10-Q 1 west-q2.txt FORM 10-Q FOR APRIL 26, 2003 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: April 26, 2003 -------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission file number 0-15046 ------- Westerbeke Corporation --------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 04-1925880 --------------------------------------- ------------------------------ (State or other jurisdiction of (I.R.S. employer incorporation or organization) Identification No.) Myles Standish Industrial Park Taunton, Massachusetts 02780 --------------------------------------- ------------------------------ (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code (508) 823-7677 -------------- No Change --------------------------------------------------------------------------- (Former name, former address and former fiscal year if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was to file such reports.) and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Outstanding at Class May 19, 2003 ----- -------------- Common Stock, $.01 par value 1,954,809 1 WESTERBEKE CORPORATION AND SUBSIDIARY INDEX Page Part I - Financial Information Item 1 - Consolidated Financial Statements Consolidated Balance Sheets as of April 26, 2003 and October 26, 2002 3 Consolidated Statements of Operations for the three months ended April 26, 2003 and April 27, 2002 4 Consolidated Statements of Operations for the six months ended April 26, 2003 and April 27, 2002 5 Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended April 26, 2003 and April 27, 2002, respectively 6 Consolidated Statements of Cash Flows for the six months ended April 26, 2003 and April 27, 2002 7 Notes to Consolidated Financial Statements 8-13 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 14-16 Item 3 - Quantitative and Qualitative Disclosures About Market Risk 17 Item 4 - Controls and Procedures 17 Part II - Other Information 18-19 Signatures 20 Certifications 21-25 2 WESTERBEKE CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
April 26, October 26, 2003 2002 --------- ----------- (Unaudited) Audited ASSETS Current assets: Cash and cash equivalents $ 994,100 $ 4,471,100 Accounts receivable, net of allowance for doubtful accounts and price allowances of $688,600 at April 26, 2003 and $480,000 at October 26, 2002 2,639,300 2,114,500 Inventories (Note 2) 6,223,400 5,048,300 Prepaid expenses and other assets 410,900 456,800 Prepaid income taxes - 267,800 Deferred income taxes 1,390,200 951,700 ----------- ----------- Total current assets 11,657,900 13,310,200 ----------- ----------- Property, plant and equipment, net (Note 4) 8,064,200 8,348,600 Split dollar premiums (Note 5) 1,002,900 1,068,300 Other assets, net 160,400 170,300 Investments in marketable securities 108,000 109,900 Note receivable - related party 25,600 36,200 Deferred income taxes 75,200 46,400 ----------- ----------- $21,094,200 $23,089,900 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt (Note 3) $ 351,600 $ 340,300 Accounts payable 1,714,800 1,385,600 Accrued expenses and other liabilities 913,300 1,237,400 Accrued income taxes - 1,317,700 ----------- ----------- Total current liabilities 2,979,700 4,281,000 ----------- ----------- Long-term debt, net of current portion (Note 3) 4,256,800 4,430,100 ----------- ----------- Total liabilities 7,236,500 8,711,100 ----------- ----------- Stockholders' equity: Preferred stock, $1.00 par value; authorized 1,000,000 shares; none issued or outstanding Common stock, $.01 par value; authorized 5,000,000 shares; issued 2,244,682 at April 26, 2003 and October 26, 2002 22,400 22,400 Additional paid-in-capital 6,126,700 6,126,700 Accumulated other comprehensive loss (511,700) (468,600) Retained earnings 9,027,600 9,505,600 ----------- ----------- 14,665,000 15,186,100 Less - Treasury shares at cost, 289,873 shares at April 26, 2003 and October 26, 2002 807,300 807,300 ----------- ----------- Total stockholders' equity 13,857,700 14,378,800 ----------- ----------- $21,094,200 $23,089,900 =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. 3 WESTERBEKE CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended -------------------------- April 26, April 27, 2003 2002 --------- --------- (Unaudited) Net sales $5,248,800 $7,428,600 Cost of sales 4,130,000 5,721,700 ---------- ---------- Gross profit 1,118,800 1,706,900 Selling, general and administrative expense 1,246,000 1,237,000 Research and development expense 317,600 282,900 ---------- ---------- Income (loss) from operations (444,800) 187,000 ---------- ---------- Other income (expense): Interest expense, net (66,100) (109,200) Other income 10,000 50,000 ---------- ---------- Other expense, net (56,100) (59,200) ---------- ---------- Income (loss) before income taxes (500,900) 127,800 Provision for income taxes (benefit) (Note 6) (200,400) (262,600) ---------- ---------- Net income (loss) $ (300,500) $ 390,400 ========== ========== Income (loss) per common share, basic $ (.15) $ .20 ========== ========== Income (loss) per common share, diluted $ (.15) $ .19 ========== ========== Weighted average common shares, basic 1,954,809 1,951,168 ========== ========== Weighted average common shares, diluted 1,954,809 2,005,318 ========== ==========
