<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<CASH> 58,300
<SECURITIES> 0
<RECEIVABLES> 200,900
<ALLOWANCES> 14,900
<INVENTORY> 194,100
<CURRENT-ASSETS> 502,200
<PP&E> 558,900
<DEPRECIATION> 334,600
<TOTAL-ASSETS> 907,000
<CURRENT-LIABILITIES> 248,800
<BONDS> 177,400
<COMMON> 3,000
0
0
<OTHER-SE> 252,800
<TOTAL-LIABILITY-AND-EQUITY> 907,000
<SALES> 1,229,200
<TOTAL-REVENUES> 1,229,200
<CGS> 931,800
<TOTAL-COSTS> 931,800
<OTHER-EXPENSES> 213,500
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,100
<INCOME-PRETAX> 60,800
<INCOME-TAX> 9,400
<INCOME-CONTINUING> 51,400
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 51,400
<EPS-PRIMARY> 2.56
<EPS-DILUTED> 2.33
</TABLE>
<PAGE> 1
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
(X) Annual report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 For the fiscal year ended September 30, 1995.
or
( ) Transition report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission file number 1-2883
OUTBOARD MARINE CORPORATION
---------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-1589715
-------- ----------
(State or other (IRS Employer Identification No.)
jurisdiction of
incorporation or
organization)
100 Sea Horse Drive
Waukegan, Illinois 60085
------------------ -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (708) 689-6200
Securities registered pursuant to Section 12 (b) of the Act:
Name of each exchange on
Title of each class which registered
- ------------------- ------------------------
Common stock, par value New York Stock Exchange &
$0.15 per share Chicago Stock Exchange
7% Convertible Subordinated New York Stock Exchange &
Debentures Due 2002 Chicago Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
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 required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
------- -------
Indicate by 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 of this Form 10-K. ( X )
The aggregate market value of voting stock held by non-affiliates
at November 21, 1995 was $399,827,199.00.
Number of shares of Common Stock of $0.15 par value outstanding
at November 21, 1995 were 20,052,213 shares (not including
195,214 treasury shares).
-1-
<PAGE> 2
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
1. Portions of Outboard Marine Corporation's Annual Report to
Shareholders for the year ended September 30, 1995 are
incorporated by reference into Parts I and II of this Form
10-K.
2. Portions of Outboard Marine Corporation's Notice of Annual
Meeting and Proxy Statement prepared in connection with the
January 18, 1996 Annual Meeting of Shareholders are
incorporated by reference into Part III of this Form 10-K.
-2-
<PAGE> 3
TABLE OF CONTENTS
ITEM NO. PART I
- -------- ------
1 Business
2 Properties
3 Legal Proceedings
4 Submission of Matters to a Vote of Security Holders
Executive Officers of the Registrant
PART II
-------
5 Market for Registrant's Common Equity and Related
Shareholder Matters
6 Selected Financial Data
7 Management's Discussion and Analysis of Financial
Condition and Results of Operations
8 Financial Statements and Supplementary Data
9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
PART III
--------
10 Directors and Executive Officers of the Registrant
(See Part I, Executive Officers of the Registrant)
11 Executive Compensation
12 Security Ownership of Certain Beneficial Owners and
Management
13 Certain Relationships and Related Transactions
PART IV
-------
14 Exhibits, Financial Statement Schedules, and Reports
on Form 8-K
Signatures
Exhibit Index
-3-
<PAGE> 4
PART I
------
ITEM 1. BUSINESS
- ------------------
Outboard Marine Corporation (the "Company"), which was
incorporated in 1936, is engaged principally in the
manufacturing and marketing of marine engines, boats
and accessories principally for recreational use. Its major
products are as follows:
Evinrude Outboard Motors
Johnson Outboard Motors
OMC SysteMatched Parts and Accessories
OMC TurboJet Drive Systems
Chris-Craft Boats
DuraNautic Boats
Four Winns Boats
Grumman Boats and Canoes
Haines Hunter Boats
Hydra-Sports Boats
Javelin Boats
Lowe Boats
Princecraft Boats
Quest Boats
Roughneck All-Welded Boats
Ryds Boats
Sea Nymph Boats
Seabird Boats
Seaswirl Boats
Springbok Boats
Stacer Boats
Stratos Boats
Sunbird Boats
Suncruiser Pontoon Boats
The company operates in a single industry segment. Sales to
unaffiliated customers include the following principal
products:
Year Ended September 30
1995 1994 1993
(In Millions)
Engine Products $ 690.8 $ 574.3 $ 587.2
Boats and Packages 538.4 504.1 447.4
--------- --------- ---------
$ 1,229.2 $ 1,078.4 $ 1,034.6
========= ========= =========
Information by geographic area for the three years ended
September 30, 1995 is presented under the heading "Business
Segments" which is Note 15 in the 1995 Annual Report to
Shareholders, which Note is incorporated herein by reference
and included as part of Exhibit 13.
