SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities. The investments are classified as available for sale and unrealized gains and losses are reflected as a component of other comprehensive income net of tax. At July 27, 2002 the Company had an unrealized accumulated loss of $513,800, net of taxes of $342,600, included in accumulated other comprehensive income. 6. Taxes on Income Taxes on income for the nine-months ended July 27, 2002 includes a $353,700 credit received for research and development expenditures. The credits relate to the years ended October 1996 through October 1998. The Company initially applied for these credits in the period ended October 2000. Such amounts were not recorded into income due to an audit being performed by the Internal Revenue Service (IRS). The Company took the position that income should not have been recognized until the IRS approved such refund credits. The IRS concluded its examination on March 14, 2002 without adjustments and, accordingly, the Company recorded $353,700 as income in the three months ended April 27, 2002. 7. Major Customer The Company had sales to one major customer, which represented 19% and 25% of total sales for the three-months ended July 27, 2002 and July 28, 2001, respectively. Sales to this customer for the nine months ended July 27, 2002 and July 28, 2001 were 21% and 27% of total sales. On April 19, 2002, the Company announced that its exclusive agreement with this customer would not be extended. The agreement expired on June 30, 2002. 8. Subsequent Event As previously announced, on August 29, 2002 the Federal Court of Appeals for the Second Circuit reversed the decision of the Federal District Court for the Southern District of New York, which had previously vacated the $4.2 million damages award granted to the Company in its arbitration against Daihatsu Motor Company, Ltd. ("Daihatsu"). The Court of Appeals has remanded the case to the District Court with instructions for the District Court to confirm the arbitration award in favor of the Company. Nevertheless, the Company is unable to predict when, if ever, it will receive payment of the award, and there can be no assurance that Daihatsu will not continue to defend enforcement of the award. Therefore, the Company will not record any recovery until received. 13 Item 2 - Management's Discussion and Analysis Of Financial Condition and Results Of Operations Forward Looking Information This Quarterly Report on Form 10-Q contains forward-looking information about the Company. In addition to the historical information contained herein, the discussions contained in this document include statements that constitute forward-looking statements under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, including with respect to the Company's expected cash flow from operations and borrowings under the Credit Agreement, its listing on Nasdaq and its success in recovering awarded damages in pending litigation. The Company is hereby setting forth statements identifying important factors that may cause the Company's actual results to differ materially from those set forth in any forward-looking statements made by the Company. Some of the most significant factors include: an unanticipated down-turn in the recreational boating industry resulting in lower demand for the Company's products; the unanticipated loss of, or decline in sales to, a major customer; the inability to replace revenues and/or profits associated with the loss of the exclusive agreement with its largest customer; the unanticipated loss of a major supplier; the unanticipated required repayment in full of outstanding amounts under the Company's demand credit facility; changes in laws and regulations applicable to the Company; the impact of pending or threatened litigation; the inability of the Company to effect required modifications of its products to meet governmental regulations with respect to emission standards; general economic and business conditions; financial market volatility; and foreign currency fluctuations resulting in cost increases to the Company for its foreign supplied components. Accordingly, there can be no assurances that any anticipated future results will be achieved and the forward-looking statements contained herein should not be relied upon as predictions of future results. Furthermore, the Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Results of Operations - Net sales increased by $1,023,400, or 15%, during the third quarter of fiscal 2002 and decreased $2,482,700 or 11% for the first nine months of fiscal 2002 as compared to the same periods in fiscal 2001. The increase in the third quarter of fiscal 2002 was primarily the result of an increase in demand for the Company's products. The increase in the three months ended July 27, 2002 does not offset the decrease the Company realized in the first six months which was attributable to general business conditions in the domestic recreational marine market, in particular, a decrease in unit volume resulting from decreased demand for new boats. Gross profit increased $199,300 or 12% during the third quarter and decreased $176,100 or 4% for the first nine months of fiscal 2002 as