The accompanying notes are an integral part of the consolidated financial statements. 4 WESTERBEKE CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months Ended ---------------------------- April 26, April 27, 2003 2002 --------- --------- (Unaudited) Net sales $ 9,744,600 $12,103,100 Cost of sales 7,678,900 9,441,200 ----------- ----------- Gross profit 2,065,700 2,661,900 Selling, general and administrative expense 2,304,900 2,331,900 Research and development expense 628,400 587,200 ----------- ----------- Loss from operations (867,600) (257,200) ----------- ----------- Other income (expense): Interest expense, net (126,600) (212,800) Other income 10,000 50,000 ----------- ----------- Other expense, net (116,600) (162,800) ----------- ----------- Loss before income taxes (984,200) (420,000) Provision for income taxes (benefit) (Note 6) (506,200) (481,700) ----------- ----------- Net income (loss) $ (478,000) $ 61,700 =========== =========== Income (loss) per common share, basic $ (.24) $ .03 =========== =========== Income (loss) per common share, diluted $ (.24) $ .03 =========== =========== Weighted average common shares, basic 1,954,809 1,943,322 =========== =========== Weighted average common shares, diluted 1,954,809 1,997,472 =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. 5 WESTERBEKE CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Three Months Ended -------------------------------- April 26, 2003 April 27, 2002 -------------- -------------- (Unaudited) Net income (loss) $(300,500) $ 390,400 Unrealized losses on marketable securities, net of income taxes of $9,100 at April 26, 2003 and $33,900 at April 27, 2002 (13,600) (50,800) --------- --------- Comprehensive income (loss) $(314,100) $ 339,600 ========= ========= Six Months Ended -------------------------------- April 26, 2003 April 27, 2002 -------------- -------------- (Unaudited) Net income (loss) $(478,000) $ 61,700 Unrealized losses on marketable securities, net of income taxes of $28,800 at April 26, 2003 and $20,100 at April 27, 2002 (43,100) (30,100) --------- --------- Comprehensive income (loss) $(521,100) $ 31,600 ========= =========
The accompanying notes are an integral part of the consolidated financial statements. 6 WESTERBEKE CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended ---------------------------- April 26, April 27, 2003 2002 --------- --------- (Unaudited) Cash flows from operating activities: Net income (loss) $ (478,000) $ 61,700 Reconciliation of net income (loss) to net cash provided (used) by operating activities: Depreciation and amortization 394,800 396,300 Deferred income taxes (438,500) - Gain on disposal of fixed assets (10,000) - Changes in operating assets and liabilities: Accounts receivable (524,800) (623,800) Inventories (1,175,100) 1,345,900 Prepaid expenses and other assets 45,900 (20,100) Accounts payable 329,200 11,400 Accrued expenses and other liabilities (324,100) 32,300 Prepaid income taxes 267,800 - Accrued income taxes payable (1,317,700) 165,600 ----------- ----------- Net cash provided (used) by operating activities (3,230,500) 1,369,300 ----------- ----------- Cash flows used in investing activities: Purchase of property, plant and equipment (100,400) (147,100) Proceeds from sale of fixed assets 10,000 - Purchase of marketable securities (4,700) (13,300) Proceeds from payment of note receivable - related party 10,600 9,900 ----------- ----------- Net cash used in investing activities (84,500) (150,500) ----------- ----------- Cash flows from financing activities: Exercise of stock options - 21,700 Net repayments under revolving demand note - (500,000) Principal payments on long-term debt and capital leases (162,000) (156,400) ----------- ----------- Net cash used in financing activities (162,000) (634,700) ----------- ----------- Increase (decrease) in cash and cash equivalents (3,477,000) 584,100 Cash and cash equivalents, beginning of period 4,471,100 40,300 ----------- ----------- Cash and cash equivalents, end of period $ 994,100 $ 624,400 =========== =========== Supplemental cash flow disclosures: Interest paid $ 153,000 $ 238,500 Income taxes paid 1,362,500 - Supplemental disclosures of non-cash items: Decrease in unrealized gains on marketable securities, net of income taxes (3,900) (8,800) Unrealized loss in split-dollar life insurance investments, net of income taxes 39,200 21,300
