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: January 24, 1998
----------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-15046
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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.)
Avon Industrial Park, Avon, Massachusetts 02322
- ----------------------------------------- ----------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (508) 588-7700
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
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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 March 2, 1998
----- --------------
Common Stock, $.01 par value 1,917,812
WESTERBEKE CORPORATION AND SUBSIDIARY
INDEX
<TABLE>
<CAPTION>
Page
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<S> <C>
Part I - Financial Information
Item 1 - Consolidated Financial Statements
Consolidated Balance Sheets as
of January 24, 1998 and
October 25, 1997 3
Consolidated Statements of
Operations for the three
months ended January 24, 1998
and January 25, 1997 4
Consolidated Statements of
Cash Flows for the three
months ended January 24, 1998
and January 25, 1997 5
Notes to Consolidated Financial Statements 6-7
Item 2 -
Management's Discussion and
Analysis of Financial Condition
and Results of Operations 8-9
Part II - Other Information 10
Signatures 11
</TABLE>
WESTERBEKE CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
January 24, October 25,
1998 1997
----------- -----------
(Unaudited) (Derived from
ASSETS Audited Financial
Statements)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 74,100 $ 156,900
Accounts receivable, net of allowance
for doubtful accounts of $63,900 and
$63,900, respectively 2,474,600 1,949,000
Inventories (Note 2) 6,583,900 6,254,300
Prepaid expenses and other assets 336,600 301,600
Prepaid income taxes 249,000 212,000
Deferred income taxes 532,200 532,200
-----------------------------
Total current assets 10,250,400 9,406,000
Property, plant and equipment, net 2,104,500 2,139,300
Other assets, net 1,763,800 1,597,100
Investments in marketable securities 1,623,700 1,545,500
Note receivable - related party 119,200 122,800
-----------------------------
$15,861,600 $14,810,700
=============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 207,800 $ 213,100
Revolving demand note payable 2,200,000 600,000
Accounts payable 1,688,800 2,227,900
Accrued expenses and other liabilities 626,500 564,600
-----------------------------
Total current liabilities 4,723,100 3,605,600
-----------------------------
Deferred income taxes 261,500 304,200
Deferred compensation 267,700 159,600
Long-term debt, net of current portion 557,000 605,400
-----------------------------
1,086,200 1,069,200
-----------------------------
Stockholders' equity:
Common stock, $.01 par value;
authorized 5,000,000 shares; issued
2,185,950 shares at January 24, 1998
and 2,156,950 shares at
October 25, 1997 21,900 21,600
Additional paid-in-capital 6,025,300 5,996,600
Unrealized gain on marketable securities 182,400 240,700
Retained earnings 4,578,700 4,633,000
-----------------------------
10,808,300 10,891,900
Less--Treasury shares 268,138 at cost 756,000 756,000
-----------------------------
Total stockholders' equity 10,052,300 10,135,900
-----------------------------
$15,861,600 $14,810,700
=============================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
WESTERBEKE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
--------------------------
January 24, January 25,
1998 1997
----------- -----------
(Unaudited)
<S> <C> <C>
Net sales $4,959,500 $5,194,600
Cost of sales 4,074,300 4,101,900
--------------------------
Gross profit 885,200 1,092,700
Selling, general and administrative expense 768,900 732,900
Research and development expense 258,500 233,700
--------------------------
Income (loss) from operations (142,200) 126,100
Interest income, net 51,300 35,100
--------------------------
Income (loss) before income taxes (90,900) 161,200
Provision for income taxes (36,600) 73,200
--------------------------
Net income (loss) $ (54,300) $ 88,000
==========================
Income (loss) per common share, basic and
diluted $ (.03) $ .04
==========================
Weighted average common shares outstanding 1,904,746 2,078,550
==========================
Weighted average common share and potentially
dilutive common shares 2,061,057 2,256,740
==========================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
WESTERBEKE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
-------------------------
January 24, January 25,
1998 1997
----------- -----------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (54,300) $ 88,000
Reconciliation of net income (loss) to net cash
provided (used) by operating activities:
Depreciation and amortization 107,400 109,600
Deferred income taxes (42,700) -
Changes in operating assets and liabilities:
Accounts receivable (525,600) (129,600)
Inventories (329,600) (882,100)
Prepaid expenses and other assets (35,000) 51,400
Other assets (172,100) (203,500)
Accounts payable (539,100) 445,900
Accrued expenses and other liabilities 61,900 (95,800)
Deferred compensation 108,100 84,900
Income taxes payable (37,000) 4,400
---------------------------
Net cash used by operating activities (1,458,000) (526,800)
---------------------------
Cash flows from investing activities:
Purchase of property, plant and equipment (67,200) (110,500)
Proceeds from payment of note
receivable--related party 3,600 3,300
Investment in marketable securities, net (136,500) (117,800)
---------------------------
Net cash used in investing activities (200,100) (225,000)
---------------------------
Cash flows from financing activities:
Net borrowings under revolving demand note 1,600,000 650,000
Proceeds from exercise of employee stock options 29,000 -
Principal payments on long-term debt and capital
lease obligations (53,700) (43,300)
---------------------------
Net cash provided in financing activities 1,575,300 606,700
---------------------------
Decrease in cash and cash equivalents (82,800) (145,100)
Cash and cash equivalents, beginning of period 156,900 200,500
---------------------------
Cash and cash equivalents, end of period $ 74,100 $ 55,400
===========================
Supplemental cash flow disclosures:
Interest paid $ 31,500 $ 16,000
Income taxes paid - $ 68,700
Supplemental disclosures of non-cash flow items:
Increase (decrease) in unrealized gains on
marketable securities $ (58,300) $ 700
Equipment purchase under capital lease - $ 175,000
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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 generally accepted
accounting principles 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 statements are 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 25,
1997.
