SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended October 24, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-15046
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WESTERBEKE CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 041925880
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(State or other jurisdiction of Employer (I.R.S. Identification No.)
incorporation or organization)
Avon Industrial Park
Avon, Massachusetts 02322 02322
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (508) 588 - 7700
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Securities registered pursuant to Section 12 (b) of the Act:
Name of each exchange on
Title of each class which registered
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None None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock,
$.01 par value
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(Title of class)
Indicate by a check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period as the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
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Indicate by a check mark if disclosure of delinquent filers, pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [X]
State the aggregate market value of the voting stock held by non-
affiliates of the registrant. The aggregate market value shall be computed
by reference to the price at which the stock was sold, or the average bid
and asked prices of such stock, as of a specified date within 60 days prior
to the date of filing.
Aggregate market value as of January 14, 1999.......... $2,341,000
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, $.01 par value, as of January 14, 1999... 1,917,812
shares
DOCUMENTS INCORPORATED BY REFERENCE
None.
PART I
ITEM 1. BUSINESS.
General
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The Company is primarily engaged in the business of designing,
manufacturing and marketing marine engine and air-conditioning products.
The Company was organized in 1932 and was re-incorporated in Delaware in
1986. The Company's marine products consist of diesel and gasoline engine-
driven electrical generator sets, inboard propulsion engines, self-
contained, reverse-cycle air-conditioners, and associated spare parts and
accessories. In addition, the Company manufactures and markets electrical
generator sets for use in non-marine applications. The Company markets its
products throughout the United States and internationally principally for
recreational marine applications. Accordingly, the market for the Company's
products is dependent on the market for recreational boats, including
auxiliary powered sailboats, powerboats, houseboats and other pleasure
boats. The market for recreational boats, and consequently the Company's
products, may be adversely affected by general economic conditions.
Products
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The Company's marine engine product line consists of 18 models of
electrical generator sets, 18 models of inboard propulsion engines, and
associated spare parts and accessories. The Company also offers 11 models
of non-marine generator sets.
The Company's diesel and gasoline engine-driven marine generator sets
are installed in powerboats, houseboats, large sailboats and other pleasure
and commercial boats to provide electricity for communication and
navigational equipment, lighting, refrigeration and other galley services,
and other safety, operating and convenience needs. The Company's present
line of generator sets produce from 4.5 to 65 kilowatts of electricity. A
generator set consists of an electrical generator and an attached diesel or
gasoline engine used to drive the generator. These engines are fresh water
cooled and range from two to eight cylinders.
The Company's propulsion engines are inboard engines, generally
installed as auxiliary power systems for sailboats. The Company's
propulsion engines are fresh water cooled and range from two to six
cylinders and from 12 to 108 horsepower. Management believes that more than
90% of the propulsion engines produced by the Company are installed in
sailboats of up to 50 feet in length. The Company's higher horsepower
propulsion engines are also installed in powerboats of up to approximately
30 feet in length such as fishing boats, cruisers and work boats.
The Company's product line also includes marine auxiliary engines and
associated spare and replacement parts marketed under the Universal(R) name
and marine air-conditioning products marketed under the Rotary Aire(R) name.
The Company manufactures and markets two self-contained, reverse-cycle air-
conditioning units and accessories under the Rotary Aire(R) name. These
units can be installed in powerboats, houseboats, sailboats and other
pleasure and commercial boats.
The Company's product line includes 11 models of non-marine electrical
generator sets which may be installed in bus-converted motor coaches,
specialty vehicles, such as refrigeration trucks, and ambulances and other
emergency vehicles to provide electricity for lighting, refrigeration and
other safety, operating and convenience needs. These generators may also be
used as stand-by or secondary power sources in the event of power outages or
in locations where primary power is not readily available, such as
construction sites, rural areas and less developed countries.
The Company offers a complete line of spare parts and accessories for
its current product lines and for most discontinued models. The Company's
line of spare parts includes oil and fuel filters, belts, thermostats,
distributor caps, fuses, spark plugs, wiring, alternators, heat exchangers,
circuit breakers, water and fuel pumps, starter motors and fuel solenoids.
Many basic parts are packaged and sold as spare part kits. Accessories
offered by the Company include various control and instrument panels,
exhaust silencers and generator sound enclosures.
The Company provides its distributors, dealers and final customers
with documentation covering operation, maintenance and repair procedures for
its products. Management believes that the provision of current and
comprehensive documentation enhances the Company's marketing and competitive
effectiveness. See "Marketing and Sales" and "Competition" below.
Each of the Company's products is covered by a one-year limited
warranty covering parts and authorized labor. In addition, the Company
offers a five-year limited warranty on certain marine generator sets. Many
of the Company's suppliers also warrant their products for parts and labor.
Some of the Company's major suppliers warrant their products for the
duration of the Company's warranties. The Company believes it has made
adequate provisions for warranty claims for the upcoming fiscal year. See
Note 1 of Notes to Consolidated Financial Statements included in "Item 8 -
Financial Statements and Supplementary Data." The Company's distributors are
generally responsible for administering the Company's warranties through the
dealer network. See "Marketing and Sales" below.
Governmental Regulation
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Many of the Company's products are subject to exhaust emission
standards pursuant to regulations promulgated by the Environmental
Protection Agency (the "EPA"), effective September 1, 1996, and by the State
of California, effective August 1, 1995. The emission standards are
intended to reduce the emissions of hydrocarbons, nitrogen oxides, carbon
monoxide, particulates and smoke. It is anticipated that by January 1,
2000, all of the Company's products will be subject to such regulations.
All of the regulations include manufacturer testing requirements, mandated
warranties on emissions related components, product labeling and reporting
requirements. Additionally, future regulations may include provisions for
selective enforcement audits and recall and repair requirements.
At this time, all of the Company's products which are subject to these
emissions regulations comply with the regulations. Achieving and
maintaining this compliance has been accomplished through significant design
and development expense. The emission standards established by the
regulations will become broader in scope and more stringent regarding
emissions levels each year. As a result, research and development
expenditures for emissions compliance will continue at a significant level
for the foreseeable future. Additionally, if at any time the Company cannot
effect the required modifications of its products to meet the required
emissions levels within the time frame allowed, the Company could be
materially adversely affected.
Design and Development
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The Company has an ongoing product improvement and development program
intended to enhance the reliability, performance and longevity of existing
products, and to develop new products. A significant portion of the
Company's senior management's time, as well as the efforts of the Company's
thirteen person product engineering department, is spent in this area. As
part of the Company's ongoing product development program, the Company
upgrades its engine products and periodically adds models to its product
line. For example, as and when improvements in component parts allow, the
Company may manufacture smaller or more light-weight versions of existing
models. In fiscal 1998, the product engineering department focused
principally on the modernization of the Company's existing product line and
modifications which the Company believes will be required as a result of the
emissions standards discussed above. In addition, in response to demand,
the Company may expand its engine product line by manufacturing generator
sets or propulsion engines with different kilowattage or horsepower than its
existing models. The Company intends to introduce upgraded and new models
as and when developed.
The Company's design and engineering focus is on reliability, ease of
maintenance, compactness, operating smoothness, safety and longevity, among
other technical and performance factors. The Company's technical and
performance specifications are utilized by the Company's suppliers in
producing certain component parts, metal and nonmetal fabrications and other
peripheral equipment that the Company manufactures and assembles into
finished products. Generally, the Company retains title to Company-
developed drawings, patterns and specifications used by these suppliers.
For the three fiscal years ended October 1998, the Company incurred
expenses of approximately $3,129,900 for design and development activities
as follows: 1998 - $1,180,900, 1997 - $1,030,300 and 1996 - $918,700. All
these activities were conducted and sponsored by the Company and the major
portion of these expenses was applied toward salaries and other expenses of
the Company's product design and engineering personnel.
Manufacturing and Sources of Supply
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The Company's manufacturing activities are conducted in an
approximately 37,500 square foot facility owned by the Company. See "Item 2
- - Properties" below. The Company has approximately 61 persons employed in
various manufacturing and assembly functions. See "Employees" below.
The Company's engine products generally contain from 250 to 500
component parts and assemblies purchased from domestic and foreign
manufacturers and suppliers. Some of these component parts are manufactured
to Company specifications, while others are further machined and assembled
by the Company. The basic component of the Company's engine products is a
"long block" engine, which is a complete engine block and head assembly
without peripheral equipment. Peripheral equipment added by the Company
includes subassemblies (generators, transmissions, alternators, carburetors,
motors and pumps), machined castings (flywheels, bellhousings, manifolds,
mounts, pulleys, brackets and couplings), sheet metal fabrications (control
and instrumentation panels), injection-molded plastic and other non-metallic
fabrications (belt guards, drip trays, belts, hoses and panels) and various
other component parts (mounts, switches and other electrical devices).
The Company purchases "long block" engines from five foreign
manufacturers. The Company currently purchases all of its requirements of
"long block" engines on a purchase order basis rather than pursuant to long-
term supply agreements. In certain cases, the Company has an agreement with
its "long block" engine manufacturers to supply these component parts
exclusively to the Company for marine products of the type produced by the
Company. Orders for "long block" engines are dollar-denominated and
therefore fluctuations in the dollar/yen exchange rate have had and will
continue to have an effect on the cost of the Company's raw materials. See
"Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations." The Company believes that the purchase of "long
block" engines on a purchase order basis has become the more common industry
practice. Interruption of the supply of "long block" engines would have a
material adverse effect on the Company if the time to develop new sources of
supply and replacement products is longer than the time it takes to exhaust
the Company's inventory of existing "long block" engines. The supply of
"long block" engines from one vendor stopped in fiscal 1997. See "Item 7 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations." In addition, the Company does not have long-term supply
agreements with other manufacturers of other component parts or peripheral
equipment. The Company believes that it can obtain these parts and
equipment from a variety of sources on commercially reasonable terms.
However, the disruption of its supply of these parts, equipment or "long
block" engines would have a material adverse effect on the Company's
operations.
The lead time between ordering and receipt of component parts varies
with the part involved, but generally ranges from a few weeks in the case of
unfinished products to three to six months in the case of "long block"
engines, generators and transmissions. The Company has not experienced any
difficulties in obtaining finished or unfinished components or peripheral
equipment on commercially reasonable terms.
Most of the Company's purchases of component parts and peripheral
equipment from Japanese ("long block" engines), Italian (generators) and
other foreign manufacturers are dollar-denominated. Fluctuations in
exchange rates have resulted, and may in the future result, in price
increases from some of the Company's suppliers. Management believes that to
varying degrees the Company's competitors in the engine product markets have
been and will be similarly affected since many of its competitors also
purchase component parts and peripheral equipment abroad. However, some of
the Company's principal competitors are divisions of large and diversified
multinational companies with extensive production facilities and sales and
marketing staffs and substantially greater financial resources than the
Company and therefore may be better situated to accommodate price increases
from suppliers due to fluctuations in exchange rates. The engine product
markets are price sensitive, and there can be no assurance that the Company
will be able to pass on price increases from its suppliers to its customers.
The manufacturing of a particular engine product requires the
integration of a number of engineering, machining and assembly functions in
order to produce high quality components. Prior to final assembly, the
Company's manufacturing activities involve machining various metal and
nonmetal component parts on computer-controlled and conventional milling
machines, lathes, drill presses, welders and other machinery, modification
and assembly of electrical and mechanical subassemblies, calibration of
electrical devices and components and testing for variances from
specifications and operating parameters. The Company has approximately
thirteen machine operators who satisfy approximately 95% of the Company's
machining needs. The remainder of the machining is performed by independent
contractors.
The Company has a final assembly line for its engine products where
component parts, subassemblies and peripheral equipment are assembled onto
"long-block" engines. Following final assembly, each generator set and
propulsion engine is tested at increasing loads up to full operating
capacity to verify performance and safety features. After product testing,
the product is pressure hot water washed, primed and painted, unpainted
components are attached, and the product is packed and shipped to the
customer, generally via common carrier freight collect.
The Company's air-conditioning products are produced on a separate
assembly line where component parts (compressors, evaporator and condensing
coils, fans, electrical components and plastic housings), purchased from
manufacturers and suppliers, are assembled into final units. The Company
does not have any long-term supply agreements with the manufacturers of
these component parts. However, the Company believes it can obtain most of
these parts from a variety of sources on commercially reasonable terms.
Following assembly, each air-conditioner is painted and tested for
performance, leakage and compliance with safety standards.
Management believes that the Company's present facilities are
sufficient for the production of its products in the foreseeable future.
Any future expansion will be dependent upon future growth in demand for the
Company's products. See "Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Item 2 - Properties"
below.
Quality Control and Computerization
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Management believes that maintaining high quality manufacturing
standards is important to its competitive position and also believes that
the Company has developed a reputation for high quality products. The
Company maintains quality control systems and procedures which it reviews
with its manufacturing personnel and which it modifies as appropriate.
