SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: April 22, 2000
--------------
OR
_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-15046
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Westerbeke Corporation
----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-1925880
------------------------------------- ------------------------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) Identification No.)
Avon Industrial Park, Avon, Massachusetts 02322
----------------------------------------------------------------------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (508) 588-7700
--------------
No Change
----------------------------------------------------------------------------
(Former name, former address and former fiscal year
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was to file such reports.) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Outstanding at
Class June 1, 2000
----- --------------
<S> <C>
Common Stock, $.01 par value 1,917,812
</TABLE>
WESTERBEKE CORPORATION AND SUBSIDIARY
INDEX
Page
Part I - Financial Information
Item 1 - Consolidated Financial Statements
Consolidated Balance Sheets as of April 22, 2000 and
October 23, 1999 3
Consolidated Statements of Operations for the three
months ended April 22, 2000 and April 24, 1999 4
Consolidated Statements of Operations for the six
months ended April 22, 2000 and April 24, 1999 5
Consolidated Statements of Cash Flows for the six
months ended April 22, 2000 and April 24, 1999 6
Notes to Consolidated Financial Statements 7-9
Item 2 -
Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-13
Item 3 -
Quantitative and Qualitative Disclosures
About Market Risk 14
Part II - Other Information 15-16
Signatures 17
WESTERBEKE CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
April 22, October 23,
2000 1999
--------- -----------
(Unaudited) Audited
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 107,600 $ 1,739,300
Accounts receivable, net of allowance for doubtful
accounts of $52,500 at April 22, 2000 and $59,200
at October 23, 1999 3,518,600 2,502,100
Inventories (Note 2) 10,027,200 5,640,200
Prepaid expenses and other assets 871,700 476,900
Prepaid income taxes 182,900 35,600
Deferred income taxes 577,900 577,900
----------------------------
Total current assets 15,285,900 10,972,000
----------------------------
Property, plant and equipment, net 2,401,400 2,027,300
Other assets, net 2,120,200 2,199,400
Investments in marketable securities 93,300 91,400
Note receivable - related party 83,500 93,400
----------------------------
$19,984,300 $15,383,500
============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 194,500 $ 192,900
Revolving demand note payable 2,650,000 -
Accounts payable 3,999,200 2,248,700
Accrued expenses and other liabilities 812,100 914,000
----------------------------
Total current liabilities 7,655,800 3,355,600
----------------------------
Deferred income taxes 10,800 13,600
Deferred compensation 337,500 409,200
Long-term debt, net of current portion 124,300 224,500
----------------------------
Total liabilities 8,128,400 4,002,900
----------------------------
Stockholders' equity:
Common stock, $.01 par value; authorized 5,000,000
shares; issued 2,185,950 shares 21,900 21,900
Additional paid-in-capital 6,025,300 6,025,300
Accumulated other comprehensive income (Note 3) 13,000 16,900
Retained earnings 6,551,700 6,072,500
12,611,900 12,136,600
Less - Treasury shares 268,138 at cost 756,000 756,000
Total stockholders' equity 11,855,900 11,380,600
----------------------------
$19,984,300 $15,383,500
============================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
WESTERBEKE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
--------------------------
April 22, April 24,
2000 1999
--------- ---------
(Unaudited)
<S> <C> <C>
Net sales $9,102,700 $7,601,700
Cost of sales 7,134,800 5,705,200
--------------------------
Gross profit 1,967,900 1,896,500
Selling, general and administrative expense 1,261,300 1,061,800
Research and development expense 369,500 329,000
--------------------------
Income from operations 337,100 505,700
Interest expense, net 37,900 3,300
Other expense (income), net 96,500 (472,900)
--------------------------
Income before income taxes 202,700 975,300
Provision for income taxes 76,900 394,700
--------------------------
Net income $ 125,800 $ 580,600
==========================
Income per common share, basic $ .07 $ .30
==========================
Income per common share, diluted $ .06 $ .28
==========================
Weighted average common shares, basic 1,917,812 1,917,812
==========================
Weighted average common shares, diluted 2,070,324 2,057,515
==========================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
WESTERBEKE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended
----------------------------
April 22, April 24,
2000 1999
--------- ---------
(Unaudited)
<S> <C> <C>
Net sales $17,893,800 $13,048,500
Cost of sales 13,776,300 10,196,000