compared to the same periods in fiscal 2001. As a percentage of net sales, gross profit was 24% during the third quarters of both fiscal years 2002 and 2001. For the nine months ended July 27, 2002, gross profit was 23% compared to 21% for the same period ended July 28, 2001. The increase in gross profit margin was primarily attributable to the product mix, decreases in overhead costs and also the decrease in labor costs during the first quarter of fiscal 2002. Operating expenses, which consist of selling, general and administrative expenses as well as research and development expenses, decreased $183,600 for the third quarter and decreased $439,500 in the first nine months of fiscal 2002, as compared to the same periods in fiscal 2001. The reduction of operating expenses was primarily attributable to a decrease in the following areas: labor costs as a result of a reduction in personnel, supplies consumed in research and development activities, the utilization of outside consultants in engineering and commissions earned on the decreased sales volume. 14 WESTERBEKE CORPORATION AND SUBSIDIARY Net interest expense decreased $48,500 during the third quarter and decreased $190,300 for the first nine months of fiscal 2002 as compared to the same periods in fiscal 2001. The reduction in interest expense is related to lower levels of outstanding debt and reduced borrowing costs. During the second quarter ended April 27, 2002, the Company received $353,700 of research and development credits from the U.S. Department of the Treasury. For the third quarter ended July 27, 2002, the Company reported net income of $370,800, compared to net income of $83,100 for the same period in fiscal 2001. For the nine months ended July 27, 2002, the Company reported net income of $432,500 as compared to net income of 114,100 for the nine- months ended July 28, 2001. The increase in net income for the three and nine month periods was from the combination of decreased interest expense, operating expenses and the reduction of income taxes offset partially by the gross profit lost from the decreased sales volume. On April 19, 2002 the Company announced that its exclusive agreement with its largest customer would not be extended. The agreement expired on June 30, 2002. The Company had anticipated the loss of this agreement and has undertaken certain cost reduction programs. Liquidity and Capital Resources During the first nine months of fiscal 2002, net cash provided by operating activities was $3,660,100, compared to net cash provided by operations of $68,700 for the first nine months in fiscal 2001. The increase in cash provided by operating activities was primarily the result of reduced inventory levels and the timing of payments related to the split-dollar insurance arrangement partially offset by the increase in accounts receivable. The increase in cash was also due to the receipt of research and development credits and income tax refunds. During the nine months ended July 27, 2002, the Company purchased machinery and equipment of $215,900. The Company plans additional capital spending of $100,000 during the remainder of the fiscal year. On April 25, 2000, the Company purchased a 110,000 square foot facility located in Taunton, Massachusetts. This facility has enabled the Company to consolidate its operations into one location. The MassDevelopment Financing Agency approved the Company for a $5,000,000 tax-exempt industrial revenue bond, which has been financed by GE Capital Public Finance. The real estate portion of the industrial revenue bond is a 15-year mortgage loan, with $4,159,400 outstanding at July 27, 2002. The loan agreement requires monthly payments of $40,000. The equipment portion of the industrial revenue bond is a 7-year term loan, with $290,500 outstanding at July 27, 2002. The term loan requires monthly payments of $5,900. The Company also has an additional 7-year equipment loan, with $406,900 outstanding at July 27, 2002. This loan agreement requires a monthly payment of $7,900. On June 26, 2000, the Company entered into a $5,000,000 Credit Agreement with Brown Brothers Harriman & Co. collateralized by inventory, accounts receivable and general intangibles. The Credit Agreement was increased on September 25, 2000 to a maximum availability of $6,000,000. The actual amount available for borrowing is based on a calculation of eligible accounts receivable and eligible inventory. Based on this calculation at July 27, 2002, the Company had approximately $3,720,600 available for borrowing. At July 27, 2002, the Company had no outstanding borrowings under the Credit Agreement and approximately $123,200 committed to cover the Company's reimbursement obligations under certain letters of credit and bankers' acceptances. The Credit Agreement does not have an expiration date, but is payable on written demand. 