The accompanying notes are an integral part of the consolidated financial statements. 7 WESTERBEKE CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Summary of Significant Accounting Policies: ------------------------------------------- A. Financial Statements -------------------- The condensed consolidated financial statements included herein have been prepared by Westerbeke Corporation (the "Company"), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. While certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, the Company believes that the disclosures made herein are adequate to make the information presented not misleading. It is recommended that these condensed financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended October 26, 2002. In the opinion of management of the Company, all adjustments, consisting only of normal recurring adjustments necessary to present fairly the financial position of Westerbeke Corporation and Subsidiary as of April 26, 2003, and the results of their operations and their cash flows, for the three and six-month periods then ended, have been included. The results disclosed in the condensed consolidated financial statements are not necessarily indicative of the results expected for the full fiscal year. B. Basis of Presentation --------------------- The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Westerbeke International, Inc. (a Foreign Sales Corporation). All inter-company transactions and accounts are eliminated in consolidation. Continued 8 WESTERBEKE CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (Unaudited) C. Earnings per Share ------------------ Basic income (loss) per common share is computed by dividing income (loss) available to common stockholders by the weighted average number of shares outstanding for the period. Diluted income (loss) per share reflects the maximum dilution that would have resulted from the exercise of stock options. Diluted income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares and all dilutive securities, except when the effect would be antidilutive.
For the three months ended: -------------------------------------------------------------------- April 26, 2003 April 27, 2002 ------------------------------- --------------------------------- Loss Net Income Net per share Shares Loss per share Shares Income --------- ------ ---- --------- ------ ------ Basic $.15 1,954,809 $300,500 $ .20 1,951,168 $390,400 Effect of Stock options - - - (.01) 54,150 - ---- --------- -------- ----- --------- -------- Diluted $.15 1,954,809 $300,500 $ .19 2,005,318 $390,400 ==== ========= ======== ===== ========= ======== For the six months ended: -------------------------------------------------------------------- April 26, 2003 April 27, 2002 ------------------------------- --------------------------------- Loss Net Income Net per share Shares Loss per share Shares Income --------- ------ ---- --------- ------ ------ Basic $.24 1,954,809 $478,000 $.03 1,943,322 $61,700 Effect of Stock options - - - - 54,150 - ---- --------- -------- ---- --------- ------- Diluted $.24 1,954,809 $478,000 $.03 1,997,472 $61,700 ==== ========= ======== ==== ========= =======
At April 26, 2003, there were 108,300 exercisable options outstanding, which were convertible into 108,300 common shares. These shares were excluded from the earnings per share calculation in both the three and six-month periods ended April 26, 2003, since their inclusion would have been antidilutive. Continued 9 WESTERBEKE CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (Unaudited) D. Split-Dollar Life Insurance Agreement ------------------------------------- The Company has a split dollar life insurance agreement with John H. Westerbeke, Jr., Chairman, President and Chief Executive Officer of the Company. This agreement allows the premiums paid to be invested in a select group of mutual funds thus subjecting the total cash value of premiums paid to market risk. The cash proceeds the Company would receive depends upon the method of termination. If termination is initiated by death, the Company would receive the cumulative value of the premiums paid. If the policy is terminated for other reasons, the Company would receive the lesser of the fair value of the mutual funds in which the premiums are invested or the cumulative value of the premiums paid. The Company accounts for this arrangement in accordance with SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities. The investments are classified as available for sale and unrealized gains and losses are reflected as a component of other comprehensive income net of tax. Pursuant to the requirements of the Sarbanes-Oxley Act of 2002, the Company has stopped paying premiums in connection with such agreement. 2. Inventories ----------- The Company uses the last-in, first-out (LIFO) method to value inventory. Inventories are comprised of the following:
April 26, October 26, 2003 2002 --------- ----------- Raw materials $4,842,500 $3,808,400 Work-in-process 557,600 614,000 Finished goods 823,300 625,900 ---------- ---------- $6,223,400 $5,048,300 ========== ==========