----------------------------
Gross profit 4,117,500 2,852,500
Selling, general and administrative expense 2,465,000 1,880,100
Research and development expense 718,000 656,400
----------------------------
Income from operations 934,500 316,000
Interest expense (income), net 29,000 (32,900)
Other expense (income), net 106,900 (442,200)
----------------------------
Income before income taxes 798,600 791,100
Provision for income taxes 319,400 321,000
----------------------------
Net income $ 479,200 $ 470,100
============================
Income per common share, basic $ .25 $ .25
============================
Income per common share, diluted $ .23 $ .23
============================
Weighted average common shares, basic 1,917,812 1,917,812
============================
Weighted average common shares, diluted 2,060,843 2,059,146
============================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
WESTERBEKE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
----------------------------
April 22, April 24,
2000 1999
---------- ---------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 479,200 $ 470,100
Reconciliation of net income to net cash
used by operating activities:
Depreciation and amortization 205,700 231,800
Deferred income taxes (2,800) (83,200)
Unrealized appreciation in marketable securities (5,800) -
Changes in operating assets and liabilities:
Accounts receivable (1,016,500) (499,600)
Inventories (4,387,000) (118,600)
Prepaid expenses and other assets (394,800) (6,500)
Other assets 74,000 (133,100)
Accounts payable 1,750,500 (136,400)
Accrued expenses and other liabilities (101,900) (214,600)
Deferred compensation (71,700) 109,100
Prepaid income taxes (147,300) 89,500
----------------------------
Net cash used by operating activities (3,618,400) (291,500)
----------------------------
Cash flows used in investing activities:
Purchase of property, plant and equipment (574,600) (150,600)
Proceeds from payment of note receivable - related
party 9,900 7,800
Proceeds from sale of marketable securities - 1,473,000
Net cash provided (used) in investing activities (564,700) 1,330,200
----------------------------
Cash flows from financing activities:
Net borrowings under revolving demand note 2,650,000 (200,000)
Principal payments on long-term debt and capital
lease obligations (98,600) (97,100)
----------------------------
Net cash provided (used) in financing activities 2,551,400 (297,100)
----------------------------
Increase (decrease) in cash and cash equivalents (1,631,700) 741,600
Cash and cash equivalents, beginning of period 1,739,300 101,900
----------------------------
Cash and cash equivalents, end of period $ 107,600 $ 843,500
============================
Supplemental cash flow disclosures:
Interest paid $ 40,200 $ 17,800
Income taxes paid $ 464,400 $ 120,000
Supplemental disclosures of non-cash items:
Decrease in unrealized gains on marketable
securities, net of income taxes $ 3,900 $ 221,100
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
WESTERBEKE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Summary of Significant Accounting Policies:
-------------------------------------------
A. Financial Statements
--------------------
The condensed consolidated financial statements included herein have
been prepared by Westerbeke Corporation (the "Company"), without
audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. While certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, the
Company believes that the disclosures made herein are adequate to make
the information presented not misleading. It is recommended that
these condensed statements are read in conjunction with the
consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the fiscal year ended October
23, 1999.
In the opinion of the Company, all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the
financial position of Westerbeke Corporation and Subsidiary as of
April 22, 2000, the results of their operations and the cash flows,
have been included.
B. Basis of Presentation
---------------------
The condensed consolidated financial statements include the accounts
of the Company and its wholly owned subsidiary, Westerbeke
International, Inc. (a Foreign Sales Corporation). All significant
intercompany transactions and accounts have been eliminated.
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, 2000. The Company
does not believe the adoption of SFAS 133 will have a material impact
on the financial statements.
C. Earnings per Share
------------------
Basic income per common share is computed by dividing income available
to common stockholders by the weighted average number of shares
outstanding for the period. Diluted income per share reflects the
maximum dilution that would have resulted from the exercise of stock
options. Diluted income per share is computed by dividing net income
by the weighted average number of common shares and all dilutive
securities, except when the effect would be antidilutive.