15 WESTERBEKE CORPORATION AND SUBSIDIARY Management believes cash flow from operations and borrowings available under the Credit Agreement will provide for working capital needs, principal payments on long-term debt, and capital and operating leases through fiscal 2002. Domestic inflation is not expected to have a material impact on the Company's operations. The cost of engine blocks and other components is subject to foreign currency fluctuations (primarily the Japanese yen). The value of the U.S. dollar relative to the yen had no material effect on the cost of the Company's products during the first nine months of fiscal 2002. New Accounting Pronouncements In July 2001, the FASB issued SFAS No. 141, "Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 provides new guidance on the accounting for a business combination at the date a business combination is completed. Specifically, it requires use of the purchase method of accounting for all business combinations initiated after June 30, 2001, thereby eliminating use of the pooling-of-interests method. The provisions of SFAS No. 141 are effective immediately, except with regard to business combinations initiated prior to June 30, 2001. SFAS No. 142 will be effective as of January 1, 2002. Goodwill and other intangible assets determined to have an indefinite useful life that are acquired in a business combination completed after July 1, 2001, will not be amortized, but will continue to be evaluated for impairment in accordance with appropriate pre-SFAS 142 accounting literature. Goodwill and other intangible assets acquired in business combinations completed before July 1, 2001 will continue to be amortized prior to the adoption of SFAS No. 142. SFAS No. 142 establishes new guidance on how to account for goodwill and intangible assets after a business combination is completed. Among other things, it requires that goodwill and certain other intangible assets will no longer be amortized and will be tested for impairment at least annually and written down only when impaired. This statement will apply to existing goodwill and intangible assets beginning with fiscal years starting after December 15, 2001. The Company does not believe there will be a material effect from the adoption of these new standards. On August 16, 2001, FASB issued Statement No. 143, "Accounting for Asset Retirement Obligations." The standard requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the entity capitalizes a cost by increasing the carrying amount of the related long- lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. The standard will apply to the Company effective October 27, 2002. The Company does not believe there will be a material effect from the adoption of this new standard. On October 3, 2001, FASB issued Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," that replaced FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long- Lived Assets To Be Disposed Of." The primary objectives of this project were to develop one accounting model based on the framework established in Statement No. 121 for long-lived assets to be disposed of by sale and to address significant implementation issues. The accounting model for long- lived assets to be disposed of by sale applies to all long-lived assets, including discontinued operations, and replaces the provisions of APB Opinion No. 30, Reporting Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, for the disposal of segments of a business. Statement No. 144 requires that those long-lived assets be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or in 16 WESTERBEKE CORPORATION AND SUBSIDIARY discontinued operations. Therefore, discontinued operations will no longer be measured at net realizable value or include amounts for operating losses that have not yet occurred. The provisions of Statement No. 144 will apply to the Company effective October 27, 2002. The Company does not believe there will be a material effect from the adoption of this new standard. In June 2002, FASB issued Statement No. 146, "Accounting for Costs associated with Exit or Disposal Activities". The standard addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." Statement No. 146 states that a liability for a cost associated with an exit or disposal activity shall be recognized and measured initially at its fair value in the period in which the liability is incurred, except for a liability for one-time termination benefits that are incurred over a period of time. The standard will apply to the Company effective December 31, 2002. The Company does not believe there will be a material effect from the adoption of this new standard. 17 Item 3 - Quantitative and Qualitative Disclosures About Market Risk There are no material changes to the disclosure made in the Annual Report on Form 10-K for the year ended October 27, 2001 regarding this matter. Item 4 - Controls and Procedures (a) Evaluation of disclosure controls and procedures. Based on their evaluation, as of a date within 90 days prior to the date of the filing of this Form 10-Q, of the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the principal executive officer and the principal financial officer of the Company have each concluded that such disclosure controls and procedures are effective and sufficient to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission's rules and forms. (b) Changes in internal controls. Subsequent to the date of their evaluation, there have not been any significant changes in the Company's internal controls or in other factors that could significantly affect these controls, including any corrective action with regard to significant deficiencies and material weaknesses. 