The Company's quality control systems and procedures include the
testing of each fully assembled generator set and propulsion engine at
increasing loads up to full operating capacity to verify performance and
safety features. The checklist includes testing wiring and electrical
systems, all connections and fittings, fuel and oil systems, the fresh water
cooling system and safety shutdown features. In the case of the Company's
generator sets, output current, voltage and frequency are also tested. The
results of the tests are recorded and each product is approved by quality
assurance personnel before it leaves the testing area.
In line with its policy of updating and improving its manufacturing
operations, the Company utilizes a computerized manufacturing management
system which integrates the Company's inventory control, sales and financial
functions with its manufacturing operations.
Marketing and Sales
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The Company's marine engine and air-conditioning products are marketed
through a nationwide and international network of distributors and dealers.
The Company markets its non-marine engine products through a sales
representative and to distributors. In addition, the Company's two sales
managers and senior management devote a substantial amount of time to the
overall coordination of the Company's sales to distributors, as well as to
the Company's direct sales to boat and other manufacturers (OEM's). Direct
sales by the Company to OEM's accounted for approximately 40%, 42%, and 34%
of total sales for the fiscal years ended October 1998, 1997 and 1996,
respectively.
The Company's marine products are sold to distributors for resale to
manufacturers of powerboats, houseboats, sailboats and other pleasure and
commercial boats, and to boat dealers and marinas. Boat manufacturers
install the Company's products as original equipment. In addition, the
Company's distributors resell the Company's marine products to over 400
authorized dealers (including boatyards and marinas) located on or near
major navigable waterways throughout the United States and Canada. These
dealers install the Company's generator sets, propulsion engines and air-
conditioners as either new or replacement equipment. In addition, many of
these dealers maintain inventories of spare parts and accessories in order
to maintain and repair the Company's marine products.
The Company's distributor network consists of 10 domestic and 53
foreign distributors. The Company's domestic distributors are located along
the East, West and Gulf Coasts and in the Great Lakes Region. Two of the
Company's foreign distributors are located and operate in Canada, 17 are
located and operate in Europe, seven are located and operate in Central and
South America, and ten are located and operate in the Far East. The Company
also has distributors in Australia, New Zealand, Pakistan, Egypt, Israel,
Bahrain, Bermuda, Tahiti, the British West Indies, the U.S. Virgin Islands,
British Virgin Islands, Martinique, St. Maarten, Puerto Rico, Mexico,
Maldives and the Netherlands Antilles. Each distributor operates in a
specified region under a distribution agreement with the Company which
assigns to the distributor the nonexclusive responsibility for sales and
service of the Company's products in its territory, including warranty
administration, accounts receivable collection and other customer related
functions. Each distributor maintains inventories of the Company's marine
products, including spare parts and accessories, in order to provide boat
manufacturers and dealers with prompt delivery of products. Typically, the
Company's distributors and dealers also distribute and sell other marine
accessories and products. Generally, however, the Company's distributors do
not sell products which compete with the Company's products.
Sales to international customers totaled $2,305,500 (8.8% of net
sales), $2,843,400 (11.5% of net sales) and $2,594,500 (12.6% of net sales)
for the fiscal years ended October 1998, 1997 and 1996, respectively. See
Note 2 of Notes to Consolidated Financial Statements included in "Item 8 -
Financial Statements and Supplementary Data" for additional information
concerning sales to international customers for the Company's three most
recent fiscal years. Management is not aware of any special tariffs,
importation quotas or any other restrictions imposed by the foreign
countries in which the Company sells its products. All of the Company's
international sales are dollar-denominated which protects the Company to
some extent against foreign currency exchange rate fluctuations, although
significant increases in the value of the dollar in relation to foreign
currencies may adversely impact the Company's ability to market its products
abroad. Management believes that, to varying degrees, the Company's
competitors in the marine product market are similarly affected since many
of its competitors also sell products abroad. However, some of the
Company's principal competitors are divisions of large and diversified
multinational companies with extensive production facilities and sales and
marketing staffs and substantially greater financial resources than the
Company and therefore may be better situated to accommodate fluctuations in
exchange rates. Management is not aware of any other unusual or special
risks associated with this aspect of the Company's business. The Company
considers international customers to be an important market for its marine
products.
An important aspect of the Company's marketing approach and
competitive position is the ability of its technical personnel and its
distributors to provide technical assistance to boat manufacturers and
dealers with a view to developing specifications and performance parameters
for unit or serial production of its marine products. To that end, the
Company selects its distributors with great care and continually monitors
their technical expertise. In addition, at times the Company conducts
seminars in each distribution region. These sessions are conducted by
personnel from the Company and from its distributors and are open to boat
manufacturers, dealers and individual boat owners. The Company occasionally
sponsors service schools at its manufacturing facility designed to upgrade a
distributor's technical expertise and to introduce product innovations and
new products. See "Competition" below.
The Company markets the Westerbeke(R), Universal(R) and Rotary Aire(R)
names and its marine products through various methods of advertising.
Certain advertising is accomplished under a cooperative system with the
Company's distributors. Under this system, the Company pays a portion of
the cost of and approves the advertising developed by its distributors.
Advertisements are placed in trade publications such as Soundings, Motor
Boating and Sailing, Sail, Power & Motor Yacht and Cruising World. In
addition, a substantial amount of the Company's advertising is conducted
through the distribution of technical and sales literature and pamphlets,
direct mailings and sponsorship of exhibits at boat shows. During the
fiscal years ended October 1998, 1997 and 1996, the Company incurred
advertising and promotional expenses of $528,400, $520,900, and $453,200,
respectively.
For the fiscal year ended October 24, 1998, sales to Sea Ray Boats,
Inc. and Marysville Marine Distributors, Inc., accounted for approximately
22.0% and 18.0%, respectively, of the Company's total sales. See Note 2 of
Notes to Consolidated Financial Statements included in " Item 8 - Financial
Statements and Supplementary Data" and "Item 7 - Management's Discussion and
Analysis of Financial Condition and Results of Operations." The Company
believes that, if necessary, it could replace any of its distributors or
sell the products presently distributed by them directly to boat
manufacturers and dealers. However, the loss of these customers or the
inability to replace these distributors could have a material adverse effect
on the Company.
The market for the Company's products is dependent on the market for
recreational boats, including auxiliary powered sailboats, powerboats,
houseboats and other pleasure boats. In addition, the recreational marine
boat business is seasonal in nature and accordingly, the Company's business
generally experiences some fluctuations in its business during the course of
the year. See Note 14 of Notes to Consolidated Financial Statements
included in "Item 8 - Financial Statements and Supplementary Data."
Proprietary Rights
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Although the Company follows a policy of protecting its proprietary
rights to its marine engine products and designs, it does not believe that
its business, as a whole, is materially dependent upon such protection. The
Company has registered the names Westerbeke(R), Universal(R), Rotary Aire(R)
and Atomic Four(R) under Federal trademark law.
Backlog and Credit Terms
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The Company believes that because its production is based upon
cancelable purchase orders rather than long-term agreements, the amount of
its backlog is not an important indicator of future sales. The Company
extends credit to certain of its customers on terms which it believes are
normal and customary in the marine industry.
Competition
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The business of manufacturing and supplying marine products is
extremely competitive. The Company faces competition from a number of
companies, including at least seven significant competitors, some of which
are divisions of large and diversified multinational companies with
extensive production facilities and sales and marketing staffs and
substantially greater financial resources than the Company. Such
competitors may be better situated to accommodate price increases from
suppliers due to fluctuations in exchange rates. In addition, the Company
faces competition from similar companies as it expands its product line or
seeks other non-marine applications for its product line. Although price is
an important competitive factor, the Company believes that its pricing is
competitive.
The market for the Company's marine products is dependent on the
market for recreational boats which may experience contracting sales as a
result of general economic conditions. A contracting market may result in
additional competition particularly for direct sales to large boat
manufacturers.
The Company believes that it can compete effectively with all of its
present competitors based upon the high quality, reliability, performance
and longevity of its products, the comprehensiveness of its line of
products, price, the effectiveness of its customer service and the technical
expertise of its personnel and that of its distributors.
Employees
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At December 31, 1998, the Company had 104 full-time employees,
including officers and administrative personnel. None of the Company's
employees is covered by a collective bargaining agreement and the Company
considers its relationship with its employees to be excellent.
Directors and Executive Officers of the Company
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The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Position with the Company Age
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<S> <S> <C>
John H. Westerbeke, Jr Chairman, President and 58
Director (Class C)
John H. Westerbeke, Sr Director (Class C) 89
Carleton F. Bryant, III Executive Vice President, 53
Treasurer, Chief Operating
Officer and Secretary
Gerald Bench Director (Class A) 57
Thomas M. Haythe Director (Class B) 59
Nicholas H. Safford Director (Class B) 66
James W. Storey Director (Class B) 64
</TABLE>
John H. Westerbeke, Jr. has been President and a director of the
Company since 1976. In June 1986, Mr. Westerbeke, Jr. assumed the
additional position of Chairman of the Company. Mr. Westerbeke, Jr. has
served in various managerial capacities since joining the Company in 1966.
John H. Westerbeke, Sr. is the founder of the Company. Mr.
Westerbeke, Sr. has served as a director of the Company since 1946 and was
Chairman of the Board of Directors of the Company from 1976 until June 1986.
Mr. Westerbeke, Sr. is presently employed by the Company in various
engineering capacities.
Carleton F. Bryant, III has been Executive Vice President, Treasurer,
Chief Operating Officer, and Secretary of the Company since May 1993. From
October 1987 to May 1993, Mr. Bryant was Director of Business Development
for Analysis & Computer Systems, Inc., a developer of computer software and
systems. From June 1980 to October 1987, Mr. Bryant held various management
positions with Bird-Johnson Company, a manufacturer of ship propellers, bow
thrusters and hydraulic actuators. From 1969 to 1980, Mr. Bryant held a
variety of management positions with Bath Iron Works Corporation, a
shipbuilder.
Gerald Bench has been a director of the Company since June 1986. Mr.
Bench has been the President and Chief Executive Officer of Hadley Fruit
Orchards, Inc. since November 1996 and was a consultant from March 1995 to
November 1996. Mr. Bench was a partner in ICAP Marine Group (consulting
firm) from November 1993 to February 1995. Mr. Bench was the Chairman and
President of TDG Aerospace, Inc. (manufacturer of aircraft de-icing devices)
from October 1991 to November 1993. Mr. Bench was the President of
Thermion, Inc. (manufacturer of heaters for aircraft de-icing devices) from
April 1990 to September 1991. From July 1989 to March 1990, Mr. Bench was
the general manager of Lermer Corporation (manufacturer of airline galley
equipment). Mr. Bench is the former Chairman of the Board, President, Chief
Executive Officer and director of E&B Marine Inc. (marine supplies and
accessories). Mr. Bench had held various executive positions with E&B
Marine Inc. for more than 30 years.
Thomas M. Haythe has been a director of the Company since June 1986.
Mr. Haythe has been a partner of the law firm of Haythe & Curley since its
formation in February 1982. Mr. Haythe is also a director of Novametrix
Medical Systems Inc. (manufacturer of electronic medical instruments), Guest
Supply, Inc. (provider of hotel guest room amenities, accessories and
products) and Ramsay Youth Services, Inc. (provider of youth and educational
services).
Nicholas H. Safford has been a director of the Company since February
1991. Mr. Safford has been the President of Nicholas H. Safford & Co., Inc.
(investment counselor and private trustee) since 1983 and from 1979 to 1981.
From 1982 to 1983, Mr. Safford was the President and a director of Wendell,
Safford and Co., Inc. (investment counseling firm). Prior to 1978, Mr.
Safford was Vice President and a director of David L. Babson & Co., Inc.
(investment counseling firm).
James W. Storey has been a director of the Company since June 1986.
Mr. Storey was the President of Wellingsley Corporation (private investment
management company) from December 1986 through December 1992. Mr. Storey is
currently an independent consultant. From 1982 to 1986, Mr. Storey was the
President and Chief Executive Officer of Codex Corporation, a subsidiary of
Motorola, Inc., and was a Vice President of Motorola, Inc. Mr. Storey had
held various managerial positions with Codex Corporation since 1966. Mr.
Storey is also a director of Progress Software Corporation (software).
ITEM 2. PROPERTIES.
The Company's executive and administrative offices and manufacturing
operations are located in Avon, Massachusetts in an approximately 37, 500
square foot facility owned by the Company. The Company also leases a
warehouse of approximately 26,000 square feet. Management believes that the
Company's present facilities are sufficient for the production of its
products in the foreseeable future. Any future expansion will be dependent
upon future growth in demand for the Company's products. Annual warehouse
rent was approximately $141,300 in fiscal 1998 and $137,200 in fiscal 1997.
See Notes 8 and 10 of Notes to Consolidated Financial Statements included in
"Item 8 - Financial Statements and Supplementary Data."
ITEM 3. LEGAL PROCEEDINGS.