In the opinion 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 January 24, 1998, the results of
their operations for the three months ended January 24, 1998 and January 25,
1997, and the cash flows for the three months then ended, have been
included.
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 significant intercompany transactions and
accounts have been eliminated. Westerbeke International, Inc. has been
inactive since fiscal year 1987.
In February 1997, the Financial Accounting Standards Board (FASB) issued
Financial Accounting Standard No. 128, "Earnings per Share" (FAS 128). FAS
128 supersedes Accounting Principles Board Opinion No. 15 and specifies the
computation, presentation and disclosure requirements for earnings per
share. FAS 128 is effective for financial Statements for both interim and
annual periods ending after December 15, 1997. Accordingly, the Company has
applied FAS 128 for the quarter ended January 24, 1998 and has restated
prior period information as required under the statement.
In June 1997, the FASB issued Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" and No. 131, "Disclosure about Segments of
an Enterprise and Related Information," which are effective for fiscal years
beginning after December 15, 1997. The Company is currently evaluating the
effects of these new standards.
2. Inventories
The Company uses the last-in, first-out (LIFO) method to value inventory.
Inventories are comprised of the following:
<TABLE>
<CAPTION>
January 24, October 25,
1998 1997
----------- -----------
<S> <C> <C>
Raw materials $5,597,800 $5,065,400
Work-in-process 613,100 601,400
Finished goods 373,000 587,500
------------------------
$6,583,900 $6,254,300
========================
</TABLE>
The Company has estimated both the year-end inventory levels and the
inflation/deflation that will occur during the fiscal year.
The Company anticipates an increase in its LIFO valuation account as of
October 24, 1998. Accordingly, the Company has recorded an increase of
$15,000, on a pro rata basis, in the LIFO reserve during the first three
months of fiscal 1998. During the first three months of 1997, the Company
recorded, on a pro rata basis, an increase of $15,000 in the LIFO reserve.
Inventories would have been $1,180,000 higher at January 24, 1998 and
$1,165,000 higher as of October 25, 1997, if the first-in, first-out (FIFO)
method had been used. Inventory cost determination on the FIFO method
approximates replacement or current cost.
Item 2 - Management's Discussion and Analysis
Of Financial Condition and Results Of Operations
Results of Operations -
Net sales decreased by $235,100 or 5%, during the first quarter of fiscal
1998 as compared to the same period in fiscal 1997.
Gross profit decreased $207,500 or 19% during the first quarter of fiscal
1998 as compared to the same period in fiscal 1997. The decrease in gross
profit is primarily due to the costs associated with the cessation of supply
of "long block" engines from one supplier and the development of replacement
products based on another supplier's engine.
Operating expenses increased $60,800 or 6% for the first quarter of fiscal
1998 as compared to the same period in fiscal 1997. Research and
development costs have increased due to the costs of developing products
using "long block" engines from a new supplier which replaced the engines
that could no longer be obtained from an existing supplier. Selling and
administrative expenses have increased primarily due to higher advertising,
marketing, warranty and personnel costs.
Net interest income increased $16,200 during the first quarter of fiscal
1998 as compared to the same period in fiscal 1997. The increase in
interest is primarily due to interest and dividends earned on marketable
securities.
For the first quarter ended January 24, 1998, the Company reported a net
loss of $54,300, compared to a net income of $88,000 for the same period in
fiscal 1997.
One of the Company's vendors of "long block" engines stopped supplying
engines to the Company in fiscal 1997. The Company's existing inventory of
this vendor's engines was exhausted during the first quarter of fiscal
1998. The Company was able to obtain similar "long block" engines from
another source, but there have been, and will continue to be, added costs
associated with making this change. Costs to obtain replacement "long block"
engines from another supplier and to develop replacement products based on
those engines are reflected in the decreased gross profit as a percentage of
sales and in the increased research and development costs experienced in the
first quarter of fiscal 1998. The Company anticipates that there will be
added costs during fiscal 1998 associated with bringing the new products
into full production and introducing them to the market, which will
adversely affect gross margins and research and development costs.