-4-
<PAGE> 5
Most of OMC's principal products are sold throughout the world.
Outboard motors and parts and accessories are distributed in
the United States and Canada through separate Evinrude and
Johnson dealer organizations, the majority of which operate
under direct-from-factory dealerships. Boats are sold primarily
to direct-from-factory dealers. Distribution of OMC products
outside the United States and Canada is handled by various
divisions and subsidiaries of the Company, which sell to dealers
and wholesale distributors throughout the world.
All the fields in which OMC is engaged are highly competitive.
OMC believes it is the world's largest producer of outboard
motors and the second largest publicly-held recreational powerboat
manufacturer. There are only three significant manufacturers of
outboard motors and many manufacturers of boats.
OMC's principal competition in the United States outboard
industry is from Brunswick Corporation and Yamaha Motor Co., Ltd.
The outboard motors produced by these companies together with
several other Japanese producers are also the principal competing
outboards in the international market. There are many manufacturers
of boats that compete with OMC, the largest of which in the United
States are Brunswick Corporation, Genmar Industries, Inc.,
Meridian Sports, Inc. and Tracker Marine, L. P.
OMC and AB Volvo Penta and Volvo Penta of the Americas, Inc., are
partners in a joint venture company to produce gasoline stern
drive and gasoline inboard marine power systems. Additional
information is presented under the heading "Joint Venture and
Investments" which is Note 2 in the 1995 Annual Report to
Shareholders, which Note is incorporated herein by reference and
included as part of Exhibit 13.
In July 1995, the Company and FICHT GmbH of Kirchseeon, Germany
announced the formation of a strategic alliance for the development
and worldwide manufacturing and marketing of high pressure fuel
injection systems and other technologies. Under the terms of the
strategic alliance, the Company acquired a 51% interest in FICHT
GmbH. The Ficht family retained a 49% interest and will continue
to operate the business.
Due to the seasonal nature of OMC's business, receivables,
inventory and accompanying short-term borrowing to satisfy working
capital requirements are usually at their highest levels during
the second and third fiscal quarters and decline thereafter as the
Company's various products enter their peak selling seasons. To
reduce the impact of seasonality, OMC offers various types of
extended credit terms or financed floor planning to qualified
customers who buy the Company's products. Working capital
requirements during the off-season are in part financed by
short-term borrowing. See information presented under the heading
"Short-Term Borrowings" which is Note 7 in the 1995 Annual Report
to Shareholders, which Note is incorporated herein by reference
and included as part of Exhibit 13.
OMC considers its patent portfolio, including those acquired in
the FICHT transaction, to be of considerable value even though no
single patent or license is deemed to be material. In OMC's
opinion, Chris-Craft, DuraNautic, Evinrude, Four Winns, Grumman,
Haines Hunter, Hydra-Sports, Javelin, Johnson, Lowe, OMC, OMC
Cobra, OMC King Cobra, OMC Sea Drive, Princecraft, Quest,
Roughneck, Seabird, Ryds, Sea Horse, Sea Nymph, Seaswirl,
-5-
<PAGE> 6
Springbok, Stacer, Stratos, Sunbird and Suncruiser trademarks are
of considerable value and are important to the conduct of its
business. Chris-Craft is a registered trademark owned by
Chris-Craft Industries, Inc. and is licensed to OMC. Grumman is a
registered trademark owned by Grumman Corporation and is licensed
to OMC.
The Company purchases many different raw materials from various
sources. The Company believes its sources of supply are adequate.
In the fiscal years ended September 30, 1995, 1994, and 1993, OMC
spent $41.6 million, $36.5 million, and $36.0 million,
respectively, on research and development activities relating to the
development of new products and improvement of existing products.
All of this work was OMC sponsored.
In the summer of 1994, the Company announced Project LEAP (Lower
Emission Advanced Propulsion), a plan for the next generation of
outboard engines - the engines that will power the boats of the
future. Project LEAP is a sweeping effort to replace the current
Johnson and Evinrude outboard lines with new models based on new
technologies that both demonstrate a concern for the environment
and, at the same time, deliver dramatically superior fuel economy
and performance. The plan calls for the Company to complete this
transformation of outboard lines within the next eight years,
approximately twice as fast as the average industry rate for
model renewal of outboard engines. Through Project LEAP, the
Company will bring to market advanced outboard technologies
designed to deliver new levels of environmental quality while
providing peak performance for every application across the
Johnson and Evinrude lines.