The Company has initiated arbitration with the American Arbitration
Association in New York against Daihatsu Motor Company, Ltd. ("Daihatsu")
for breach of contract and other claims. The Company is seeking damages
based on Daihatsu's breach of a Component Sales Agreement which also granted
the Company rights to certain engines including an engine Daihatsu began
marketing in 1993 through a joint venture with Briggs & Stratton
Corporation. In a separate but related case pending in the Federal District
Court for the District of Massachusetts, the Company is seeking damages from
Briggs & Stratton Corporation for tortious interference with the Company's
Agreement with Daihatsu and other related claims.
In addition, from time to time, the Company is party to certain
claims, suits and complaints which arise in the ordinary course of business.
Currently, there are no such claims, suits or complaints which, in the
opinion of management, would have a material adverse effect on the Company's
financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The Company's Common Stock is traded in the over-the-counter market on
the National Association of Securities Dealers Automated Quotation System
("NASDAQ") under the symbol WTBK. On January 14, 1999, there were
approximately 149 shareholders of record. The following table sets forth
the range of high and low sales prices per share of the Company's Common
Stock from October 27, 1996 through October 24, 1998, on the NASDAQ.
<TABLE>
<CAPTION>
Common Stock Prices
High Low
---- ---
<S> <C> <C>
FISCAL 1997
First Quarter (October 27, 1996 to
January 25, 1997) $2.875 $2.375
Second Quarter (January 26, 1997 to
April 26, 1997) 3.312 2.750
Third Quarter (April 27, 1997 to
July 26, 1997) 3.750 2.750
Fourth Quarter (July 27, 1996 to
October 25, 1997) 5.469 3.500
FISCAL 1998
First Quarter (October 26, 1997 to
January 24, 1998) $4.750 $3.750
Second Quarter (January 25, 1998 to
April 25, 1998) 4.250 3.250
Third Quarter (April 26, 1998 to
July 25, 1998) 4.000 2.938
Fourth Quarter (July 26, 1998 to
October 24, 1998) 3.375 2.625
</TABLE>
On January 14, 1999, the last high and low sales price for the
Company's Common Stock were $2.906 and $2.906, respectively.
No dividends have been paid or declared on the Common Stock of the
Company and the Company does not expect to pay any dividends on its Common
Stock in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA.
Five Year Comparison of Selected Financial Data
<TABLE>
<CAPTION>
October 24, October 25, October 26, October 28, October 29,
1998 1997 1996 1995 1994
-----------------------------------------------------------------------
For the Year: (In thousands, except for per share amount)
<S> <C> <C> <C> <C> <C>
Net sales $26,202 $24,620 $20,653 $18,794 $15,038
Gross profit 5,966 5,556 4,778 4,292 3,399
Selling, general and
administrative expense 3,684 3,106 2,672 2,514 2,223
Research and development expense 1,181 1,030 919 679 488
Income from operations 1,100 1,420 1,187 1,099 688
Interest (income) expense 10 71 (47) (43) (19)
Income before cumulative effect of
change in accounting principle 644 799 737 698 432
Net income 644 799 737 698 633
Income per share before
cumulative effect of
change in accounting method 0.31 0.37 0.33 0.31 0.19
Net income per share, diluted* 0.31 0.37 0.33 0.31 0.28
At end of year:
Total assets $14,670 $14,811 $12,681 $10,999 $10,264
Working capital 5,650 5,800 6,315 5,908 5,733
Long-term liabilities 893 1,069 520 189 267
Stockholders' equity 10,719 10,136 9,841 9,091 8,319
<FN>
<F*> See Note 1 of Notes to Consolidated Financial Statements.
</FN>
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Results of Operations:
The following table sets forth, for the years indicated, the percentages
which the following items in the Consolidated Statements of Operations bear
to Net Sales.
<TABLE>
<CAPTION>
Years Ended
-----------------------------------------
October 24, October 25, October 26,
1998 1997 1996
-----------------------------------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Gross profit 22.8 22.6 23.1
Selling, general and administrative expense 14.1 12.6 12.9
Research and development expense 4.5 4.2 4.4
Income from operations 4.2 5.8 5.7
Interest income (expense), net 0.0 (0.3) 0.2
Provision for income taxes 1.7 2.2 2.4
Net income 2.5 3.2 3.6
</TABLE>
Fiscal 1998 compared to Fiscal 1997
- -----------------------------------
Net sales increased $1,581,700 or 6.4% in fiscal 1998 as compared to fiscal
1997. The increase was attributable to higher unit sales of the Company's
marine generators, primarily the result of more favorable economic
conditions benefiting the pleasure boat industry. International sales were
$2,305,500 in 1998, representing 8.8% of net sales, as compared to
$2,843,400 in 1997, or 11.5% of net sales. The decrease in 1998 was the
result of less than favorable economic conditions in the Far East.
Gross profit increased $409,400 or 7.4% in fiscal 1998 as compared to fiscal
1997. Gross profit as a percentage of sales increased to 22.8% in fiscal
1998 as compared to 22.6% in fiscal 1997.
Selling, general and administrative expense increased $578,600 or 18.6% in
fiscal 1998 as compared to fiscal 1997. The increase was primarily the
result of higher legal costs associated with the legal proceeding against
one of its former "long block" suppliers and also an increase in the
warranty expense during the year.
Research and development expense increased $150,600 or 14.6% in fiscal 1998
as compared to fiscal 1997. The increase is due to additional engineering
personnel, education and training expenses and costs associated with
bringing the replacement "long block" engines into full production. The
Company also experienced increased costs to comply with federal and state
exhaust requirements for existing and new engines. See "Business -
Governmental Regulation."
Net interest expense was $9,900 in fiscal 1998 compared to $71,000 in fiscal
1997. The decrease is primarily due to a decrease in the loan balance used
for operating purposes during the year.
The Company's income tax expense in fiscal 1998 was $446,700 as compared to
$550,000 in fiscal 1997.
The Company's net income was $643,500 as compared to $798,900 in fiscal
1997. The decrease is mainly attributable to the increase in selling,
general and administrative expenses.
The Company is currently renegotiating its exclusive agreement with its
largest customer. The existing agreement will expire on June 30, 1999. The
Company cannot predict the results of these negotiations. The loss of the
revenues associated with this agreement would have a material effect on the
Company's operating results and financial condition if the Company was
unable to replace the business and or reduce operating expenses.
Fiscal 1997 compared to Fiscal 1996
- -----------------------------------
Net sales increased $3,967,400 or 19.2% in fiscal 1997 as compared to fiscal
1996. The increase was attributable to higher unit sales of the Company's
marine generators. The overall increase is primarily the result of more
favorable economic conditions benefiting the pleasure boat industry.
International sales were $2,843,400 in 1997, representing 11.5% of net
sales, as compared to $2,594,500 in 1996, or 12.6% of net sales.
Gross profit increased $778,100 or 16.3% in fiscal 1997 as compared to
fiscal 1996. Gross profit as a percentage of sales decreased to 22.6% in
fiscal 1997 as compared to 23.1% in fiscal 1996. The decrease in gross
profit percentage is primarily due to the costs associated with the
cessation of supply of "long block" engines from one supplier and the
development of replacement products based on another supplier's engine.
Selling, general and administrative expense increased $433,800 or 16.2% in
fiscal 1997 as compared to fiscal 1996. The Company incurred higher
marketing and promotional expenses due to increased boat show and travel
activity. Employee compensation costs were also higher as a result of the
Company's improved profitability. In addition, legal expenses increased in
fiscal 1997.
Research and development expense increased $111,600 or 12.1% in fiscal 1997
as compared to fiscal 1996. The increase is primarily due to the costs of
developing products using "long block" engines from a new supplier which
will replace the engines that could no longer be obtained from an existing
supplier. The Company also experienced increased costs to comply with
federal and state exhaust requirements for existing and new engines. See "
Business - Governmental Regulation."
One of the Company's vendors of "long block" engines stopped supplying
engines to the Company in fiscal 1997. The Company's existing inventory of
this vendor's engines was nearly exhausted at the end of the fiscal year.
The Company was able to obtain similar "long block" engines from another
source, but there have been, and will continue to be, added costs associated
with making this change. A portion of the costs to obtain replacement "long
block" engines from another supplier and to develop replacement products
based on those engines are reflected in the decreased gross profit as a
percentage of sales and in the increased research and development costs
experienced in fiscal 1997. The Company anticipates that there will be
added costs in fiscal 1998 associated with bringing the new products into
full production and introducing them to the market, which will adversely
affect gross margins and research and development costs.
Net interest expense was $71,000 in fiscal 1997 compared to net interest
income of $47,400 in fiscal 1996. The increase in interest expense is
primarily due to the interest expense incurred on the loans used for
operating purposes throughout the year.
The Company's income tax expense in fiscal 1997 was $550,000 as compared to
$497,200 in fiscal 1996.
The Company's net income was $798,900 as compared to $737,400 in fiscal
1996. The increase is mainly attributable to higher unit sales throughout
fiscal 1997.
Liquidity and Capital Resources
- -------------------------------
During fiscal 1998, net cash provided by operations was $1,191,600 as
compared to $924,000 in fiscal 1997. The decrease in inventories and the
increase in accounts payable is primarily the result of the timing of engine
purchase order receipts.
During fiscal 1998 and 1997, the Company purchased property, plant and
equipment of $444,300 and $578,000, respectively. The Company plans capital
spending of approximately $500,000 on machinery and equipment during fiscal
1999.
The Company has a $4,000,000 Credit Agreement with State Street Bank and
Trust Company, collateralized by inventory, accounts receivable and general
intangibles. The Credit Agreement was renewed on March 31, 1998, and will
expire on March 31, 1999. The Company believes that it will be able to
continue to extend the term of the Credit Agreement on commercially
reasonable terms. As of October 24, 1998, the Company had approximately
$3,459,300 in unused borrowing capacity under the Credit Agreement and
approximately $150,900 committed to cover the Company's reimbursement
obligations under certain open letters of credit and bankers' acceptances.
On April 25, 1997, the Company entered into a $300,000 revolving line of
credit agreement (the "1997 Revolving Line of Credit") and term loan
facility with State Street Bank and Trust Company, collateralized by various
items of emission testing and product development equipment and subject to
working capital and equity covenants. On June 30, 1997, the 1997 Revolving
Line of Credit terminated and automatically converted into a five-year term
loan bearing a fixed interest rate of 8.11%. At October 24, 1998, the
outstanding principal amount was $220,800.
On January 23, 1996, the Company entered into a $500,000 revolving line of
credit agreement (the "Revolving Line of Credit") and term loan facility
with State Street Bank and Trust Company, collateralized by various emission
testing and product development equipment and subject to working capital and
equity covenants. On July 31, 1996, the Revolving Line of Credit terminated
and automatically converted into a five year term loan in the principal
amount of $491,600 bearing a fixed interest rate of 8.08%. As of October
24, 1998, the outstanding principal amount was $275,900.
Management believes cash flow from operations and borrowings available under
the Credit Agreement will provide for working capital needs, principal
payments on long-term debt, and capital and operating leases through fiscal
1999.
Domestic inflation is not expected to have a major impact on the Company's
operations.
The costs of engine blocks and other components are subject to foreign
currency fluctuations (primarily the Japanese yen). The value of the U.S.
dollar relative to the yen had no material effect on the cost of the
Company's products in fiscal 1998.
Year 2000 Compliance
- --------------------
The Company is aware of the potential for industry wide business disruption
which could occur due to problems related to the "Year 2000 Issue." It is
the belief of the Company's management that it has a prudent plan to address
these issues within the Company and with its suppliers. The components of
the Company's plan include an assessment of internal systems for
modification and/or replacement, communication with vendors to determine
their state of readiness to maintain an uninterrupted supply of goods and
services to the Company; an evaluation of the Company's production equipment
as to its ability to function properly after the turn of the century; an
evaluation of facility related issues; and the development of a contingency
plan.
State of Readiness
The Company has developed a plan to reduce the probability of operational
difficulties due to Year 2000 related failures. While there is still a
significant amount of work to do, the Company believes that it is on track
towards a timely completion.
Internal Systems (Information Technology)
The Company is in the process of completing its assessment of all
information technology systems that could be significantly affected by the
Year 2000 issue. The assessment has indicated that certain systems are
already Year 2000 compliant while others are still in the process of being
remediated. The Company has received from its software vendor the updated
software necessary to make its operating system Year 2000 compliant, which
the Company anticipates will be installed by the end of its second quarter.
Suppliers
The Company is in the process of communicating with its external vendors to
gain an understanding of their readiness to maintain an uninterrupted supply
of goods and services to the Company. The Company has identified vendors it
views as critical to its business. The Company is defining a critical
vendor as one whose inability to continue to provide goods and services
would have a serious adverse impact on the Company's ability to produce,
deliver and collect payment. To date, the Company is not aware of any
supplier with a Year 2000 issue that would materially impact the results of
operations, liquidity or capital resources. However, the Company has no
means of ensuring that suppliers will be Year 200 ready. The inability of
suppliers to complete their Year 2000 resolution process in a timely fashion
could materially impact the Company.