<TABLE>
<CAPTION>
For the three months ended:
--------------------------------------------------------------------------
April 22, 2000 April 24, 1999
---------------------------------- ------------------------------------
Income Net Income Net
per share Shares Income per share Shares Income
--------- ------ ------ --------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Basic $ .07 1,917,812 $125,800 $ .30 1,917,812 $580,600
Effect of Stock options (.01) 152,512 - (.02) 139,703 -
--------------------------------------------------------------------------
Diluted $ .06 2,070,324 $125,800 $ .28 2,057,515 $580,600
<CAPTION>
For the six months ended:
--------------------------------------------------------------------------
April 22, 2000 April 24, 1999
---------------------------------- ------------------------------------
Income Net Income Net
per share Shares Income per share Shares Income
--------- ------ ------ --------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Basic $ .25 1,917,812 $479,200 $ .25 1,917,812 $470,100
Effect of Stock options (.02) 143,031 - (.02) 141,334 -
--------------------------------------------------------------------------
Diluted $ .23 2,060,843 $479,200 $ .23 2,059,146 $470,100
</TABLE>
2. Inventories
-----------
The Company uses the last-in, first-out (LIFO) method to value
inventory.
Inventories are comprised of the following:
<TABLE>
<CAPTION>
April 22, October 23,
2000 1999
--------- -----------
<S> <C> <C>
Raw materials $ 7,619,100 $4,539,800
Work-in-process 677,400 762,400
Finished goods 1,730,700 338,000
---------------------------
$10,027,200 $5,640,200
===========================
</TABLE>
For the purposes of this LIFO calculation, the Company has estimated
both the year-end inventory levels and the inflation/deflation that
will occur during the fiscal year.
The Company anticipates an increase in its LIFO valuation account as
of October 21, 2000. Accordingly, the Company has recorded an
increase of $45,000, on a pro rata basis, in the LIFO reserve during
the first six months of fiscal 2000. During the first six months of
1999, the Company recorded, on a pro rata basis, an increase of
$45,000 in the LIFO reserve. Inventories would have been $1,123,600
higher at April 22, 2000 and $1,078,600 higher as of October 23, 1999,
if the first-in, first-out (FIFO) method had been used. Inventory
cost determination on the FIFO method approximates replacement or
current cost.
3. Comprehensive Income
--------------------
Comprehensive income is defined as the change in equity of a business
enterprise during a period from transactions and other events and
circumstances from nonowner sources. It includes all changes in
equity during a period except those resulting from investments by
owners and distributions to owners. The components of total
comprehensive income resulting from unrealized gains or losses on
marketable securities, net of income taxes for the three and six
months ended April 22, 2000 and April 24, 1999 are as follows:
<TABLE>
<CAPTION>
For the three months ended:
--------------------------------
April 22, 2000 April 24, 1999
-------------- --------------
<S> <C> <C>
Net income $125,800 $580,600
Unrealized gains (losses) on marketable securities 9,800 (97,400)
--------------------------
Comprehensive income $135,600 $483,200
==========================
<CAPTION>
For the six months ended:
--------------------------------
April 22, 2000 April 24, 1999
-------------- --------------
<S> <C> <C>
Net income $479,200 $470,100
Unrealized gains (losses) on marketable securities (3,900) 300
--------------------------
Comprehensive income $475,300 $470,400
</TABLE>
Item 2 - Management's Discussion and Analysis
---------------------------------------------
Of Financial Condition and Results Of Operations
------------------------------------------------
Results of Operations -
-----------------------
Net sales increased by $1,501,000, or 20%, during the second quarter of
fiscal 2000 and increased $4,845,300 or 37% for the first six months of
fiscal 2000 as compared to the same periods in fiscal 1999. The increase in
net sales is primarily attributable to higher unit volume of the Company's
products. The increased volume is primarily the result of more favorable
economic conditions benefiting the pleasure boat industry.
Gross profit increased $71,400 or 4% during the second quarter and increased
$1,265,000 or 44% for the first six months of fiscal 2000 as compared to the
same periods in fiscal 1999. As a percentage of net sales, gross profit was
22% during the second quarter of fiscal year 2000, as compared to 25% for
the second quarter of fiscal 1999. The decrease in the gross profit
percentage was mainly attributable to the product mix and also unfavorable
labor production variances. For the six months ended April 22, 2000, gross
profit was 23% compared to 22% for the same period ended April 24, 1999.