The Company made solid progress in 1995 in developing
direct-injected two-cycle outboards based on FICHT fuel injection
technology. The Company expects this new outboard design, which is
proprietary to OMC, to use fewer parts and to be simpler to
manufacture than competitors' low-emission designs. The Company
believes it will provide OMC with an important advantage in the
changing U.S. outboard market, where the Company expects
Environmental Protection Agency regulations to require
manufacturers to begin phasing in low-emission outboards,
beginning in 1998. The Company plans to introduce the first of the
FICHT technology outboards late in calendar 1996.
The Company estimates that it will spend approximately $7.4
million and $4.1 million, respectively, during the 1996 and 1997
fiscal years for environmental control facilities. Litigation
involving the Company and the United States Environmental
Protection Agency and other agencies is covered under the heading
"Commitments and Contingent Liabilities" which is Note 17 in the
1995 Annual Report to Shareholders, which Note is incorporated
herein by reference and included as part of Exhibit 13.
As of September 30, 1995, approximately 8,900 people were employed
by OMC and its subsidiaries.
-6-
<PAGE> 7
ITEM 2. PROPERTIES
- --------------------
Plants located in Waukegan, Illinois; Milwaukee, Wisconsin;
and Burnsville, Spruce Pine and Andrews, North Carolina,
assemble and/or manufacture parts for outboard motors, each
plant specializing in selected manufacturing processes.
Outboard motors are assembled in Calhoun, Georgia. The Beloit,
Wisconsin facility is engaged in the worldwide distribution
of service parts and accessories. Boats are manufactured in
Cadillac, Michigan; Lebanon, Missouri; Marathon, New York;
Murfreesboro and Old Hickory, Tennessee; Columbia, South
Carolina; Culver, Oregon; Syracuse, Indiana; and Sarasota,
Florida.
The Company's plants in Juarez, Chihuahua, Mexico;
Dongguan, China; Hong Kong; and Manaus, Brazil all
assemble outboard motors or components and/or engage in
fabrication. Boats are also manufactured and/or assembled
in Altona, Victoria, Australia; Yatala, Queensland,
Australia; Princeville, Quebec, Canada; Vannes, France; and
Ryds, Sweden.
The following properties are for sale: Elkhart and Goshen,
Indiana; Manawa, Wisconsin; Peterborough, Ontario, Canada;
Plessisville, Quebec, Canada; Swansboro and Rutherfordton,
North Carolina. Also for sale are distribution warehouses in
Sunrise, Florida and Waukegan, Illinois. All of the Company's
manufacturing facilities are Company owned, except the
Company's Dongguan, China; Hong Kong; and Manaus, Brazil
plants. The Hong Kong facility is located on property leased
until 2047. The Dongguan facility lease expires in 1999. The
Manaus facility lease expires in 1997. OMC believes that all
of its manufacturing facilities are in a sound and modern
operating condition and are suitable and adequate for their
purposes. The Company also leases various warehouse and office
space.
ITEM 3. LEGAL PROCEEDINGS
- ---------------------------
A description of certain legal proceedings is presented
under the heading "Commitments and Contingent Liabilities"
which is Note 17 in the 1995 Annual Report to Shareholders,
which Note is incorporated herein by reference and included
as part of Exhibit 13.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -------------------------------------------------------------
During the fourth quarter of 1995 fiscal year, there were no
matters submitted to a vote of security holders.
-7-
<PAGE> 8
EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------
Number of
Years as
Executive
Name Age Position Officer
- ------------------- --- ---------------------- ------------
Harry W. Bowman 52 Chairman of the Board,
President and Chief
Executive Officer less than 1
D. Jeffrey Baddeley 57 Vice President and General Counsel 5
L. Earl Bentz 43 Vice President; and President,
OMC Fishing and Aluminum
Boat Group 2
John D. Flaig 48 Vice President, Worldwide Research
and Engineering, MPPG 3
David R. Lumley 41 Senior Vice President, Worldwide
Marketing and Sales, MPPG 1
James R. Maurice 54 Vice President and Controller 6
Richard H. Medland 53 Vice President, Human Resources 4
Howard Malovany 45 Secretary and Senior Counsel 2
Christopher R. Sachs 43 Treasurer 3
All officers are elected or appointed for terms which expire on the
date of the meeting of the Board of Directors following the Annual
Meeting of Shareholders or until their successors are elected or
appointed and qualify.
A brief account of the experience of the above listed officers
follows:
Harry W. Bowman,
- ---------------
who was elected Chairman of the Board, President and Chief Executive
Officer in 1995, had previously been employed with Whirlpool
Corporation from 1971 to 1995, most recently as Executive Vice
President, Global Business Process Integration from 1994 to 1995,
President, Whirlpool Europe from 1992 to 1994 and Senior Vice
President, North American Operations from 1991 to 1992.