The Company has estimated the fiscal year-end 2003 inventory levels and the inflation/deflation that will occur during the fiscal year in determining their effect on the LIFO reserve at April 26, 2003. As a result, the Company anticipates an increase in its LIFO valuation account as of October 25, 2003. Accordingly, the Company has recorded an increase of $45,000, on a pro rata basis, in the LIFO reserve during the first six months of fiscal 2003. During the first six months of 2002, the Company recorded, on a pro rata basis, a decrease of $215,300 in the LIFO reserve. Inventories would have been $1,076,500 higher at April 26, 2003 and $1,031,500 higher as of October 26, 2002, if the first-in, first-out (FIFO) method had been used. Inventory cost determination on the FIFO method approximates replacement or current cost. Continued 10 WESTERBEKE CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (Unaudited) 3. Long-Term Debt --------------
April 26, 2003 October 26, 2002 -------------- ---------------- Term Loan with an interest rate of 6.46%, with repayment terms through April 2015, secured by the Company's facility located at 150 John Hancock Road. $ 3,997,700 $ 4,106,400 Term Loan with an interest rate of 6.46%, with repayment terms through April 2007, secured by certain equipment. 250,300 277,300 Term Loan with an interest rate of 8.50%, with repayment terms through October 2007, secured by certain equipment. 360,400 386,700 ----------- ----------- 4,608,400 4,770,400 Less current portion 351,600 340,300 ----------- ----------- Long term debt, net of current portion $ 4,256,800 $ 4,430,100 =========== ===========
4. Property, Plant and Equipment -----------------------------
April 26, 2003 October 26, 2002 -------------- ---------------- Land $ 921,500 $ 921,500 Building and building improvements 5,658,300 5,658,300 Furniture and fixtures 744,900 711,300 Machinery, patterns and equipment 5,158,800 5,092,000 Transportation equipment 47,000 80,400 Leasehold improvements 20,400 20,400 Equipment under capital lease 769,200 769,200 ----------- ----------- 13,320,100 13,253,100 Less accumulated depreciation 5,255,900 4,904,500 ----------- ----------- $ 8,064,200 $ 8,348,600 =========== ===========
Continued WESTERBEKE CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (Unaudited) 5. Split-Dollar Premiums --------------------- As discussed in more detail in note 1, the Company has a split dollar life insurance agreement with John H. Westerbeke, Jr., Chairman, President and Chief Executive Officer of the Company. At April 26, 2003 the Company had an unrealized accumulated loss of $866,700, net of taxes of $346,700, included in accumulated other comprehensive income. Pursuant to the requirements of the Sarbanes-Oxley Act of 2002, the Company has stopped paying premiums in connection with such agreement. 6. Taxes on Income --------------- Taxes (benefit) on income (loss) for the six-months ended April 26, 2003 includes a $108,500 credit received for research and development expenditures. The credits relate to the years ended October 1999 and October 2000. The Company took the position that income should not have been recognized until the IRS approved such refund credits. 7. Major Customer -------------- On April 19, 2002, the Company announced that its exclusive agreement with this customer would not be extended. The agreement expired on June 30, 2002. The Company had sales to this customer, which represented 26% or approximately $1,680,300 of total sales for the three-months ended April 27, 2002 and 23% or approximately $2,914,300 of total sales for the six-months ended April 27, 2002. Sales to this customer amounted to $13,000 for the three-months ended April 26, 2003 and $16,000 for the six-months ended April 26, 2003. 8. Revolving Demand Note Payable ----------------------------- The Company has a $6,000,000 Credit Agreement with Brown Brothers Harriman & Co., collateralized by inventory, accounts receivable and general intangibles. The actual amount available for borrowing is based on a calculation of eligible accounts receivable and eligible inventory. Based on this calculation, at April 26, 2003, the Company had approximately $4,636,200 available for borrowing. As of April 26, 2003, the Company had approximately $4,256,500 in unused borrowing capacity under the Credit Agreement and approximately $379,700 committed to cover the Company's reimbursement obligations under certain open letters of credit and bankers' acceptances. The Agreement does not have an expiration date, but is payable on written demand. 