Production Equipment
The Company has completed an inventory of production equipment currently
used at the Company. The Company has determined the Year 2000 readiness of
its equipment through communication with the equipment manufacturers and
testing where appropriate. The Company is not aware of any production
equipment that is effected by the Year 2000 issue.
Facility Related Issues
The Company is in the process of evaluating facilities related equipment
with the potential for Year 2000 related failures. The Company will
determine the Year 2000 readiness of its equipment through communication
with the equipment manufacturers and testing where appropriate. It is the
Company's intention to repair or replace non-compliant equipment prior to
operating difficulties. The Company, as in most companies, remains aware of
the potential for imbedded logic within microchips to cause equipment
failure. The Company believes that it has a prudent approach towards
evaluating facilities equipment, however, it may be impracticable or
impossible to test certain items of equipment for Year 2000 readiness. To
the extent such untested equipment is not Year 2000 ready, it may fail to
operate on January 1, 2000, resulting in possible interruption of security,
heating, telephone and other services.
Costs
The Company is evaluating the total cost of Year 2000 compliance. At this
time, the Company estimates the total cost of Year 2000 related activities
to be approximately $75,000. This amount is not incremental spending and
has been budgeted within the normal magnitude of Information Technology
spending. This amount includes the replacement of hardware and applications
that are outdated and were due for replacement regardless of Year 2000
issues.
Contingency Plan
Although the Company believes that it is taking prudent action related to
the identification and resolution of issues related to the Year 2000, its
assessment is still in progress. The Company may never be able to know with
certainty whether certain key vendors are compliant. Failure of key vendors
to make their computer systems Year 2000 compliant could result in delayed
deliveries of products to the Company. If such delays are extended they
could have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company continues to evaluate the risks associated with potential Year
2000 related failures. As it better understands the risks within its unique
set of business partners, production processes, and internal systems, it
will develop a formal contingency plan outlined by April 1999. Until the
contingency plan is completed, the Company does not possess the information
necessary to estimate the potential impact of Year 2000 compliance issues
relating to its Information Technology systems, non-Information Technology
systems, its vendors, its customers, and other parties.
This Annual Report on Form 10-K may contain forward-looking information
about the Company. The Company is hereby setting forth statements
identifying important factors that may cause the Company's actual results to
differ materially from those set forth in any forward-looking statements
made by the Company. Some of the most significant factors include: an
unanticipated down-turn in the recreational boating industry resulting in
lower demand for the Company's products; the unanticipated loss of, or
decline in sales to, a major customer; the unanticipated loss of a major
supplier; the inability of the Company to effect required modifications of
its products to meet governmental regulations with respect to emission
standards; the unanticipated inability of the Company to be Year 2000
compliant; and foreign currency fluctuations resulting in cost increases to
the Company for its foreign supplied components. Accordingly, there can be
no assurances that any anticipated future results will be achieved.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
WESTERBEKE CORPORATION AND SUBSIDIARY
-------------------------------------
CONSOLIDATED FINANCIAL STATEMENTS
For the years ended October 24, 1998,
October 25, 1997 and October 26, 1996
KPMG Peat Marwick LLP
99 High Street Telephone 617 988 1000 Telefax 617 988 0800
Boston, MA 02110-2371
Independent Auditors' Report
----------------------------
To the Board of Directors and Stockholders of
Westerbeke Corporation:
We have audited the accompanying consolidated balance sheets of Westerbeke
Corporation and subsidiary as of October 24, 1998 and October 25, 1997, and
the related consolidated statements of operations, changes in stockholders'
equity, and cash flows for each of the years in the three-year period ended
October 24, 1998. In connection with our audits of the consolidated
financial statements, we have also audited the financial statement schedule
as listed in Item 14(a) 2. These consolidated financial statements and
financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Westerbeke Corporation and subsidiary as of October 24, 1998 and October 25,
1997, and the results of their operations and their cash flows for each of
the years in the three-year period ended October 24, 1998, in conformity
with generally accepted accounting principles. Also in our opinion, the
related financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein.
By /s/ KPMG Peat Marwick LLP
----------------------------
Boston, Massachusetts
December 23, 1998
WESTERBEKE CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
October 24, October 25,
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 101,900 $ 156,900
Accounts receivable, net of allowance for doubtful accounts
of $59,200 and $63,900, respectively (Note 2) 2,292,900 1,949,000
Inventories (Note 3) 5,391,600 6,254,300
Prepaid expenses and other assets 343,000 301,600
Prepaid income taxes - 212,000
Deferred income taxes (Note 9) 578,600 532,200
---------------------------
Total current assets 8,708,000 9,406,000
Property, plant and equipment, net (Notes 4,8 and 10) 2,161,500 2,139,300
Other assets, net (Note 5) 2,002,100 1,597,100
Investments in marketable securities (Note 1) 1,690,700 1,545,500
Note receivable - related party (Note 6) 108,000 122,800
---------------------------
$14,670,300 $14,810,700
===========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (Notes 8 and 10) $ 189,700 $ 213,100
Revolving demand note payable (Note 7) 200,000 600,000
Accounts payable 1,905,900 2,227,900
Accrued expenses and other liabilities 668,900 564,600
Accrued income taxes (Note 9) 93,900 -
---------------------------
Total current liabilities 3,058,400 3,605,600
---------------------------
Deferred income taxes (Note 9) 154,900 304,200
Deferred compensation 320,700 159,600
Long-term debt, net of current portion (Notes 8 and 10) 417,400 605,400
---------------------------
893,000 1,069,200
---------------------------
Commitments and contingencies (Notes 7 and 10)
Stockholders' equity (Notes 11 and 12):
Common stock, $.01 par value; authorized 5,000,000 shares; issued
2,185,950 shares in 1998 and 2,156,950 in 1997. 21,900 21,600
Additional paid-in-capital 6,025,300 5,996,600
Unrealized gain on marketable securities (Note 1) 151,200 240,700
Retained earnings 5,276,500 4,633,000
---------------------------
11,474,900 10,891,900
Less - Treasury shares at cost, 268,138 shares in 1998 and 1997 756,000 756,000
---------------------------
Total stockholders' equity 10,718,900 10,135,900
---------------------------
$14,670,300 $14,810,700
===========================
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
WESTERBEKE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended
-----------------------------------------
October 24, October 25, October 26,
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net sales (Note 2) $26,202,000 $24,620,300 $20,652,900
Cost of sales 20,236,500 19,064,200 15,874,900
-----------------------------------------
Gross profit 5,965,500 5,556,100 4,778,000
Selling, general and administrative expense 3,684,500 3,105,900 2,672,100
Research and development expense 1,180,900 1,030,300 918,700
-----------------------------------------
Income from operations 1,100,100 1,419,900 1,187,200
Interest income (expense), net (9,900) (71,000) 47,400
-----------------------------------------
Income before income taxes 1,090,200 1,348,900 1,234,600
Provision for income taxes (Note 9) 446,700 550,000 497,200
-----------------------------------------
Net income $ 643,500 $ 798,900 $ 737,400
=========================================
Income per common share, basic $ .34 $ .40 $ .36
=========================================
Income per common share, diluted $ .31 $ .37 $ .33
=========================================
Weighted average common shares - diluted basic 1,914,546 1,995,155 2,072,092
=========================================
Weighted average common shares - diluted 2,077,125 2,159,114 2,248,678
=========================================
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
WESTERBEKE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Three years ended October 24, 1998
<TABLE>
<CAPTION>
Additional Unrealized Gain Total
Common Stock Paid-in on Marketable Retained Treasury Stockholders'
Shares Amount Capital Securities Earnings Stock Equity
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 28, 1995 2,064,650 $20,600 5,902,100 71,200 3,096,700 - 9,090,600
Exercise of stock options 58,300 600 57,700 - - - 58,300
Repurchase of 44,400 shares - - - - - (133,200) (133,200)
Unrealized gain on
marketable securities - - - 87,900 - - 87,900
Net Income - - - - 737,400 - 737,400
---------------------------------------------------------------------------------------------
October 26, 1996 2,122,950 21,200 5,959,800 159,100 3,834,100 (133,200) 9,841,000
Exercise of stock options 34,000 400 36,800 - - - 37,200
Repurchase of 223,738 shares - - - - - (622,800) (622,800)
Unrealized gain on
marketable securities - - - 81,600 - - 81,600
Net Income - - - - 798,900 - 798,900
---------------------------------------------------------------------------------------------
October 25,1997 2,156,950 21,600 5,996,600 240,700 4,633,000 (756,000) 10,135,900
Exercise of stock options 29,000 300 28,700 - - - 29,000
Unrealized loss on
marketable securities - - - (89,500) - - (89,500)
Net Income - - - - 643,500 - 643,500
---------------------------------------------------------------------------------------------
October 24, 1998 2,185,950 $21,900 6,025,300 151,200 5,276,500 (756,000) 10,718,900
=============================================================================================
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
WESTERBEKE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended
-----------------------------------------
October 24, October 25, October 26,
1998 1997 1996
-----------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 643,500 $ 798,900 $ 737,400
Reconciliation of net income to net cash
provided (used) by operating activities:
Depreciation and amortization 428,800 417,700 404,700
Loss on disposal of fixed assets 15,000 - -
Deferred income taxes (195,700) 87,500 (143,500)
Changes in operating assets and liabilities:
Accounts receivable (343,900) 369,500 (777,100)
Inventories 862,700 (826,300) (1,114,500)
Prepaid expenses and other assets (41,400) (52,600) (114,900)
Prepaid income taxes 212,000 (212,000) -
Other assets (426,700) (414,200) (85,500)
Accounts payable (322,000) 597,600 552,700
Accrued expenses and other liabilities 104,300 7,200 177,000
Deferred compensation 161,100 159,600 -
Accrued income taxes payable 93,900 (8,900) (217,400)
-----------------------------------------
Net cash provided (used) by operating activities 1,191,600 924,000 (581,100)
-----------------------------------------
Cash flows from investing activities:
Purchase of property, plant and equipment (444,300) (578,000) (570,400)
Proceeds from payment of note receivable -
related party 14,800 13,800 12,800
Investment in marketable securities (234,700) (541,700) (348,300)
-----------------------------------------
Net cash used in investing activities (664,200) (1,105,900) (905,900)
-----------------------------------------
Cash flows from financing activities:
Exercise of stock options 29,000 37,200 58,300
Net (repayments) borrowings under revolving
demand note (400,000) 600,000 -
Purchase of treasury stock - (622,800) (133,200)
Proceeds from equipment line - 300,000 491,600
Principal payments on long-term debt and
capital lease obligations (211,400) (176,100) (51,400)
-----------------------------------------
Net cash provided (used) by financing activities (582,400) 138,300 365,300
-----------------------------------------
Decrease in cash and cash equivalents (55,000) (43,600) (1,121,700)
Cash and cash equivalents, beginning of year 156,900 200,500 1,322,200
-----------------------------------------
Cash and cash equivalents, end of year $ 101,900 $ 156,900 $ 200,500
=========================================
Supplemental cash flow disclosures:
Interest paid $ 167,600 $ 136,600 $ 24,900
Income taxes paid $ 266,000 $ 849,000 $ 857,900
Supplemental disclosures of non-cash flow items:
Equipment purchase under capital lease - $ 175,000 -
Increase (decrease) in unrealized gains on
marketable securities, net of income taxes $ (89,500) $ 81,600 $ 87,900
=========================================
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 24, 1998, October 25, 1997 and October 26, 1996
1. Summary of Significant Accounting Policies:
The Company is primarily engaged in the business of designing, manufacturing
and marketing marine engine and air-conditioning products.
Principles of Consolidation
The consolidated financial statements include the accounts of Westerbeke
Corporation (the "Company"), and its wholly owned subsidiary, Westerbeke
International, Inc. (a foreign sales corporation). Westerbeke
International, Inc. was inactive during fiscal years 1998, 1997, and 1996.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses. Actual results could differ from these estimates.
Cash Equivalents
All highly liquid investments with an original maturity of three months or
less are considered to be cash equivalents.
Investments in Marketable Securities
Marketable investment securities at October 24, 1998 and October 25, 1997
consist of equity securities in various mutual funds. The Company employs
the provisions of Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities (Statement
115). Under Statement 115, the Company classifies its marketable securities
in one of two categories: trading or available-for-sale.
Trading and available-for-sale securities are recorded at fair value.
Unrealized holding gains and losses on trading securities are included in
earnings. Unrealized holding gains and losses, on available-for-sale
securities are excluded from earnings and are reported as a separate
component of stockholders' equity until realized. Transfers of securities
between categories are recorded at fair value at the date of transfer.
Unrealized holding gains and losses are recognized in earnings for transfers
into trading securities.