D. Jeffrey Baddeley,
- -------------------
who was elected Vice President in 1994 and General Counsel in 1993,
had been employed by OMC as Secretary and Associate General Counsel
since 1990.
-8-
<PAGE> 9
L. Earl Bentz,
- -------------
who was elected Vice President in 1993, has been employed by OMC as
President of its OMC Fishing and Aluminum Boat Group, and had
previously been employed by OMC in various executive capacities for
at least five years prior thereto.
John D. Flaig,
- -------------
who was elected Vice President in 1992 and is currently Vice President,
Manufacturing and Engineering, MPPG, had been employed by OMC as
Director of Marine Engineering for OMC's Marine Power Products Group
since 1991, and had previously been employed by OMC in various
executive capacities for at least five years prior thereto.
David R. Lumley,
- ---------------
who was elected Senior Vice President, Worldwide Marketing and
Sales, MPPG, in 1994, had been previously employed by OMC as Vice
President, Sales and Marketing-Marine Products Group, and had
previously been employed as Vice President, Sales and Marketing-Golf
Division, for Wilson Sporting Goods Company from 1990 to 1994.
James R. Maurice,
- ----------------
who was elected Vice President in 1993, had been employed by OMC as
Controller since 1989.
Richard H. Medland,
- ------------------
who was elected Vice President, Human Resources in 1991, had previously
been employed as Vice President, Human Resources of the Tenneco
Automotive Division of Tenneco, Inc.
Howard Malovany,
- ---------------
who was elected Secretary in 1993, had been previously employed by OMC
as Assistant Secretary and Senior Counsel, and had previously been
employed by OMC in various executive capacities for at least five years
prior thereto.
Christopher R. Sachs,
- --------------------
who was elected Treasurer in 1992, had been employed by OMC as
Assistant Treasurer since 1991 and previously as Director of Tax for
at least five years prior thereto.
-9-
<PAGE> 10
PART II.
--------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
- -----------------------------------------------------------
There were 4,716 record holders of common stock of OMC
at September 30, 1995.
The principle market for the Company's common stock is
the New York Stock Exchange and the Chicago Stock Exchange.
Other material required by this item is presented under
the heading "Quarterly Information (Unaudited)" which
is Note 16 in the 1995 Annual Report to Shareholders,
which Note is incorporated herein by reference and is
included as part of Exhibit 13.
ITEM 6. SELECTED FINANCIAL DATA
- --------------------------------
The following summary represents the results of operations
(without including changes in accounting principles in 1993)
for the five years ended September 30, 1995.
Years Ended September 30 1995 1994 1993 1992 1991
--------- --------- --------- --------- -------
(In millions except amounts per share)
Net sales $1,229.2 $1,078.4 $1,034.6 $1,064.6 $983.6
Net earnings (loss) 51.4 48.5 (165.0) 1.9 (85.9)
Average number of shares of
common stock outstanding and
common stock equivalents,
if applicable 20.1 20.0 19.6 19.8 19.4
Per average share of common
stock--
Net earnings (loss)
Primary 2.56 2.42 (8.42) .10 (4.42)
Fully diluted 2.33 2.22 (8.42) .10 (4.42)
Cash dividends .40 .40 .40 .40 .50
Total Assets 907.0 817.1 791.8 997.1 957.0
Long-Term Debt 177.4 178.2 183.0 198.1 133.1
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- -----------------------------------------------------------
The material required by Item 7 of this Annual Report on
Form 10-K is presented under the heading "Management's
Discussion and Analysis of Results of Operations and Financial
Condition" in the 1995 Annual Report to Shareholders, which is
incorporated herein by reference and is included as part of
Exhibit 13.
-10-
<PAGE> 11
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- -----------------------------------------------------
Some material required by Item 8 is listed in Item 14 of this
Annual Report on Form 10-K and is presented under the headings
"Consolidated Financial Statements" and "Notes to Consolidated
Financial Statements" in the 1995 Annual Report to Shareholders
which material is incorporated herein by reference and is
included as part of Exhibit 13.
Other material required by this Item 8 is presented under
the heading "Quarterly Information (Unaudited)" which is
Note 16 in the 1995 Annual Report to Shareholders, which
Note is incorporated herein by reference and is included as
part of Exhibit 13.
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
- -----------------------------------------------------------------
No disclosure is required pursuant to this item.
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------
Certain of the material required by Item 10 is presented
under the heading "Nominees and Directors" in the Company's
Notice of Annual Meeting and Proxy Statement for its Annual
Meeting of Shareholders to be held on January 18, 1996,
which is incorporated herein by reference.