9. Subsequent Events ----------------- As previously announced, on May 2, 2003, the Company entered into a definitive merger agreement with Westerbeke Acquisition Corporation ("Acquisition Corp."). Under the terms of the merger agreement, each of the approximately 850,000 shares of Westerbeke common stock not owned by Acquisition Corp. will be converted upon completion of the merger into the right to receive $3.00 per share in cash. Acquisition Corp. is a corporation formed and wholly owned Continued 12 WESTERBEKE CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (Unaudited) by Westerbeke's Chairman, President and Chief Executive Officer, John H. Westerbeke, Jr. Acquisition Corp. owns approximately 56.2% of the outstanding shares of Westerbeke common stock. On May 12, 2003, the Company announced that a purported class action lawsuit has been filed naming the Company and its directors as defendants. The complaint alleges, among other things, that the proposed merger, as discussed above, is being advanced through "unfair procedures" and the consideration offered in the merger is "grossly unfair, inadequate and provides value to [Westerbeke] stockholders substantially below the fair or inherent value of the Company" and "does not constitute maximization of stockholder value". The complaint also alleges breaches by the defendants of their fiduciary duties to the Company's public stockholders in connection with the proposed merger. The lawsuit seeks to enjoin the merger or, if it is consummated, to recover damages. The Company believes that the lawsuit lacks merit and intends to vigorously defend the lawsuit. 13 Item 2 - Management's Discussion and Analysis --------------------------------------------- Of Financial Condition and Results Of Operations ------------------------------------------------ Forward Looking Information --------------------------- This Quarterly Report on Form 10-Q may contain forward-looking information about the Company. In addition to the historical information contained herein, the discussions contained in this document include statements that constitute forward-looking statements under the Safe Harbor provisions of the Private Securities Reform Act of 1995. The Company is hereby setting forth statements identifying important factors that may cause the Company's actual results to differ materially from those set forth in any forward- looking statements made by the Company. Some of the most significant factors include: an unanticipated down-turn in the recreational boating industry resulting in lower demand for the Company's products; the unanticipated loss of, or decline in sales to, a major customer; the inability to replace revenues and/or profits associated with the loss of the exclusive agreement with its largest customer; the unanticipated loss of a major supplier; the unanticipated required repayment in full of outstanding amounts under the Company's demand credit facility; the inability of the Company to effect required modifications of its products to meet governmental regulations with respect to emission standards; failure of the requisite number of Westerbeke stockholders to approve the transaction; the costs related to the transaction; litigation challenging the transaction; and foreign currency fluctuations resulting in cost increases to the Company for its foreign supplied components. Accordingly, there can be no assurances that any anticipated future results will be achieved. Results of Operations - ----------------------- Net sales decreased by $2,179,800, or 29%, during the second quarter of fiscal 2003 and decreased by $2,358,500, or 19%, for the first six months of fiscal 2003 as compared to the same periods in fiscal 2002. The decrease in net sales for both the three and six-month periods resulted primarily from the loss of the Company's major customer offset by increases in net sales to others. Gross profit decreased $588,100, or 34%, during the second quarter and decreased $596,200, or 22%, for the first six months of fiscal 2003 as compared to the same period in fiscal 2002. As a percentage of net sales, gross profit was 21% during the second quarter of fiscal 2003 and 23% compared to the same period in fiscal 2002. For the six months ended April 26, 2003, gross profit was 21% compared to 22% for the same period ended April 27, 2002. Operating expenses, which consist of selling, general and administrative expenses as well as research and development expenses, increased $43,700 for the second quarter and increased $14,200 in the first six months of fiscal 2003, as compared to the same periods in fiscal 2002. The increase in operating expenses was primarily attributable to increases in the utilization of outside consultants in engineering and also to an increase in advertising expenditures. Net interest expense decreased $43,100 during the second quarter and decreased $86,200 for the first six months of fiscal 2003 as compared to the same periods in fiscal 2002. The reduction in interest expense is related to lower levels of outstanding debt and reduced borrowing costs. Other income in fiscal year 2003 is from the sale of a vehicle. Other income in fiscal 2002 is from a patent settlement awarded to the Company. During the first quarter of fiscal 2003, the Company received and recorded a credit to its tax provision amounting to $108,500 of research and development credits from the U.S. Department of the Treasury. 