A decline in the market value of any available-for-sale security below cost
that is deemed other than temporary is charged to earnings resulting in the
establishment of a new cost basis for the security.
Dividend and interest income are recognized when earned. Realized gains and
losses, if any, for securities classified as available-for-sale are included
in earnings with cost determined using the specific identification method.
Marketable investment securities at October 24, 1998 include equity
securities, principally mutual funds for which the Company has both intent
and ability to hold. Equity securities are stated at the fair market value
at October 24, 1998 and at October 25, 1997. The total cost of the
marketable securities at October 24, 1998 was $1,437,500. The total cost of
marketable securities at October 25, 1997 was $1,139,300. Unrealized holding
gains in investment securities, net of income taxes, at October 24, 1998 and
October 25, 1997 were $151,200 and $240,700, respectively.
Inventories
Inventories are valued at the lower of cost (determined on the last-in,
first-out method) or market.
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company accounts for long-lived assets in accordance with the provisions
of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of. This Statement requires that long-
lived assets and certain identifiable intangibles be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of assets to be
held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceed the
fair value of the assets. Assets to be disposed of are reported at the
lower of the carrying amount or fair value less costs to sell.
Depreciation and Amortization
The Company computes depreciation and amortization expense on a straight-
line basis over the following estimated useful lives:
<TABLE>
<CAPTION>
Asset Classification Estimated Useful Lives
- -------------------- ----------------------
<S> <C>
Building and building improvements 15 - 40 years
Machinery and equipment 10 years
Patterns 5 years
Furniture and fixtures 5 - 10 years
Transportation equipment 3 - 5 years
Equipment under capital lease 5 - 10 years
Intangibles 3 - 17 years
</TABLE>
Intangible assets are classified in other assets. Maintenance and repairs
are charged to expense in the period incurred. The cost and accumulated
depreciation of assets retired or sold are removed from the accounts and any
gain or loss is credited or charged to income.
Leasehold improvements are amortized on a straight-line basis over the
shorter of the life of the lease or their estimated useful lives.
Revenue Recognition
The Company recognizes revenue upon shipment of product.
Fair Value of Financial Instruments
Financial instruments of the Company consist of cash, cash equivalents,
accounts receivable, accounts payable and accrued liabilities. The carrying
value of these financial instruments approximates their fair value because
of the short maturity of these instruments. Based upon borrowing rates
currently available to the Company for issuance of similar debt with similar
terms and remaining maturities, the estimated fair value of long-term debt
approximates their carrying amounts.
Product Warranty Cost
The anticipated costs related to product warranty are expensed at the time
of sale of the product. Accrued warranty expense of $330,000 and $225,000 is
included in accrued expenses and other liabilities at October 24, 1998 and
October 25, 1997, respectively.
Income Taxes
The Company uses the asset and liability method of accounting for income
taxes. Under the asset and liability method of Statement 109, deferred
income taxes are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. Under Statement 109, the effect on
deferred taxes of a change in tax rate is recognized in income in the period
that includes the enactment date.
Net Income Per Share
Basic income per common share is computed by dividing income available to
common stockholders by the weighted average number of shares outstanding for
the period. Diluted income per share reflects the maximum dilution that
would have resulted from the exercise of stock options. Diluted income per
share is computed by dividing net income by the weighted average number of
common shares and all dilutive securities.
<TABLE>
<CAPTION>
For the Twelve Months Ended
October 24, 1998 October 25, 1997
---------------------------------- ----------------------------------
Income Net Income Net
per share Shares Income per share Shares Income
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic $ .34 1,914,546 $643,500 $ .40 1,995,155 $798,900
Effect of
Stock options (.03) 162,579 - (.03) 163,959 -
-------------------------------- --------------------------------
Diluted $ .31 2,077,125 $643,500 $ .37 2,159,114 $798,900
</TABLE>
In February 1997, the Financial Accounting Standards Board (FASB) issued
Financial Accounting Standard No. 128, "Earnings per Share" (FAS 128). FAS
128 supersedes Accounting Principles Board Opinion No. 15 and specifies the
computation, presentation and disclosure requirements for earnings per
share. FAS 128 is effective for financial Statements for both interim and
annual periods ending after December 15, 1997. Accordingly, the Company has
adopted FAS 128 and has restated prior period information as required under
the statement.
2. Business Segment
The Company has one business segment; the designing, manufacturing and
marketing of marine engines and related products. The profitability of the
Company is directly tied to the marine industry. The industry is subject to
fluctuations in economic conditions that may adversely affect the Company.
Four customers accounted for approximately 61%, 58% and 56% of Company
revenues for the fiscal years ended 1998, 1997 and 1996, respectively. The
loss of one of these customers could adversely affect the Company's
profitability.
Net sales include export sales, primarily to customers in the Far East,
Canada and Europe of approximately $2,305,500, $2,843,400 and $2,594,500 for
fiscal years ended October 24, 1998, October 25, 1997, and October 26, 1996,
respectively. In fiscal 1998, three customers accounted for sales in
excess of 10% of net sales as follows: $5,878,000, $4,827,900 and
$2,788,500. In fiscal 1997, two customers accounted for sales in excess of
10% of net sales as follows: $5,656,600 and $4,193,700. In fiscal 1996,
three customers accounted for sales in excess of 10% of net sales as
follows: $3,928,900, $3,819,600 and $2,265,800.
At October 24, 1998, three customers accounted for trade accounts receivable
in excess of 10% of net accounts receivable as follows: $537,700, $490,000,
and $308,800. At October 25, 1997, three customers accounted for trade
accounts receivable in excess of 10% of net accounts receivable as follows:
$419,200, $357,800, and $355,200. The Company performs ongoing credit
evaluations of its customers and therefore does not require
collateralization of trade receivables.
3. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
October 24, 1998 October 25, 1997
---------------- ----------------
<S> <C> <C>
Raw materials $4,416,300 $5,065,400
Work-in-process 530,700 601,400
Finished goods 445,000 587,500
---------- ----------
$5,391,600 $6,254,300
========== ==========
</TABLE>
The Company uses the last-in, first-out (LIFO) method to value inventory.
The Company believes the LIFO inventory method results in a better matching
of costs and revenues during periods of changing prices. Inventories would
have been $892,500 and $1,165,000 higher at October 24, 1998 and October 25,
1997, respectively, if the first-in, first-out (FIFO) method had been used.
In 1998, inventory was reduced resulting in liquidation of LIFO inventory
layers. The effect of the inventory reductions was to reduce cost of sales
by approximately $176,300. Inventory cost determined on the FIFO method
approximates replacement or current cost.
The basic component of the Company's engine products is a "long block"
engine, which is a complete engine block and head assembly without
peripheral equipment. The Company purchases "long block" engines from five
foreign manufacturers. Interruption of the supply of "long block" engines
would have a material adverse effect on the Company if the time to develop
new sources of supply and replacement products is longer than the time it
takes to exhaust the Company's inventory of existing "long block" engines.
4. Property, Plant and Equipment
Property, plant and equipment, at cost, consists of the following:
<TABLE>
<CAPTION>
October 24, 1998 October 25, 1997
---------------- ----------------
<S> <C> <C>
Land $ 48,000 $ 48,000
Building and building improvements 1,352,200 1,340,800
Furniture and fixtures 447,500 443,900
Machinery, patterns and equipment 3,266,800 2,822,900
Transportation equipment 51,500 11,700
Leasehold improvements 20,400 20,400
Equipment under capital lease 594,200 1,020,400
---------------------------------
5,780,600 5,708,100
Less accumulated depreciation 3,619,100 3,568,800
---------------------------------
$2,161,500 $2,139,300
=================================
</TABLE>
The Company incurred depreciation expense of approximately $407,100,
$396,000, and $383,000 for fiscal years 1998, 1997, and 1996, respectively.
5. Other Assets
The Company has entered into a split-dollar insurance arrangement with John
H. Westerbeke, Jr., the chairman, president and chief executive officer of
the Company, as part of his employment agreement (see note 10), pursuant to
which the Company will pay the premium costs of certain life insurance
policies. Upon surrender of the policies or payment of the death benefit,
the Company is entitled to repayment of an amount equal to the cumulative
premiums previously paid by the Company, with all remaining payments to be
made to Mr. Westerbeke Jr. or his beneficiaries. Included in other assets
at October 24, 1998 and October 25, 1997 is $1,345,000 and $1,200,000,
respectively, which represents the cumulative value of insurance premiums
paid to date.
6. Note Receivable-Related Party
The Company holds a note receivable from John H. Westerbeke, Jr., the
chairman, president and chief executive officer of the Company. The
principal amount of the secured loan at October 24, 1998 and October 25,
1997 was $108,000 and $122,800, respectively. The loan was used by Mr.
Westerbeke, Jr. to purchase a 40 foot sailboat. The loan bears interest at
7-3/4% per annum, is secured by a security interest in the sailboat and is
payable in monthly installments over a ten year period. The Company has
leased the sailboat from Mr. Westerbeke, Jr. pursuant to a lease expiring in
July 1999 at a rental of $2,660 per month (see Note 10). The Company makes
use of the boat to evaluate the performance of its marine engines and
products and for other corporate matters.
7. Revolving Demand Note Payable
The Company has a $4,000,000 Credit Agreement with State Street Bank and
Trust Company, collateralized by inventory, accounts receivable and general
intangibles. The Credit Agreement was renewed on March 31, 1998 and will
expire on March 31, 1999. The Company believes that it will be able to
continue to extend the term of the Credit Agreement on commercially
reasonable terms. As of October 24, 1998, the Company had approximately
$3,459,300 in unused borrowing capacity under the Credit Agreement and
approximately $150,900 committed to cover the Company's reimbursement
obligations under certain open letters of credit and bankers' acceptances.
8. Long-Term Debt
<TABLE>
<CAPTION>
October 24, 1998 October 25, 1997
---------------- ----------------
<S> <C> <C>
Mortgage note with an interest rate of 5 1/2%
with repayment terms through August 1998. - $ 21,300
Term Loan with an interest rate of 8.08% in
1998 and 8.96% in 1997, with repayment
terms through July 2001. $275,900 375,000
Capital Lease with an interest rate of 8.75%
with repayment terms through September 2001. 110,400 142,200
Term Loan with an interest rate of 8.11% in
1998 and 8.75% in 1997, with repayment
terms through June 2002. 220,800 280,000
--------------------------------
607,100 818,500
Less current portion 189,700 213,100
--------------------------------
$417,400 $605,400
================================
</TABLE>
On January 23, 1996, the Company entered into a $500,000 revolving line of
credit agreement (the "Revolving Line of Credit") and term loan facility
with State Street Bank and Trust Company, collateralized by various emission
testing and product development equipment and subject to working capital and
equity covenants. On July 31, 1996, the Revolving Line of Credit terminated
and automatically converted into a five year term loan in the principal
amount of $491,600. As of October 24, 1998, the outstanding principal
amount was $275,900.
On April 25, 1997, the Company entered into a $300,000 revolving line of
credit agreement (the "1997 Revolving Line of Credit") and term loan
facility with State Street Bank and Trust Company, collateralized by various
items of emission testing and product development equipment and subject to
working capital and equity covenants. On June 30, 1997, the 1997 Revolving
Line of Credit terminated and automatically converted into a five-year term
loan. At October 24, 1998, the outstanding principal amount was $220,800.
Aggregate maturities of long-term debt for each of the ensuing five years
are as follows:
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
1999 $189,700
2000 192,900
2001 176,500
2002 48,000
--------
$607,100
</TABLE>
9. Income Taxes
Income tax expense attributable to income from continuing operations
consists of:
<TABLE>
<CAPTION>
Years Ended
--------------------------------------------------------
October 24, 1998 October 25, 1997 October 26, 1996
---------------- ---------------- ----------------
<S> <C> <C> <C>
Federal:
Current $444,000 $483,200 $486,700
Deferred (111,500) (59,700) (109,600)
-------------------------------------------------
332,500 423,500 377,100
------------------------------------------------
State:
Current 134,800 144,900 154,000
Deferred (20,600) (18,400) (33,900)
-------------------------------------------------
114,200 126,500 120,100
-------------------------------------------------
Total $446,700 $550,000 $497,200
=================================================
</TABLE>
The Company has no available book or tax net operating loss carryforwards.
The Internal Revenue Service is currently reviewing the Company's fiscal
1995, 1996 and 1997 tax returns. The Company does not believe the outcome
of such audit will have a material effect on its financial condition.
Income tax expense differed from the amounts computed by applying the U.S.
federal income tax rate of 34 percent to pretax income as a result of the
following:
<TABLE>
<CAPTION>
Years Ended
--------------------------------------------------------
October 24, 1998 October 25, 1997 October 26, 1996
---------------------------------------------------------
<S> <C> <C> <C>
Provision at statutory rate $370,700 $458,600 $419,800
State tax provision,
net of federal tax benefit 75,400 83,500 79,300
Other, net 600 7,900 (1,900)
------------------------------------------------
Total $446,700 $550,000 $497,200
================================================
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at October
24, 1998, and October 25, 1997 are presented below.