For other information with respect to the executive
officers, reference is made to the information under the
heading "Executive Officers of the Registrant" in Part I of
this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
- --------------------------------
The material required by Item 11 is presented under the
headings "Executive Compensation" and "Report of the
Compensation Committee" in the Company's Notice of
Annual Meeting and Proxy Statement for its Annual
Meeting of Shareholders to be held on January 18, 1996,
which is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
- -------------------------------------------------------------
The material required by Item 12 is presented under the
headings "Investor Table" and "Director and Executive
Officer Table" in the Company's Notice of Annual
Meeting and Proxy Statement for its Annual Meeting of
Shareholders to be held on January 18, 1996, which is
incorporated herein by reference.
-11-
<PAGE> 12
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
The material required by Item 13 is presented under the
heading "Board of Directors, Committees and Executive
Officers" in the Company's Notice of Annual Meeting and Proxy
Statement for its Annual Meeting of Shareholders to be held
on January 18, 1996, which is incorporated herein by reference.
-12-
<PAGE> 13
PART IV
--------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
- -----------------------------------------------------------------
(a) Documents filed as part of the Annual Report on Form 10-K:
1. Financial Statements from the 1995 Annual Report to
Shareholders:
Statements of Consolidated Earnings (page 81).
Statements of Consolidated Financial Position (page 82).
Statements of Consolidated Cash Flows (page 83).
Statements of Changes in Consolidated Shareholders'
Investment (page 84).
Notes to Consolidated Financial Statements (pages 85
through 103).
Management's Discussion and Analysis of Results of
Operations and Financial Condition (pages 74
through 78).
Report of Independent Public Accountants (page 105).
2. Financial statement schedules required to be filed
by Item 8 of this Annual Report on Form 10-K (10-K
page reference supplied):
Report of Independent Public Accountants (page 15).
All other schedules are omitted as the information is
not required, is inapplicable or is included in the
Consolidated Financial Statements or Notes thereto.
Individual financial statements for the Company's
subsidiaries and partnerships have been omitted because
consolidated statements have been prepared for all of
the Company's wholly-owned subsidiaries and limited
partnerships.
3. An exhibit index is included herein (pages 16 through 17).
(b) During the fourth quarter of the year ended September
30, 1995, no reports were filed on Form 8-K.
(c) Exhibits are attached hereto.
(d) Not applicable.
-13-
<PAGE> 14
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15 (d) 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.
OUTBOARD MARINE CORPORATION
Date December 13, 1995 By HARRY W. BOWMAN Chairman of the
----------------- --------------- Board of Directors,
Harry W. Bowman President and Chief
Executive Officer
Date December 13, 1995 By JAMES R. MAURICE Vice President and
----------------- ---------------- Controller
James R. Maurice
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following person on behalf of
the registrant and in the capacities and on the dates indicated.
Date December 13, 1995 By FRANK BORMAN Director
----------------- ------------
Frank Borman
Date December 13, 1995 By WILLIAM C. FRANCE Director
----------------- -----------------
William C. France
Date December 9, 1995 By URBAN T. KUECHLE Director
----------------- ----------------
Urban T. Kuechle
Date December 11, 1995 By RICHARD T. LINDGREN Director
----------------- -------------------
Richard T. Lindgren
Date December 10, 1995 By J. WILLARD MARRIOTT, JR. Director
----------------- -----------------------
J. Willard Marriott, Jr.
Date December 13, 1995 By RICHARD J. STEGEMEIER Director
----------------- ---------------------
Richard J. Stegemeier
Date December 12, 1995 By CHARLES D. STRANG Director
----------------- -----------------
Charles D. Strang
Date By Director
----------------- -------------------
Richard F. Teerlink
-14-
<PAGE> 15
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited in accordance with generally accepted auditing
standards, the Consolidated Financial Statements included in Outboard
Marine Corporation's Annual Report to Shareholders incorporated by
reference in this Form 10-K, and have issued our report thereon dated
October 27, 1995. Our report on the Consolidated Financial Statements
includes an explanatory paragraph with respect to the change in the
methods of accounting for postretirement benefits other than pensions
and income taxes as discussed in Notes 12 and 14 to the Consolidated
Financial Statements. Our audit was made for the purpose of forming
an opinion on those statements taken as a whole. The schedules
listed in the accompanying index are the responsibility of the
Company's management and are presented for purposes of complying with
the Securities and Exchange Commission's rules and are not part of
the basic Consolidated Financial Statements. These schedules have been
subjected to the auditing procedures applied in the audit of the basic
Consolidated Financial Statements and, in our opinion, fairly state in
all material respects the financial data required to be set forth
therein in relation to the basic Consolidated Financial Statements
taken as a whole.