14 WESTERBEKE CORPORATION AND SUBSIDIARY During the second quarter ended April 27, 2002, the Company received $353,700 of research and development credits from the U.S. Department of the Treasury. For the second quarter ended April 26, 2003, the Company reported a net loss of $300,500, compared to net income of $390,400 for the same period in fiscal 2002. For the six months ended April 26, 2003, the Company reported a net loss of $478,000 as compared to net income of $61,700 for the six- months ended April 27, 2002. On April 19, 2002 the Company announced that its exclusive agreement with its largest customer would not be extended. The agreement expired on June 30, 2002. The Company had anticipated the loss of this agreement and has undertaken certain cost reduction programs. Liquidity and Capital Resources ------------------------------- During the first six months of fiscal 2003, net cash used by operating activities was $3,230,500, compared to net cash provided by operations of $1,369,300 for the first six months of fiscal 2002. The increase in cash used by operating activities was primarily the result of increases in inventory and accounts receivable and from the payment of income taxes. The accrued income tax payments of $1,317,700 paid during the six-months ended April 26, 2003, relate to the arbitration award previously discussed in the Company's Annual Report on Form 10-K for the fiscal year ended October 26, 2002. During the six months ended April 26, 2003, the Company purchased machinery and equipment in the amount of $100,400. The Company plans additional capital spending of $100,000 during the remainder of the fiscal year. On April 25, 2000, the Company purchased a 110,000 square foot facility located in Taunton, Massachusetts. This facility has enabled the Company to consolidate its operations into one location. The MassDevelopment Financing Agency approved the Company for a $5,000,000 tax-exempt industrial revenue bond, which has been financed by GE Capital Public Finance. The real estate portion of the industrial revenue bond is a 15-year mortgage loan, with $3,997,700 outstanding at April 26, 2003. The loan agreement requires monthly payments of $40,000. The equipment portion of the industrial revenue bond is a 7-year term loan, with $250,300 outstanding at April 26, 2003. The term loan requires monthly payments of $5,900. The Company also has an additional 7-year equipment loan, with $360,400 outstanding at April 26, 2003. This loan agreement requires a monthly payment of $7,900. On June 26, 2000, the Company entered into a $5,000,000 Credit Agreement with Brown Brothers Harriman & Co. collateralized by inventory, accounts receivable and general intangibles. The Credit Agreement was increased on September 25, 2000 to a maximum availability of $6,000,000. The actual amount available for borrowing is based on a calculation of eligible accounts receivable and eligible inventory. Based on this calculation at April 26, 2003, the Company had approximately $4,636,200 available for borrowing. At April 26, 2003, the Company had approximately $379,700 committed to cover the Company's reimbursement obligations under certain letters of credit and bankers' acceptances. The Credit Agreement does not have an expiration date, but is payable on written demand. Management believes cash flow from operations and borrowings available under the Credit Agreement will provide for working capital needs, principal payments on long-term debt, and capital and operating leases through fiscal 2003. 15 WESTERBEKE CORPORATION AND SUBSIDIARY Domestic inflation is not expected to have a material impact on the Company's operations. The cost of engine blocks and other components is subject to foreign currency fluctuations (primarily the Japanese yen). The value of the U.S. dollar relative to the yen had no material effect on the cost of the Company's products during the first six months of fiscal 2003. 16 Item 3 - Quantitative and Qualitative Disclosures About Market Risk ------------------------------------------------------------------- There are no material changes to the disclosure made in the Annual Report on Form 10-K for the year ended October 26, 2002 regarding this matter. Item 4 - Controls and Procedures -------------------------------- (a) Evaluation of disclosure controls and procedures. Based on their evaluation, as of a date within 90 days prior to the date of the filing of this Form 10-Q, of the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the principal executive officer and the principal financial officer of the Company have each concluded that such disclosure controls and procedures are effective and sufficient to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission's rules and forms. (b) Changes in internal controls. Subsequent to the date of their evaluation, there have not been any significant changes in the Company's internal controls or in other factors that could significantly affect these controls, including any corrective action with regard to significant deficiencies and material weaknesses. 