<TABLE>
<CAPTION>
October 24, 1998 October 25, 1997
-------------------------------------
<S> <C> <C>
Deferred tax assets:
Accounts receivable reserve $ 112,400 $ 66,000
Inventory reserves and capitalization 333,300 324,100
Accrued bonus 144,400 51,500
Warranty reserve 132,900 90,600
------------------------------
Total gross deferred tax assets 723,000 532,200
------------------------------
Deferred tax liabilities:
Fixed assets, principally due to
accelerated depreciation methods (197,300) (138,600)
Unrealized gain on marketable securities (102,000) (165,600)
------------------------------
Total gross deferred tax liabilities (299,300) (304,200)
------------------------------
Net deferred tax assets $ 423,700 $ 228,000
==============================
</TABLE>
There was no net change in the total valuation allowance for the year ended
October 24, 1998. Management believes that the realization of deferred tax
assets is more likely than not because future operations of the Company are
expected to generate sufficient taxable income.
10. Commitments and Contingencies
Lease Obligations
The Company has lease agreements for a warehouse and certain equipment (see
note 6) expiring at various dates through 2001. Rental expense under
operating leases was $173,200, $169,100, and $110,300 for the years ended
October 24, 1998, October 25, 1997 and October 26, 1996, respectively.
The following capital leases are included in property, plant and equipment:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Property, plant and equipment $769,200 $1,020,400
Less accumulated amortization 627,500 861,200
----------------------
$141,700 $ 159,200
======================
</TABLE>
The future minimum lease payments required under operating leases that have
initial or remaining noncancelable lease terms in excess of one year are as
follows:
<TABLE>
<CAPTION>
Year Operating
- ---- ---------
<S> <C>
1999 $60,000
-------
Total future minimum lease payments $60,000
=======
</TABLE>
Letters of Credit and Bankers' Acceptances
Certain foreign vendors require the Company to provide letters of credit at
the time purchase orders are placed. As of October 24, 1998, the Company
was contingently liable for open letters of credit and bankers' acceptances
of approximately $150,900 (see note 7).
Employment Agreements
In March of 1993, the Company entered into an Employment Agreement (the
"Agreement") with John H. Westerbeke, Jr., the chairman of the board,
president, and chief executive officer of the Company. The Agreement calls
for Mr. Westerbeke, Jr. to be paid an annual salary of $141,750, subject to
increases based upon the Consumer Price Index and at the discretion of the
Company. The Agreement also provides for payment of a bonus at the
discretion of the board of directors of the Company. In September 1996, the
Board of Directors established an incentive plan for Mr. Westerbeke pursuant
to which Mr. Westerbeke will have an annual bonus opportunity, based on net
income and increases in sales, in each of the four years beginning with the
1997 fiscal year. Mr. Westerbeke may elect to have all or any part of his
base salary or bonus paid as deferred compensation in five annual
installments commencing upon his retirement or other termination of
employment, or upon a change of control of the Company, as defined in the
Agreement. Amounts deferred by Mr. Westerbeke are contributed by the
Company to a trust established to hold and invest these funds until such
time as the amounts are payable to Mr. Westerbeke. The Agreement also
requires the Company to pay premiums for certain life insurance policies on
the life of Mr. Westerbeke, Jr. In addition, in the event of a change in
control of the Company, Mr. Westerbeke, Jr. may terminate his employment
during the one year period following such change in control, and in such
event, the Company is required to pay him a lump sum cash payment in an
amount equal to three times his average annual cash compensation during the
most recent five taxable years of the Company. In addition, in such
circumstances, the Company is required to continue to carry group life and
health insurance for Mr. Westerbeke, Jr. for a three year period and is
required to pay any premiums payable on the life insurance policies on his
life for a three year period.
Under an employment agreement between the Company and John H. Westerbeke,
Sr., a director of the Company, Mr. Westerbeke, Sr. will be paid $35,000 per
year. This agreement provides that following his retirement, Mr.
Westerbeke, Sr. will act as consultant to the Company at an annual
consulting fee of $30,000.
11. Stockholders' Equity
In June 1986, the board of directors and the stockholders of the Company
adopted the Company's 1986 Stock Option Plan (the "Option Plan"), under
which 300,000 shares of common stock have been made available. The Company
has also reserved 250,000 shares of common stock for issuance in connection
with a Supplemental Stock Option Plan (the "Supplemental Plan"). The
Supplemental Plan permits acceleration of the exercisability of options in
the event of a change in control of the Company with the Company retaining
the right of first refusal with respect to shares issued under this plan.
In March 1996, the board of directors and the stockholders of the Company
adopted the Company's 1996 Stock Option Plan (the "1996 Option Plan"), under
which 150,000 shares of common stock have been made available. As of
October 24, 1998, there has been no activity under the 1996 Option Plan.
Options under the plans may be either nonqualified stock options or
incentive stock options. Options may be granted to eligible employees of
the Company and members of the board of directors.
The price at which the shares may be granted may not be less than the lower
of fair market value or tangible book value in the case of nonqualified
options, or 110% of the fair market value in the case of incentive stock
options. The options generally become exercisable in 20% annual increments
beginning on the date of the grant and expire at the end of ten years.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) No.123 in October 1995, which statement
establishes financial accounting and reporting standards for stock based
employee compensation plans. The Company has adopted the disclosure
requirements of SFAS No.123 and continues to apply the accounting provisions
of Opinion No.25 of the Accounting Principles Board. Accordingly, the
adoption of SFAS No.123 has not had a material impact on the Company's
consolidated financial statements.
Information for fiscal years 1996, 1997 and 1998, with respect to the Option
Plan, is as follows:
<TABLE>
<CAPTION>
Weighted average
exercise price of
Shares shares under plan
----------------------------
<S> <C> <C>
Balance outstanding at October 28, 1995 207,500 $1.105
Exercised (26,100) 1.000
Canceled (6,400) 1.000
-------
Balance outstanding at October 26, 1996 175,000 1.125
Exercised (25,000) 1.125
-------
Balance outstanding at October 25, 1997 150,000 1.125
-------
Balance outstanding and exercisable at
October 24, 1998 150,000 $1.125
=======
</TABLE>
The outstanding options expire on various dates through May 2003. Options
for 88,100 shares are available for future grant under the Option Plan.
The following table summarizes information concerning currently outstanding
and exercisable options as of October 24, 1998:
<TABLE>
<CAPTION>
Weighted
average Weighted
Range of remaining average Weighted
exercise Number contractual outstanding Options average
prices outstanding life (years) option price exercisable exercise price
- ----------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
$1.125 150,000 4.4 $1.125 150,000 $1.125
</TABLE>
Information for fiscal years 1996, 1997, and 1998, with respect to the
Supplemental Plan, is as follows:
<TABLE>
<CAPTION>
Weighted average
exercise price of
Shares shares under plan
-----------------------------
<S> <C> <C>
Balance outstanding at October 28, 1995 155,300 $1.044
Exercised (32,200) .961
Granted 33,300 3.000
-------
Balance outstanding at October 26, 1996 156,400 1.478
Exercised (9,000) 1.000
-------
Balance outstanding at October 25, 1997 147,400 1.507
Exercised (29,000) 1.507
-------
Balance outstanding at October 24, 1998 118,400 1.631
========
Balance exercisable at October 24, 1998 105,080 $1.294
=======
</TABLE>
The following table summarizes information concerning currently outstanding
and exercisable options as of October 25, 1997:
<TABLE>
<CAPTION>
Weighted
average Weighted
Range of remaining average Weighted
exercise Number contractual outstanding Options average
prices outstanding life (years) option price exercisable exercise price
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$.875 - $3.000 118,400 4.0 $1.631 105,080 $1.294
</TABLE>
The outstanding options expire on various dates through June 2006. Options
for 41,300 shares are available for future grant under the Supplemental
Plan.
Preferred Stock
As of October 24, 1998 and October 25, 1997, 1,000,000 shares of $1.00 par
value Serial Preferred Stock were authorized; none were issued or
outstanding.
12. 1986 Employee Stock Purchase Plan
In June 1986, the board of directors and the stockholders of the Company
adopted the Company's 1986 Employee Stock Purchase Plan (the "Purchase
Plan"). Under the Purchase Plan, an aggregate of 100,000 shares of common
stock are available for purchase by eligible employees of the Company,
including directors and officers, through payroll deductions over successive
six-month offering periods. The Purchase Plan will become effective when so
declared by the board of directors.
The Purchase Plan is intended to qualify as an "Employee Stock Purchase
Plan" within the meaning of Section 423 of the Internal Revenue Code. The
purchase price of the common stock under the Purchase Plan will be 85% of
the average of the closing high bid and last asked prices per share in the
over-the-counter market on either the first or last day of each six-month
offering period, whichever is less. As of October 24, 1998, there has been
no activity under the Purchase Plan.
13. Employee Benefit Plan
In 1994, the Company started an Employee Deferred Compensation Plan that
covers all employees over 21 years of age who have completed at least 3
months of service with the Company. Contributions by the Company are
discretionary and are determined by the Company's board of directors. The
Company's defined contribution plan, available to substantially all salaried
employees, contains a matched savings provision that permits both pretax and
after-tax employee contributions. Participants can contribute up to 15% of
their annual compensation and receive a 25% matching employer contribution
on up to 8% of their annual compensation. The Company contributed $38,800,
$37,000 and $11,800 for the fiscal years ended October 24, 1998, October 25,
1997 and October 26, 1996, respectively.
14. Quarterly Financial Data (Unaudited)
(In thousands, except per share amounts)
Selected quarterly financial data for the years ended October 24, 1998 and
October 25, 1997 is as follows:
<TABLE>
<CAPTION>
Fiscal
Fiscal 1998: First Second Third Fourth Year
---------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $4,960 $7,225 $7,622 $6,395 $26,202
Gross profit 885 1,573 1,863 1,645 5,966
Income (loss) from operations (142) 348 642 252 1,100
Net income (loss) (54) 173 367 158 644
Net income per share, diluted (0.03) 0.08 0.18 0.08 0.31
Fiscal
<CAPTION>
Fiscal 1997: First Second Third Fourth Year
---------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $5,195 $6,975 $6,817 $5,633 $24,620
Gross profit 1,093 1,627 1,662 1,174 5,556
Income from operations 126 518 558 218 1,420
Net income 88 289 310 112 799
Net income per share, diluted 0.04 0.14 0.15 0.04 0.37
</TABLE>
New Accounting Pronouncements
In June 1997, the FASB issued Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" (FAS 130) and No. 131, "Disclosure about
Segments of an Enterprise and Related Information" (FAS 131), which are
effective for fiscal years beginning after December 15, 1997. Unrealized
gains on marketable securities is a component of comprehensive income and
will be presented accordingly when FAS 130 is adopted. The Company is
currently evaluating the effects of FAS 131.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1 (SOP 98-1), "Accounting for the Costs of Computer
Software Developed and Obtained for Internal Use". The statement is
effective for fiscal years beginning after December 15, 1998. Earlier
application is encouraged in fiscal years for which annual financial
statements have not been issued. The statement defines which costs of
computer software developed or obtained for internal use are capitalized and
which costs are expensed. The Company does not believe the adoption of SOP
98-1 will have a material impact on the financial statements.
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5 (SOP 98-5), "Reporting on the Costs of Start-Up
Activities". The statement is effective for fiscal years beginning after
December 15, 1998. The statement requires costs of start-up activities and
organization costs to be expenses as incurred. The Company does not believe
the adoption of SOP 98-5 will have a material impact on the financial
statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities" (SFAS 133).
The statement requires companies to recognize all derivatives as either
assets or liabilities with the instruments measured at fair value. The
accounting for changes in fair value gains and losses depends on the
intended use of the derivative and its resulting designation. The statement
is effective for all fiscal quarters of fiscal years beginning after June
15, 1999. The Company does not believe the adoption of SFAS 133 will have a
material impact on the financial statements.
SCHEDULE II
WESTERBEKE CORPORATION AND SUBSIDIARY
VALUATION AND QUALIFYING ACCOUNT
For the years ended October 24, 1998, October 25, 1997
and October 26, 1996
<TABLE>
<CAPTION>
Balance at Charged to Charged Balance
Beginning of Costs and to Other at End
Period Expenses Accounts Deductions of Year
<S> <C> <C> <C> <C> <C>
1996
Allowance for
doubtful accounts $60,500 - - (200) $60,700
1997
Allowance for
doubtful accounts $60,700 - - (3,200) $63,900
1998
Allowance for
doubtful accounts $63,900 - - 4,700 $59,200
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Certain biographical information concerning the directors of the
Company as of January 1, 1999 is set forth below. Such information was
furnished by them to the Company.