ARTHUR ANDERSEN LLP
-------------------
Arthur Andersen LLP
Milwaukee, Wisconsin
October 27, 1995
-15-
<PAGE> 16
OUTBOARD MARINE CORPORATION
EXHIBIT INDEX
Exhibit 3: Articles of Incorporation and By-laws:
- ----------
(A) With respect to the Registrant's Certificate of Incorporation,
reference is made to Exhibit 4 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended December 31, 1984; to
Exhibit 4 to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended December 31, 1987 and to Exhibit 4 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1988, all of which are incorporated herein by reference.
(B) With respect to the Registrant's By-laws as amended September 20,
1995, a copy is attached as Exhibit 3(B).
Exhibit 4: Instruments defining the rights of security holders,
- ---------- including indentures:
(A) Agreement of Outboard Marine Corporation, attached hereto as
Exhibit 4(A).
(B) With respect to rights of Series A, Junior Participating
Preferred Stock, reference is made to the Registrant's report on
Form 8-K filed on October 17, 1990, which is incorporated herein
by reference.
(C) With respect to rights of holders of the Registrant's 9-1/8%
sinking fund debentures due 2017, reference is made to
Exhibit 4(A) in the Registrant's Registration Statement Number
33-12759 filed on March 20, 1987, which is incorporated herein
by reference.
(D) With respect to rights of holders of Registrant's 7% convertible
subordinated debentures due 2002, reference is made to
Registrant's Registration Statement Number 33-47354 filed on
April 28, 1992, which is incorporated herein by reference.
Exhibit 10: Material contracts:
- -----------
(A) With respect to the Registrant's 1987 Stock Option and Performance
Unit Plan, reference is made to Exhibit 10(D) to the Registrant's
Annual Report on Form 10-K for the fiscal year ended September 30,
1987, which is incorporated herein by reference.
(B) With respect to the OMC Executive Bonus Plan, reference is made to
Exhibit 10(C) to the Registrant's Annual Report on Form 10-K for
the fiscal year ended September 30, 1990, which is incorporated
herein by reference.
(C) With respect to the OMC Executive Equity Incentive Plan, reference
is made to Exhibit 10(D) to the Registrant's Annual Report on Form
10-K for the fiscal year ended September 30, 1990, which is
incorporated herein by reference.
-16-
<PAGE> 17
(D) With respect to the 1994 OMC Long-Term Incentive Plan, reference
is made to Exhibit C, to Outboard Marine Corporation's Notice of
Annual Meeting and Proxy Statement prepared in connection with
the January 20, 1994 Annual Meeting of Shareholders, which is
incorporated herein by reference.
(E) With respect to Severance Agreements for all elected officers of
the Registrant (except Mr. Bowman), reference is made to Exhibit
10(E) of the Registrant's Annual Report on Form 10-K for the
fiscal year ended September 30, 1988, which is incorporated herein
by reference.
(F) With respect to the Employment Agreement for Mr. Bowman, a copy is
attached hereto as Exhibit 10(F).
(G) With respect to the Severance Agreement for Mr. Bowman, a copy is
attached hereto as Exhibit 10(G).
(H) With respect to the Registrant's Revolving Credit Agreement, dated
as of December 30, 1995, reference is made to Exhibit 10(G) to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1994, which is incorporated herein by reference. With
respect to Amendment No. 1 to such Credit Agreement, a copy is
attached hereto as Exhibit 10(H).
Exhibit 11: Statements regarding computation of per share earnings:
- -----------
A statement regarding the computation of per share earnings is
attached hereto as Exhibit 11.
Exhibit 12: Statements regarding computation of ratios:
- -----------
A statement regarding the computation of the ratio of earnings to
fixed charges is attached hereto as Exhibit 12.
Exhibit 13: Annual report to security holders:
- -----------
The Registrant's Annual Report to Shareholders is attached hereto
as Exhibit 13.
Exhibit 21: Subsidiaries of the registrant:
- -----------
A list of the Company's subsidiaries and limited partnerships is
attached hereto as Exhibit 21.
Exhibit 23: Consents of expert:
- -----------
A copy of the consent of the Company's independent public
accountants is attached hereto as Exhibit 23.
Exhibit 27: Financial data schedules:
- -----------
This information is filed only in the electronic filing.