18 Part II. Other Information Item 1 Legal Proceedings As previously announced, on August 29, 2002 the Federal Court of Appeals for the Second Circuit reversed the decision of the Federal District Court for the Southern District of New York, which had previously vacated the $4.2 million damages award granted to the Company in its arbitration against Daihatsu Motor Company, Ltd. ("Daihatsu"). The Court of Appeals has remanded the case to the District Court with instructions for the District Court to confirm the arbitration award in favor of the Company. Nevertheless, the Company is unable to predict when, if ever, it will receive payment of the award, and there can be no assurance that Daihatsu will not continue to defend enforcement of the award. Therefore, the Company will not record any recovery until received. Item 2 Changes in Securities None to report Item 3 Default Upon Senior Securities None to report Item 4 Submissions of Matters to a Vote of Security Holders None to report Item 5 Other Information (a) Possible Nasdaq Delisting On August 29, 2002, the Company received a notice from the Nasdaq Stock Market regarding the listing of its common stock. The notice asserted that the Company's common stock has not maintained, for the last 30 consecutive trading days, a minimum market value of publicly held shares of $1,000,000, as required by NASD Marketplace Rule 4310(c)(7). The Company was provided a 90 calendar day "grace period" to regain compliance with the minimum market value requirement, which period expires on November 27, 2002. In order to comply with the applicable Rule, the market value of the Company's publicly held shares must be at least $1,000,000 for a minimum of 10 consecutive trading days during the grace period. If compliance with the applicable Rule cannot be demonstrated by the end of the grace period, the notice indicated that the Company would receive a delisting notice from Nasdaq. There can be no assurance that the Company will be able to comply with the applicable Rule in a timely fashion, or that the Company will not be delisted by Nasdaq. (b) Split-Dollar Life Insurance Agreement The Company has a split-dollar life insurance agreement with John H. Westerbeke, Jr., Chairman, President and Chief Executive Officer of the Company. Pursuant to the requirements of the Sarbanes-Oxley Act of 2002, the Company has stopped paying premiums in connection with such agreement. 19 Item 6 Exhibits and Reports on Form 8-K (a) Exhibits See Exhibit Index (b) Reports on Form 8-K None to report 20 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. WESTERBEKE CORPORATION (Registrant) Dated September 9, 2002 /s/ John H. Westerbeke, Jr. ----------------- ------------------------------ John H. Westerbeke, Jr. Chairman of the Board, President and Principal Executive Officer Dated September 9, 2002 /s/ Gregory Haidemenos ----------------- ------------------------------ Gregory Haidemenos Principal Financial and Accounting Officer 21 CERTIFICATIONS I, John H. Westerbeke, Jr., Chairman of the Board, President and Chief Executive Officer, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Westerbeke Corporation. 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: September 9, 2002 /s/ John H. Westerbeke, Jr. ------------------------------ John H. Westerbeke, Jr. Principal Executive Officer 22 I, Gregory Haidemenos, Chief Financial Officer and Treasurer, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Westerbeke Corporation. 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: September 9, 2002 /s/ Gregory Haidemenos ------------------------------ Gregory Haidemenos Principal Financial Officer 23 EXHIBIT INDEX Exhibit Description - ------- ----------- 99.1 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 99.2 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 25 EX-99 3 west-991.txt EXHIBIT 99.1 Exhibit 99.1 CERTIFICATION PURSUANT TO 18 U.S.C SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Westerbeke Corporation (the "Company") on Form 10-Q for the period ended July 27, 2002, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, John H. Westerbeke, Jr., Chairman of the Board, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: 1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. By: /s/ John H. Westerbeke, Jr. ------------------------------ John H. Westerbeke, Jr. Chairman of the Board, President and Chief Executive Officer September 9, 2002 25 EX-99 4 west-992.txt EXHIBIT 99.2 Exhibit 99.2 CERTIFICATION PURSUANT TO 18 U.S.C SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Westerbeke Corporation (the "Company") on Form 10-Q for the period ended July 27, 2002, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Gregory Haidemenos, Chief Financial Officer and Treasurer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: 1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. By: /s/ Gregory Haidemenos ------------------------------ Gregory Haidemenos Chief Financial Officer and Treasurer September 9, 2002 26 -----END PRIVACY-ENHANCED MESSAGE-----