WESTERBEKE CORPORATION AND SUBSIDIARY
Liquidity and Capital Resources
During the first three months of fiscal 1998, net cash used by operations
was $1,458,000, compared to $526,800 for the first three months in fiscal
1997. The decrease in cash flow from operations is primarily attributable
to increases in accounts receivable and decreases in accounts payable as
compared to the same period in fiscal 1997.
During the three months ended January 24, 1998, the Company purchased
property, plant and equipment of $67,200. The Company plans to spend
approximately $350,000 more on equipment during the remainder of the year.
The Company has a $4,000,000 Credit Agreement with State Street Bank and
Trust Company, collateralized by inventory, accounts receivable and general
intangibles. The Credit Agreement was renewed on March 31, 1997, and will
expire on March 31, 1998. At January 24, 1998, the Company had $2,200,000
in outstanding borrowings under the Credit Agreement and approximately
$361,100 committed to cover the Company's reimbursement obligations under
certain letters of credit. Management is in the process of renewing the
Credit Agreement and anticipates bank approval, although there can be no
assurance that the facility will be renewed.
On January 23, 1996, the Company entered into a $500,000 revolving line of
credit agreement (the "Revolving Line of Credit") and term loan facility
with State Street Bank and Trust Company, collateralized by various emission
testing and product development equipment and subject to working capital and
equity covenants. On July 31, 1996, the Revolving Line of Credit terminated
and automatically converted into a five-year term loan in the principal
amount of $491,600 bearing a fixed interest rate of 8.96%. At January 24,
1998, the outstanding principal amount was $350,000.
On April 25, 1997, the Company entered into a $300,000 revolving line of
credit agreement (the "1997 Revolving Line of Credit") and term loan
facility with State Street Bank and Trust Company, collateralized by various
items of emission testing and product development equipment and subject to
working capital and equity covenants. On June 30, 1997, the 1997 Revolving
Line of Credit terminated and automatically converted into a five-year term
loan bearing a fixed interest rate of 8.75%. At January 24, 1998, the
outstanding principal amount was $265,000.
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
1998.
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). Exchange rate
fluctuations have had a minimal impact on the Company during the first
fiscal quarter of 1998.
Part II. Other Information
Item 1 Legal Proceedings
---------------------------
The Company has initiated arbitration with the American
Arbitration Association in New York against Daihatsu Motor
Company, Ltd. ("Daihatsu") for breach of contract and other
claims. The Company is seeking damages based on Daihatsu's
breach of a Component Sales Agreement which also granted the
Company rights to certain engines including an engine Daihatsu
began marketing in 1993 through a joint venture with Briggs &
Stratton Corporation. In a separate but related case pending in
the Federal District Court for the District of Massachusetts,
the Company is seeking damages from Briggs & Stratton
Corporation for tortious interference with the Company's
Agreement with Daihatsu and other related claims.
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
---------------------------
None to report
Item 6 Exhibits and Reports on Form 8-K
------------------------------------------
(a) Exhibit 27 Financial Data Schedule for the three months
ended January 24, 1988
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the
period covered by this report.
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 March 10, 1998 /s/ John H. Westerbeke, Jr.
-------------- ---------------------------
John H. Westerbeke, Jr.
Chairman of the Board,
President and Principal
Executive Officer
Dated March 10, 1998 /s/ Carleton F. Bryant III
-------------- --------------------------
Carleton F. Bryant III
Executive Vice President,
Chief Operating Officer
and Principal Financial
and Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-24-1998
<PERIOD-END> JAN-24-1998
<CASH> 74,100
<SECURITIES> 0
<RECEIVABLES> 2,474,600
<ALLOWANCES> 63,900
<INVENTORY> 6,583,900
<CURRENT-ASSETS> 10,250,400
<PP&E> 5,775,300
<DEPRECIATION> 3,670,800
<TOTAL-ASSETS> 15,861,600
<CURRENT-LIABILITIES> 4,723,100
<BONDS> 0
0
0
<COMMON> 21,600
<OTHER-SE> 10,030,700
<TOTAL-LIABILITY-AND-EQUITY> 15,861,600
<SALES> 4,959,500
<TOTAL-REVENUES> 4,959,500
<CGS> 4,074,300
<TOTAL-COSTS> 4,074,300
<OTHER-EXPENSES> 1,027,400
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 52,200
<INCOME-PRETAX> (90,900)
<INCOME-TAX> (36,600)
<INCOME-CONTINUING> (54,300)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (54,300)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> 0
</TABLE>