17 Part II. Other Information Item 1 Legal Proceedings ------------------------- As previously announced, on May 12, 2003, a purported class action lawsuit has been filed naming the Company and its directors as defendants. The complaint alleges, among other things, that the proposed merger, as discussed above, is being advanced through "unfair procedures" and the consideration offered in the merger is "grossly unfair, inadequate and provides value to [Westerbeke] stockholders substantially below the fair or inherent value of the Company" and "does not constitute maximization of stockholder value". The complaint also alleges breaches by the defendants of their fiduciary duties to the Company's public stockholders in connection with the proposed merger. The lawsuit seeks to enjoin the merger or, if it is consummated, to recover damages. The Company believes that the lawsuit lacks merit and intends to vigorously defend the lawsuit. Item 2 Changes in Securities ----------------------------- None to report Item 3 Default Upon Senior Securities -------------------------------------- None to report Item 4 Submissions of Matters to a Vote of Security Holders ------------------------------------------------------------ None to report Item 5 Other Information ------------------------- (a) Split-Dollar Life Insurance Agreement The Company has a split-dollar life insurance agreement with John H. Westerbeke, Jr., Chairman, President and Chief Executive Officer of the Company. Pursuant to the requirements of the Sarbanes-Oxley Act of 2002, the Company has stopped paying premiums in connection with such agreement. Item 6 Exhibits and Reports on Form 8-K ---------------------------------------- (a) Exhibits None to report 18 (b) Reports on Form 8-K In a Current Report filed on Form 8-K dated May 5, 2003, the Company announced that it has entered into a definitive merger agreement with Westerbeke Acquisition Corporation ("Acquisition Corp."). Under the terms of the merger agreement, each of the approximately 850,000 shares of Westerbeke common stock not owned by Acquisition Corp. will be converted upon completion of the merger into the right to receive $3.00 per share in cash. Acquisition Corp. is a corporation formed and wholly owned by Westerbeke's Chairman, President and Chief Executive Officer, John H. Westerbeke, Jr. Acquisition Corp. owns approximately 56.2% of the outstanding shares of Westerbeke common stock. In a Current Report filed on Form 8-K dated May 12, 2003, the Company announced that a purported class action lawsuit has been filed naming Westerbeke Corporation (the "Company") and its directors as defendents. The complaint alleges, among other things, that the proposed merger, announced on May 5, 2003, of the Company and Westerbeke Acquisition Corporation is being advanced through "unfair practices" and the consideration offered in the merger is "grossly unfair, inadequate and provides value to [Westerbeke] stockholders substantially below the fair or inherent value of the Company" and "does not constitute maximization of stockholder value." The complaint also alleges breaches by the defendants of their fiduciary duties to the Company's public stockholders in connection with the proposed merger. The lawsuit seeks to enjoin the proposed merger or, if it is consummated, to recover damages. The Company believes that the lawsuit lacks merit and intends to vigorously defend the lawsuit. 19 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. WESTERBEKE CORPORATION (Registrant) Dated May 23, 2003 /s/ John H. Westerbeke, Jr. ------------ ------------------------------------ John H. Westerbeke, Jr. Chairman of the Board, President and Principal Executive Officer Dated May 23, 2003 /s/ Gregory Haidemenos ------------ ------------------------------------ Gregory Haidemenos Principal Financial and Accounting Officer 20 CERTIFICATIONS I, John H. Westerbeke, Jr., Chairman of the Board, President and Chief Executive Officer, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Westerbeke Corporation. 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 23, 2003 /s/ John H. Westerbeke, Jr. ------------------------------------ John H. Westerbeke, Jr. Principal Executive Officer 21 I, Gregory Haidemenos, Chief Financial Officer and Treasurer, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Westerbeke Corporation. 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 23, 2003 /s/ Gregory Haidemenos ------------------------------------ Gregory Haidemenos Principal Financial Officer 22 EXHIBIT INDEX Exhibit Description ------- ----------- 99.1 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 99.2 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 23