Operating expenses increased $240,000 or 17% for the second quarter and
$646,500 or 25% in the first six months of fiscal 2000, as compared to the
same periods in fiscal 1999. The increase is primarily attributable to the
hiring of additional personnel and related costs to support the increase in
net sales. As a percentage of net sales, operating expenses were 18% in the
second quarter of both fiscal years 1999 and 2000. For the first six months
of fiscal 2000 the percentage was 18% as compared to 19% in fiscal 1999.
Net interest expense increased $34,600 during the second quarter and
increased $61,900 for the first six months of fiscal 2000 as compared to the
same periods in fiscal 1999. The increase in interest expense in the second
quarter and the six months ended April 22, 2000 is primarily due to a higher
outstanding balance on the line of credit with Citizens Bank of
Massachusetts.
Other expense during the quarter ended April 22, 2000 is comprised of the
realized loss from the sale of certain investments relating to the deferred
compensation agreement. This loss is offset by a benefit in operating
expenses. The gains of $472,900 in the quarter ended April 24, 1999 are from
the liquidation of marketable securities.
For the second quarter ended April 22, 2000, the Company reported net income
of $125,800, compared to a net income of $580,600 for the same period in
fiscal 1999. For the six months ended April 22, 2000, the Company reported
net income of $479,200 as compared to net income of $470,100 for the six-
months ended April 24, 1999.
Liquidity and Capital Resources
-------------------------------
During the first six months of fiscal 2000, net cash used by operations was
$3,618,400, compared to $291,500 for the first six months in fiscal 1999.
Net accounts receivable increased $1,016,500 during the first six months of
fiscal 2000, as compared to an increase of $499,600 in the same period in
fiscal 1999, primarily from the increase in net sales. Net inventory
increased $4,387,000 during the first six months of fiscal 2000, as compared
to the same period in fiscal 1999. The increase in net inventory is to
support the increase in net sales.
During the six months ended April 22, 2000, the Company purchased machinery
and equipment of $574,600. The Company plans to spend approximately
$650,000 more on equipment during the remainder of the year. In addition,
on April 25, 2000, the Company purchased a 110,000 square foot facility
located in Taunton, Massachusetts. This facility will enable the Company to
consolidate its current operations into one location. The MassDevelopment
Financing Agency approved the Company for a $5,000,000 tax-exempt industrial
revenue bond, which has been financed by GE Capital Public Finance. The
term of the loan is fifteen years at a fixed rate of 6.46%. The aggregate
cost of the facility and related improvements is estimated to be $5,000,000.
The Company does not anticipate any material disruption to its normal
operation during this transition period, however the Company will incur
costs related to the move during the third and fourth quarters. It is
anticipated that by the fall of 2000 the Company will be fully operating
from its new location, although there can be no assurance that delays or
disruptions to operations will not occur.
The Company has a $4,000,000 Credit Agreement with Citizens Bank of
Massachusetts, collateralized by inventory, accounts receivable and general
intangibles. The amount of the facility available under the Credit Agreement
was increased on May 23, 2000 from $4,000,000 to $5,000,000. At April 22,
2000, the Company had $2,650,000 in outstanding borrowings under the Credit
Agreement and approximately $744,200 committed to cover the Company's
reimbursement obligations under certain letters of credit and bankers'
acceptances. The Credit Agreement expires on March 31, 2001.
The Company has two term loans with a bank aggregating $261,700, which will
be paid in monthly installments from 2001-2002.
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
2000.
Domestic inflation is not expected to have a material impact on the
Company's operations.
The cost of engine blocks and other components is subject to foreign
currency fluctuations (primarily the Japanese yen). The value of the U.S.
dollar relative to the yen had no material effect on the cost of the
Company's products during the first six months of fiscal 2000.
This Quarterly Report on Form 10-Q 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; foreign currency fluctuations resulting in cost increases to the
Company for its foreign supplied components; and any unforeseen
inefficiencies arising from the transition to the new facility.