<TABLE>
<CAPTION>
Certain
Name of Director Age Biographical Information
---------------- --- ------------------------
<S> <C> <S>
GERALD BENCH 57 President and Chief Executive Officer, Hadley Fruit
Orchards, Inc. since November 1996; Consultant,
Hadley Fruit Orchards, Inc. from March 1995 to
November 1996; Partner, ICAP Marine Group
(consulting firm) from November 1993 to February
1995; Chairman and President, TDG Aerospace,
Inc. (manufacturer of aircraft de-icing devices)
from October 1991 to November 1993; President,
Thermion, Inc. (manufacturer of heaters for aircraft
de-icing devices) from April 1990 to September
1991; General Manager, Lermer Corporation
(manufacturer of airline galley equipment) from
June 1989 through March 1990; former Chairman
of the Board, President, Chief Executive Officer
and Director of E&B Marine Inc. (marine supplies
and accessories) from prior to 1988; Director of
the Company since June 1986
THOMAS M. HAYTHE 59 Partner, Haythe & Curley (attorneys) since
February 1982; Director: Novametrix Medical
Systems Inc. (manufacturer of electronic medical
instruments), Guest Supply, Inc. (provider of hotel
guest room amenities, accessories and products)
and Ramsay Youth Services, Inc. (provider of
youth and educational services); Director of the
Company since June 1986.
NICHOLAS H. SAFFORD 66 President, Nicholas H. Safford & Co., Inc.
(investment counselor and private trustee) since
1983 and from 1979 to 1981; former president and
director of Wendell, Safford & Co., Inc.
(investment counseling firm) from 1982 to 1983;
former vice president and director of David L.
Babson & Co., Inc. (investment counseling firm)
prior to 1978; Director of the Company since
February 1991.
JAMES W. STOREY 64 Consultant since January 1993; President,
Wellingsley Corporation (private investment
management company) from December 1986
through December 1992; President and Chief
Executive Officer of Codex Corporation, a
subsidiary of Motorola, Inc. from 1982 to 1986;
Vice President of Motorola, Inc. from 1982 to
1986; Director: Progress Software Corporation
(software); Director of the Company since June
1986.
JOHN H. WESTERBEKE, JR. 58 President of the Company since 1976; Director of
the Company since 1976; Chairman of the Board of
Directors of the Company since June 1986.
JOHN H. WESTERBEKE, SR. 89 Founder of the Company; Presently serving in
various engineering capacities with the Company;
Chairman of the Board of Directors of the
Company from 1946 to June 1986.
</TABLE>
For additional information concerning the management of the Company,
see "Item 1 - Business - Executive Officers" contained in Part I hereof.
The Board of Directors of the Company consists of three classes of
directors, Class A, Class B and Class C. Directors in each class are
elected for a term of three years. The term of office of the Class A
directors will expire at the Annual Meeting of Stockholders to be held in
1999. Class B and Class C directors will be elected at the Annual Meetings
to be held in 2000 and 2001, respectively. Mr. Bench is a Class A director,
Messrs. Haythe, Safford and Storey are Class B directors and Messrs.
Westerbeke, Jr. and Westerbeke, Sr. are Class C directors.
The directors and officers of the Company other than Messrs. Bench,
Haythe, Safford and Storey are active in the business on a day-to-day basis.
Messrs. Westerbeke, Sr. and Westerbeke, Jr. are father and son. No other
family relationships exist between any of the directors and officers of the
Company.
Section 16 (a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than
ten percent of the Company's Common Stock, to file with the SEC initial
reports of ownership and reports of changes in ownership of Common Stock.
Officers, directors and greater than ten percent stockholders are required
by SEC regulations to furnish the Company with copies of all Section 16 (a)
reports they file.
To the Company's knowledge, based solely on a review of the copies of
such reports furnished to the Company and representations that no other
reports were required, during the fiscal year ended October 24, 1998 all
Section 16 (a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information for the fiscal years ended
October 24, 1998, October 25, 1997 and October 26, 1996 concerning the
compensation paid or awarded to the Chief Executive Officer and the other
executive officer of the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Fiscal
Name and Year Annual Compensation
Principal Ended --------------------------- All Other
Position October Salary Bonus Compensation
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John H. Westerbeke, Jr. 1998 $214,488(1) $ 53,838(2) $31,622(6)
President, Chairman of the Board 1997 206,852(3) 130,447(4) 37,262(6)
of Directors and Class C Director 1996 151,531 80,696(5) 38,647(6)
Carleton F. Bryant, III 1998 $ 94,500 $ 72,998 -
Executive Vice President, 1997 94,500 44,545 -
Treasurer, Chief Operating Officer 1996 94,500 24,532 -
and Secretary
<FN>
- --------------------
<F1> Includes $61,842 of salary earned in fiscal year 1998, payment of
which has been deferred.
<F2> Includes a $49,628 bonus earned in fiscal year 1998, payment of which
has been deferred.
<F3> Includes $53,762 of salary earned in fiscal year 1997, payment of
which has been deferred.
<F4> Includes a $125,571 bonus earned in fiscal year 1997, payment of which
has been deferred.
<F5> Includes a $75,000 bonus earned in fiscal year 1996, payment of which
has been deferred.
<F6> Includes amounts ($18,062, $14,750 and $20,357 in fiscal 1998, 1997
and 1996, respectively) reflecting the current dollar value of the
benefit to Mr. Westerbeke of premiums paid by the Company with respect
to a split-dollar insurance arrangement (see "Employment Agreements"
below for a description of such arrangement). Such benefit was
determined by calculating the time value of money (using the
applicable federal rates) of the premiums paid by the Company in the
fiscal years ended October 24, 1998, October 25, 1997 and October 26,
1996 for the period from the date on which each premium was paid
until March 31, 2001 (which is the earliest date on which the Company
could terminate the agreement and request a refund of premiums paid).
</FN>
</TABLE>
The Company did not grant any stock options to the executive officers
named in the Summary Compensation Table during the fiscal year ended October
24, 1998.
The following table sets forth the number and value of options
exercised by the executive officers named in the Summary Compensation Table
during the fiscal year ended October 24, 1998 and the number and value of
options held by such executive officers at October 24, 1998.
OPTION EXERCISES IN FISCAL 1998 AND
OPTION VALUES AT OCTOBER 24, 1998
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Unexercised In-the-Money(1)
Options at Options at
October 24, 1998 October 24, 1998
Shares Acquired Value ---------------------------- ----------------------------
Name On Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
John H. Westerbeke, Jr. 20,000 $63,800 150,000 - $231,300 -
Carleton F. Bryant, III - - 75,000 - $115,600 -
<FN>
<F1> In-the-money options are those where the fair market value of the
underlying Common Stock exceeds the exercise price of the option. The
value of in-the-money options is determined in accordance with
regulations of the Securities and Exchange Commission by subtracting
the aggregate exercise price of the option from the aggregate year-end
value of the underlying Common Stock.
</FN>
</TABLE>
Employment Agreements
- ---------------------
The Company has an Employment Agreement (the "Agreement") with John H.
Westerbeke, Jr., the Chairman of the Board, President and Chief Executive
Officer of the Company, which provides for his employment by the Company at
an annual base salary, subject to increases based upon the Consumer Price
Index and at the discretion of the Company. During fiscal 1998, Mr.
Westerbeke's salary was $212,488, which included $61,842 of salary which has
been deferred. The Agreement also provides for payment of a bonus at the
discretion of the Board of Directors of the Company. In September 1996, the
Board of Directors established an incentive plan for Mr. Westerbeke pursuant
to which Mr. Westerbeke will have an annual bonus opportunity, based on net
income and increases in sales, in each of the four years beginning with the
1997 fiscal year. Mr. Westerbeke may elect to have all or any part of his
base salary or bonus paid as deferred compensation in five annual
installments commencing upon his retirement or other termination of
employment, or upon a change of control of the Company, as defined in the
Agreement. Amounts deferred by Mr. Westerbeke are contributed by the
Company to a trust established to hold and invest these funds until such
time as the amounts are payable to Mr. Westerbeke. The Agreement also
requires the Company to pay premiums for certain life insurance policies on
the life of Mr. Westerbeke as described below. The Agreement may be
terminated by the Company upon the disability of Mr. Westerbeke, by the
Company with or without cause, and by Mr. Westerbeke in the event there has
occurred a constructive termination of employment by the Company. In
addition, in the event of a change in control of the Company, as defined in
the Agreement, Mr. Westerbeke may terminate his employment during the one
year period following such change in control, and in such event, the Company
will be required to pay him a lump sum cash payment in an amount equal to
three times his annual cash compensation during the most recent five taxable
years of the Company, less $1,000. In addition, in such circumstances, the
Company is required to continue to carry group life and health insurance for
Mr. Westerbeke for a three year period and is required to pay any premiums
payable on the split-dollar life insurance policies on his life for a three
year period. Under the Agreement, Mr. Westerbeke has agreed not to compete
with the Company for a period of one year following termination of his
employment.
The Company has entered into a split-dollar insurance arrangement with
Mr. Westerbeke, Jr., pursuant to which the Company will pay the premium
costs of certain life insurance policies that pay a death benefit of not
less than $4,889,403 in the aggregate upon the death of Mr. Westerbeke.
Upon surrender of the policies or payment of the death benefit thereunder,
the Company is entitled to repayment of an amount equal to the cumulative
premiums previously paid by the Company, with all remaining payments to be
made to Mr. Westerbeke or his beneficiaries. See footnote (6) to the
"Summary Compensation Table" above for further information on premium
payments made by the Company.
The Company has an agreement with Carleton F. Bryant, III, the
Executive Vice President, Treasurer and Chief Operating Officer of the
Company, which provides for his employment by the Company at an annual
salary of $94,500. Under a related agreement Mr. Bryant agrees not to
compete with the Company for a period of three years following the
termination of his employment.
The Company has an agreement with John H. Westerbeke, Sr., a director
of the Company, which provides for his employment by the Company at an
annual salary of $35,000 until Mr. Westerbeke, Sr. retires. This agreement
also provides that following his retirement, Mr. Westerbeke, Sr. will act as
consultant to the Company at an annual consulting fee of $30,000. The
Company paid Mr. Westerbeke, Sr. $35,000 during fiscal 1998.
Compensation Committee Interlocks and Insider Participation
- -----------------------------------------------------------
Thomas M. Haythe, a director of the Company and a member of the
Compensation Committee, is a partner of the New York City law firm of Haythe
& Curley, which firm acted as legal counsel to the Company during the past
fiscal year. It is expected that Haythe & Curley will continue to render
legal services to the Company in the future.
Compensation of Directors
- -------------------------
The Company currently pays its directors a fee of $2,000 for attending
each meeting of the Board of Directors of the Company.
Termination of Employment and Change of Control Arrangements
- ------------------------------------------------------------
See "Employment Agreements" above for information concerning certain
change of control arrangements with respect to John H. Westerbeke, Jr., the
Chairman of the Board, President and Chief Executive Officer of the Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The shareholders (including any "group" as that term is used in
Section 13(d)(3) of the Securities Exchange Act of 1934) who, to the
knowledge of the Board of Directors of the Company, owned beneficially more
than five percent of any class of the outstanding voting securities of the
Company as of January 1, 1999, each director and each executive officer
named in the Summary Compensation Table of the Company who owned
beneficially shares of Common Stock and all directors and executive officers
of the Company as a group, and their respective shareholding as of such date
(according to information furnished by them to the Company), are set forth
in the following table. Except as indicated in the footnotes to the table,
all of such shares are owned with sole voting and investment power.
<TABLE>
<CAPTION>
Shares of Common Stock
Name and Address Owned Beneficially Percent of Class
- ---------------- ---------------------- ----------------
<S> <C> <C>
Paul B. Luber............................. 133,255(1) 6.9%
4201 North Oakland Avenue
Shorewood, Wisconsin 53211
Gerald Bench.............................. 6,660(2) *
17 1/2 Passaic Avenue
Spring Lake, New Jersey 07762
Thomas M. Haythe.......................... 11,660(3) *
237 Park Ave.
New York, New York 10017
Nicholas H. Safford....................... 10,100(4) *
9 Cleaves Street
Rockport, Massachusetts 01966
James W. Storey........................... 15,660(5) *
3 Saddle Ridge Road
Dover, Massachusetts 02030
John H. Westerbeke, Jr.................... 1,248,250(6) 60.4%
Avon Industrial Park
Avon, Massachusetts 02322
John H. Westerbeke, Sr.................... 0 -
Avon Industrial Park
Avon, Massachusetts 02322
Carleton F. Bryant, III................... 75,000(7) 3.8%
Avon Industrial Park
Avon, Massachusetts 02322
All Directors and Officers as a Group 1,367,330(2) 62.9%
(seven persons) (3)(4)(5)(6)(7)
<FN>
- --------------------
<F*> Less than one percent.
<F1> Information as to these holdings is based upon a report on Schedule
13D filed with the Securities and Exchange Commission by Mr. Paul B.