-17-
<PAGE> 18
Exhibit 3 (B)
BYLAWS
of
Outboard Marine Corporation
(As amended to and including September 20, 1995)
TABLE OF CONTENTS
ARTICLE I Location
- -------------------------------------------------------------
Section 1. Principal Office
Section 2. Other Offices
ARTICLE II Stockholders
- -------------------------------------------------------------
Section 1. Place of Annual Meeting
Section 2. Changing Place of Annual Meeting
Section 3. Date of Annual Meeting
Section 4. Special Meetings
Section 5. Quorum
Section 6. Voting
Section 7. Notice
Section 8. Chairman and Secretary of the Meeting
Section 9. Proper Business
ARTICLE III Directors
- -------------------------------------------------------------
Section 1. Power of Directors
Section 2. Compensation
Section 3. Number of Directors
Section 4. Quorum
Section 5. Actions Without a Meeting
Section 6. Vacancy
Section 7. Meetings
Section 8. Committees
Section 9. Nominees
ARTICLE IV Officers
- -------------------------------------------------------------
Section 1. Required Officers
Section 2. Term of Office
Section 3. Chief Executive Officer
Section 4. President
Section 5. Vice President
Section 6. Secretary
Section 7. Treasurer
Section 8. Other Assistant Officers
Section 9. Officers Holding Multiple Positions
ARTICLE V Stock
- -------------------------------------------------------------
Section 1. Form of Stock Certificate
Section 2. Transfer of Shares
Section 3. Lost or Destroyed
Section 4. Holder of Record
ARTICLE VI Execution of Instruments
- -------------------------------------------------------------
Section 1. Authorized Signatures
Section 2. Certificates of the Company
-18-
<PAGE> 19
ARTICLE VII Indemnification
- -------------------------------------------------------------
Section 1. Proper Parties
Section 2. Expenses
Section 3. Right of Claimant to Bring Suit
Section 4. Non-Exclusivity of Rights
Section 5. Insurance
Section 6. Contractual Nature
Section 7. Severability
ARTICLE VIII Amendments
- -------------------------------------------------------------
Section 1. Power to Amend Bylaws
Section 2. Exceptions to the Power to Amend Bylaws
ARTICLE IX Miscellaneous
- -------------------------------------------------------------
Section 1. Corporate Seal
Section 2. Fiscal year
-19-
<PAGE> 20
ARTICLE I
---------
Location
Section 1. Principal Office
----------------------------
The principal office of the Company shall be located in the City of
Wilmington, New Castle County, Delaware.
Section 2. Other Offices
-------------------------
The Company shall have such other offices, either in or outside the
State of Delaware, as the Board of Directors or the Chief Executive
Officer shall from time to time direct.
ARTICLE II
----------
Stockholders
Section 1. Place of Annual Meeting
-----------------------------------
The Board of Directors shall determine the place, which may be in or
outside the State of Delaware, for holding any meeting of the
stockholders of the Company.
Section 2. Changing Place of Annual Meeting
--------------------------------------------
No change of the time or place for the annual meeting for the election
of Directors shall be made within 60 days of the day on which such
election is to be held unless required by law; provided, however, the
Board of Directors may change the time or place of the meeting at any
time, without notice. If any change is required by law, notice of such
change shall be given by the Secretary of the Company to each
stockholder entitled to notice thereof no less than 20 days before such
election is to be held.
Section 3. Date of Annual Meeting
----------------------------------
The annual meeting of stockholders shall be held on the third Thursday
in January in each year, if not a holiday. If such day is a holiday,
the meeting shall be held on the first day thereafter that is not a
holiday, Saturday or Sunday or at such time, which shall not be more
than 30 days from the date of the original meeting or the immediately
preceding adjournment, as may be set by the Board of Directors. At the
annual meeting, the stockholders shall elect Directors and transact
such other business as may properly come before the meeting.
Section 4. Special Meetings
----------------------------
Special meetings of stockholders, for any purpose other than the
election of Directors, may be held at such time, on such date and at
such place as shall be specified in the notice of such meeting. Special
meetings of stockholders may be called by the Chairman of the Board,
the Chief Executive Officer or three-quarters of the entire Board of
Directors.
-20-
<PAGE> 21
Section 5. Quorum
------------------
The holders of a majority of the shares of common stock entitled to
vote who shall be present in person or by proxy, shall constitute a
quorum at all meetings of stockholders. A majority of the quorum shall
decide any matter properly brought before the meeting, except as may
otherwise be required by these Bylaws, by the Certificate of
Incorporation or by law. Whether or not there is a quorum present at
any such meeting, the chairman of the meeting or a majority of the
shares so present or represented shall have the power to adjourn the
meeting from time to time without notice. At any adjourned meeting,
any business may be transacted which might have been transacted at the
original or immediately preceding adjourned meeting. If the adjournment
is for more than 30 days or if after the adjournment a new record date
is fixed for the adjourned meeting, a notice of the adjourned meeting
shall be given to each stockholder of record entitled to notice of and
to vote at the meeting.