Accordingly, there can be no assurances that any anticipated future results
will be achieved.
Item 3 - Quantitative and Qualitative Disclosures
-------------------------------------------------
About Market Risk
-----------------
Market risk represents the risk of changes in the value of short-term
investments and financial instruments caused by fluctuations in investment
prices and interest rates.
The Company addresses market risks in accordance with established policies.
The Company's risk-management activities involve risk and uncertainties and
accordingly, results could differ materially from those projected.
Investment Price Risk
---------------------
The value of the Company's investment portfolio at April 22, 2000 is stated
at market value.
Interest Rate Risk
------------------
Due to the fact that the long-term debt will mature within three years,
management has determined that the fair value would not be materially
different from the carrying value at April 22, 2000.
Part II. Other Information
Item 1 Legal Proceedings
------ -----------------
The Company has initiated arbitration with the American
Arbitration Association in New York against Daihatsu Motor
Company, Ltd. ("Daihatsu") for breach of contract and other
claims. The Company is seeking damages based on Daihatsu's
breach of a Component Sales Agreement which also granted the
Company rights to certain engines including an engine Daihatsu
began marketing in 1993 through a joint venture with Briggs &
Stratton Corporation. In a separate but related case pending in
the Federal District Court for the District of Massachusetts,
the Company is seeking damages from Briggs & Stratton
Corporation for tortious interference with the Company's
Agreement with Daihatsu and other related claims.
Item 2 Changes in Securities
------ ---------------------
None to report
Item 3 Default Upon Senior Securities
------ ------------------------------
None to report
Item 4 Submissions of Matters to a Vote of Security Holders
------ ----------------------------------------------------
(a) The Annual Meeting of Stockholders (the "Meeting") of the
Company was held April 7, 2000.
(b) Not applicable because:
(i) proxies for the Meeting were solicited pursuant to
Regulation 14 under the Securities Exchange Act of 1934;
(ii) there was no solicitation in opposition to
management's nominees as listed in the Company's proxy
statement dated March 5, 2000; and (iii) all such nominees
were elected.
(c) The matters voted upon at the Meeting were as follows:
(i) The election of two Class B directors of the Company.
Thomas M. Haythe
FOR 1,741,601
WITHHOLD AUTHORITY 6,160
James W. Storey
FOR 1,741,601
WITHHOLD AUTHORITY 6,160
(ii) A proposal to ratify the Board of Directors' selection
of KPMG LLP to serve as the Company's independent auditors
for the Company's fiscal year ending October 21, 2000.
FOR 1,743,661
AGAINST 2,200
ABSTENTIONS AND BROKER NON-VOTES 1,900
Item 5 Other Information
------ -----------------
None to report
Item 6 Exhibits and Reports on Form 8-K
------ --------------------------------
(a) Exhibits
10 (a) Loan Facility Agreement dated May 23, 2000 between
the Company and Citizens Bank of Massachusetts
10 (b) Time Note dated May 23, 2000 between the Company and
Citizens Bank of Massachusetts
10 (c) Purchase and Sale Agreement dated March 1, 2000
between the Company and Dead River Company
10 (d) Real Estate Loan Agreement dated April 24, 2000
among the Company, 150 John Hancock, LLP, GE Capital
Public Finance, Inc. and Massachusetts Development Finance
Agency
10 (e) Equipment Loan Agreement dated April 24, 2000
between the Company, GE Capital Public Finance, Inc. and
Massachusetts Development Finance Agency
10 (f) Mortgage, Security Agreement, Assignment of Leases
and Rents and Fixture Filing dated April 24, 2000 between
the Company and GE Capital Public Finance, Inc.
27 Financial Data Schedule for the six months ended
April 22, 2000
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the
period covered by this report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WESTERBEKE CORPORATION
(Registrant)
Dated June 9, 2000 /s/ John H. Westerbeke, Jr.
------------ ---------------------------
John H. Westerbeke, Jr.
Chairman of the Board,
President and Principal
Executive Officer
Dated June 9, 2000 /s/ Carleton F. Bryant III
------------ --------------------------
Carleton F. Bryant III
Executive Vice President,
Chief Operating Officer
and Principal Financial
and Accounting Officer