Luber. Such report indicates that Mr. Luber has sole voting and
dispositive power with respect to 133,255 shares, of which 53,555
shares are directly owned by Mr. Luber and 79,700 shares are owned by
Great Lakes Capital Holdings, LLP, a limited liability partnership of
which Mr. Luber is a general partner.
<F2> Consists of 6,660 shares issuable upon the exercise of presently
exercisable stock options held by Mr. Bench.
<F3> Includes 6,660 shares issuable upon the exercise of presently
exercisable stock options held by Mr. Haythe.
<F4> Consists of 10,100 shares issuable upon the exercise of presently
exercisable stock options held by Mr. Safford.
<F5> Includes 6,660 shares issuable upon the exercise of presently
exercisable stock options held by Mr. Storey.
<F6> Includes 150,000 shares issuable upon the exercise of presently
exercisable stock options held by Mr. Westerbeke, Jr.
<F7> Consists of 75,000 shares issuable upon the exercise of presently
exercisable stock options held by Mr. Bryant.
</FN>
</TABLE>
To the Company's knowledge, there have been no significant changes in
stock ownership or control of the Company as set forth above since January
1, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company leases a 40-foot sailboat from Mr. Westerbeke, Jr. the
Chairman of the Board, President and Chief Executive Officer of the Company,
pursuant to a lease expiring in July 1999. The Company pays an annual
rental to him of $31,920 and also pays approximately $10,000 to $15,000 of
annual expenses in connection with the operation and maintenance of the
sailboat. The Company makes use of the sailboat to evaluate the performance
of its marine engine products and for other corporate purposes. In July
1994, Mr. Westerbeke, Jr. executed a promissory note payable to the Company
in the principal amount of $165,000. The proceeds of the loan were used by
Mr. Westerbeke, Jr. to purchase the sailboat which is leased to the Company
as described above. The loan, which is due June 1, 2004, is payable in
equal monthly installments which commenced on July 1, 1994, together with
interest at 7.75% per annum and is secured by the sailboat. Management of
the Company believes that the terms of the lease and of the secured loan are
no less favorable to the Company than it could obtain from an unrelated
party.
Thomas M. Haythe, a Class B director of the Company, is a partner of
the New York City law firm of Haythe & Curley, which firm has acted as legal
counsel to the Company during the past fiscal year. It is expected that
Haythe & Curley will continue to render legal services to the Company in the
future.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements:
Included in PART II of this report: Page
----
Report of KPMG Peat Marwick LLP................... 25
Consolidated Balance Sheets at
October 24, 1998 and October 25, 1997............. 26
Consolidated Statements of Operations
for the three years in the period ended
October 24, 1998.................................. 27
Consolidated Statements of Changes in
Stockholders' Equity for the three years
in the period ended October 24, 1998.............. 28
Consolidated Statements of Cash Flow
for the three years in the period ended
October 24, 1998.................................. 29
Notes to Consolidated Financial Statements........ 30
2. Financial Statement Schedule:
Included in PART II of this report:
Schedule II - Valuation and Qualifying
Account for the three years in the period
ended October 24, 1998............................ 42
Schedules other than those listed above are omitted because they
are not applicable, or the required information is shown in the Consolidated
Financial Statements or Notes thereto. Columns omitted from schedules filed
have been omitted because the information is not applicable.
3. Exhibits:
The exhibits required to be filed as part of this Annual Report on
Form 10-K are listed in the attached Index to Exhibits.
(b) Current Reports on Form 8-K:
During the fiscal quarter ended October 24, 1998, the Company
did not file any Current Reports on Form 8-K.
* * *
Copies of the exhibits filed with this Annual Report on Form 10-K or
incorporated by reference herein do not accompany copies hereof for
distribution to stockholders of the Company. The Company will furnish a
copy of any of such exhibits to any stockholder requesting the same for a
nominal charge to cover duplicating costs.
POWER OF ATTORNEY
The registrant and each person whose signature appears below hereby
appoint John H. Westerbeke, Jr. and Thomas M. Haythe as attorney-in-fact
with full power of substitution, severally, to execute in the name and on
behalf of the registrant and each such person, individually and in each
capacity stated below, one or more amendments to this Annual Report on Form
10-K, which amendments may make such changes in this Annual Report as the
attorney-in-fact acting in the premises deems appropriate and to file any
such amendment(s) to this Annual Report with the Securities and Exchange
Commission.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Annual Report to
be signed on its behalf by the undersigned thereunto duly authorized.
Dated: January 22, 1999
WESTERBEKE CORPORATION
By /s/ John H. Westerbeke, Jr.
---------------------------
John H. Westerbeke, Jr.
Chairman of the Board
and President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Annual Report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
Dated: January 22, 1999
By /s/ John H. Westerbeke, Jr.
---------------------------
John H. Westerbeke, Jr.
Chairman of the Board,
President and Principal
Executive Officer
Dated: January 22, 1999 By /s/ Carleton F. Bryant III
--------------------------
Carleton F. Bryant III
Executive Vice President,
Chief Operating Officer and
Principal Financial
and Accounting Officer
Dated: January 22, 1999 By /s/ Gerald Bench
----------------
Gerald Bench
Director
Dated: January 22, 1999 By /s/ Thomas M. Haythe
--------------------
Thomas M. Haythe
Director
Dated: January 22, 1999 By /s/ Nicholas H. Safford
-----------------------
Nicholas H. Safford
Director
Dated: January 22, 1999 By /s/ James W. Storey
-------------------
James W. Storey
Director
Dated: January 22, 1999 By /s/ John H. Westerbeke , Sr.
----------------------------
John H. Westerbeke, Sr.
Director
Index to Exhibits
-----------------
<TABLE>
<CAPTION>
Exhibit
No. Name of Exhibit Page
- ------- --------------- ----
<C> <S> <C>
2 Agreement and Plan of Merger between the Company
and J.H. Westerbeke Corporation, a Massachusetts
corporation.......................................... (1)
3(a) Certificate of Incorporation of the Company (as
amended)............................................. (1)
3(b) By-Laws of the Company............................... (2)
10(a) Agreement dated as of June 30, 1986 by and
between the Company and John H. Westerbeke, Sr....... (1)
10(b) 1986 Stock Option Plan of the Company as
amended on January 6, 1987 and on May 26, 1988....... (2)
10(c) 1986 Employee Stock Purchase Plan of the
Company.............................................. (1)
10(d) Supplemental Stock Option Plan of the
Company.............................................. (2)
10(e) 1996 Stock Option Plan of the Company................ (5)
10(f) Agreement dated as of June 1, 1986 by and among
the Company, Ruth A. Westerbeke, John H.
Westerbeke, Jr., John H. Westerbeke, Sr. and
Ruth A. Westerbeke, as trustees...................... (1)
10(g) Form of Agreement with Distributors -
Domestic............................................. (3)
10(h) Form of Agreement with Distributors -
International........................................ (1)
10(i) Supplemental Medical Insurance Policy................ (1)
10(j) Letter Agreement dated March 20, 1996 between
the Company and State Street Bank and Trust
Company.............................................. (5)
10(k) Note of the Company dated March 29, 1996,
due March 31, 1997 in the principal amount of
$3,000,000 payable to the order of State Street
Bank and Trust Company............................... (5)
10(l) Loan Facility Agreement dated January 23, 1996
between the Company and State Street Bank
and Trust Company.................................... (4)
10(m) Security Agreement dated January 23, 1996
by the Company in favor of State Street Bank
and Trust Company.................................... (4)
10(n) Note of the Company dated January 23, 1996,
due June 30, 2001 in the principal amount of
$500,000 payable to the order of State Street Bank
and Trust Company.................................... (4)
10(o) Asset Purchase Agreement dated as of January 5,
1990 by and among the Company, Westerbeke
Rotary Aire, Inc., Rotary Marine, Inc., Eugene
Whipp and Arville J. Collins......................... (2)
10(p) Convertible Subordinated Note of the Company
and Westerbeke Rotary Aire, Inc. dated January 5,
1990 in the principal amount of $115,000 payable
to Rotary Marine, Inc................................ (2)
10(q) Lease dated November 4, 1987 by and between
GBD/Odyssey Associates Limited Partnership and
the Company.......................................... (2)
10(r) Lease Amendment Agreement dated April 29, 1991
by and between GBD/Odyssey Associates Limited
Partnership and the Company.......................... (5)
10(s) Third Lease Amendment Agreement dated February
20, 1996 by and between GBD/Odyssey Associates
Limited Partnership and the Company.................. (5)
10(t) Subordination, Nondisturbance and Attornment
Agreement dated November 8, 1994 by and among
the Company, New Avon Limited Partnership and
UNUM Life Insurance Company of America............... (2)
10(u) Lease dated January 22, 1997 by and between
New Avon Limited Partnership and
the Company.......................................... (6)
10(v) Loan Facility Agreement dated April 25, 1997
between the Company and State Street Bank
and Trust Company.................................... (6)
10(w) Note of the Company dated April 25, 1997,
due June 30, 2002 in the principal amount of
$300,000 payable to the order of State Street Bank
and Trust Company.................................... (6)
10(x) Letter Agreement dated April 25, 1997 between
the Company and State Street Bank and Trust
Company.............................................. (6)
10(y) Note of the Company dated April 4,1997,
due March 31, 1998 in the principal amount of
$4,000,000 payable to the order of State Street
Bank and Trust Company............................... (6)
10(z) Loan Facility Agreement dated April 23, 1998
between the Company and State Street Bank
and Trust Company.................................... (7)
10(aa) Letter Agreement dated April 8, 1998 between
the Company and State Street Bank and Trust
Company.............................................. (7)
10(bb) Note of the Company dated April 3,1998,
due March 31, 1999 in the principal amount of
$4,000,000 payable to the order of State Street
Bank and Trust Company............................... (7)
21 Subsidiary of the Company............................
23 Consent of KPMG Peat Marwick LLP.....................
24 Power of Attorney.................................... (See Page 55
of Annual
Report on
Form 10-K)
27 Financial Data Schedule..............................
<FN>
- --------------------
<F1> Incorporated by reference to Exhibits to Registration Statement
No. 33-6972 filed with the Securities and Exchange Commission.
<F2> Incorporated by reference to Exhibits to Annual Report on Form 10-K
for fiscal year ended October 29, 1994.
<F3> Incorporated by reference to Exhibits to Annual Report on Form 10-K
for fiscal year ended October 28, 1995.
<F4> Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q
for fiscal quarter ended January 27, 1996.
<F5> Incorporated by reference to Exhibits to Annual Report on Form 10-K
for fiscal year ended October 26, 1996.
<F6> Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q
for fiscal quarter ended April 26, 1997.
<F7> Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q
for fiscal quarter ended April 25, 1998.
</FN>
</TABLE>
Exhibit 21
Subsidiary of Westerbeke Corporation
------------------------------------
Westerbeke International, Inc., a U.S. Virgin Islands corporation,
which qualifies as a foreign sales corporation.
Exhibit 23
KPMG Peat Marwick LLP
99 High Street Telephone 617 988 1000 Telefax 617 988 0800
Boston, MA 02110-2371
Consent of Independent Auditors
-------------------------------
The Board of Directors and Stockholders
of Westerbeke Corporation:
We consent to the incorporation by reference in the Registration Statements
(File No. 33-24435 and 333-25687) on Form S-8 of Westerbeke Corporation of
our report dated December 23, 1998 relating to the consolidated balance
sheets of Westerbeke Corporation and subsidiary as of October 24, 1998 and
October 25, 1997, and the related consolidated statements of operations,
changes in stockholders' equity, and cash flows for each of the years in the
three-year period ended October 24, 1998, and related schedule, which report
appears in the October 24, 1998 annual report on Form 10-K of Westerbeke
Corporation.
By /s/ KPMG Peat Marwick LLP
----------------------------
Boston, Massachusetts
January 20, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000796502
<NAME> WESTERBEKE CORP.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-24-1998
<PERIOD-END> OCT-24-1998
<CASH> 101,900
<SECURITIES> 0
<RECEIVABLES> 2,292,900
<ALLOWANCES> 59,200
<INVENTORY> 5,391,600
<CURRENT-ASSETS> 8,708,000
<PP&E> 5,780,600
<DEPRECIATION> 3,619,100
<TOTAL-ASSETS> 14,670,300
<CURRENT-LIABILITIES> 3,058,400
<BONDS> 0
0
0
<COMMON> 21,900
<OTHER-SE> 10,697,000
<TOTAL-LIABILITY-AND-EQUITY> 14,814,700
<SALES> 26,202,000
<TOTAL-REVENUES> 26,202,000
<CGS> 20,236,500
<TOTAL-COSTS> 20,236,500
<OTHER-EXPENSES> 4,865,400
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,900
<INCOME-PRETAX> 1,090,200
<INCOME-TAX> 446,700
<INCOME-CONTINUING> 643,500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 643,500
<EPS-PRIMARY> .34
<EPS-DILUTED> .31
</TABLE>