Section 6. Voting
------------------
All votes by stockholders on proposed amendments to the Company's
Certificate of Incorporation and all elections of Directors shall be by
written ballot. All elections for Directors shall be decided by a
plurality of the votes of the shares present at the meeting, in person
or by proxy, and entitled to vote on the election of Directors; all
other questions shall be decided by a majority vote of the shares
entitled to vote on the subject matter and present, in person or by proxy,
at the meeting, except as otherwise provided in these Bylaws, by the
Company's Certificate of Incorporation or by law.
-21-
<PAGE> 22
Section 7. Notice
------------------
Written notice of each annual or special meeting of stockholders shall
be prepared and mailed by or shall be caused to be prepared and mailed
by the Secretary of the Company. These notices shall be mailed to the
address of each stockholder as it appears on the books and records of
the Company as of the record date for such meeting. The notice for any
annual or special meeting shall be mailed no less than 10 days and no
more than 60 days before the meeting. Any notice shall state the place,
date and hour of the meeting and, in the case of a special meeting,
shall state the purpose or purposes of such meeting. In no event shall
any irregularity in such notice affect the validity of any annual
meeting of stockholders or any proceeding at any such meeting duly
constituted.
Section 8. Chairman and Secretary of the Meeting
-------------------------------------------------
The Chairman of the Board shall act as chairman and shall preside and
the Secretary shall act as secretary and record the proceedings at all
meetings of stockholders.
Section 9. Proper Business
---------------------------
Any action required or permitted to be taken by the stockholders of the
Company must be effected at a duly called annual or special meeting of
the stockholders of the Company and may not be effected by any consent
in writing by such stockholders. At any annual or special meeting of
stockholders, only that business which is properly brought before the
meeting shall be conducted. To be properly brought before the meeting,
such business must be specified in the notice of the meeting (or any
supplement thereto) given by or at the direction of the Board of
Directors or the Chief Executive Officer or otherwise properly brought
before the meeting by the Board of Directors or by a stockholder. For a
stockholder to properly bring business before the meeting, the
stockholder must have given written notice thereof; such notice to be
received by the Secretary, at the Company's principal executive
offices, no less than 60 nor more than 90 days prior to the date one
year from the date of the immediatedly preceding annual meeting of
stockholders. The notice must contain a brief description of the
business intended to be brought before the meeting, the stockholder's
name and address, the class and number of share of stock the
beneficially owns and a description of any material interest the
stockholder has in the Company. If the Company provides less than 30
days notice or prior public disclosure of the date of the meeting is
given or made to stockholders, to be timely received the stockholders'
notice must be received by the Secretary no later than the close of
business on the tenth day after that notice was mailed to stockholders
or public disclosure of the notice was made.
-22-
<PAGE> 23
ARTICLE III
-----------
Directors
Section 1. Power of Directors
------------------------------
The business and affairs of the Company shall be vested in the Board
of Directors, subject to any restrictions imposed upon them by these
Bylaws, by the Certificate of Incorporation or by law.
Section 2. Compensation
------------------------
The Board of Directors shall have the power to fix the compensation
of its members and may provide for the payment of the expenses of the
members attending meetings of the Board of Directors and any committee
of the Board.
Section 3. Number of Directors
-------------------------------
There shall be no less than nine and no more than 12 members on the
Board of Directors, the actual number to be set by a resolution of the
Board of Directors from time to time. The election and term of office
of each Director shall be in accordance with the provisions of Article
FOURTEENTH of the Certificate of Incorporation.
Section 4. Quorum
------------------
A majority of the Board of Directors then in office shall constitute a
quorum for the transaction of business at any meeting of Directors. If
a quorum is not present, a majority of those present may adjourn the
meeting. The act of a majority of the Directors present at any meeting
at which a quorum is present shall be the act of the Board of
Directors, except as provided by these Bylaws, by the Certificate of
Incorporation or by law. At all meetings of the Board of Directors, each
Director present shall have one vote.
Section 5. Actions Without a Meeting
-------------------------------------
Any action required or permitted to be taken at any meeting of the
Board of Directors or committee of the Board may be taken without a
meeting, if all members of the Board of Directors or the committee, as
the case may be, shall consent in writing, and such writing is filed
with the minutes of the Board of Directors or the committee, as the
case may be.
-23-
<PAGE> 24
Section 6. Vacancy
-------------------
Any Director or the entire Board of Directors may be removed from
office at any time but only for cause and only by the affirmative vote
of the holders representing 80% or more of the combined voting power
of all the shares of stock of the Company entitled to vote for the
election of Directors. In the event of any vacancy in the Board of
Directors for any reason, a majority of the Directors then in office,
or if only one director remains, that director, may elect a person to
fill any such vacancy. The Director so elected shall serve for the
unexpired term of the vacant directorship or as otherwise may be
required in accordance with the provisions of Article FOURTEENTH of the
Company's Certificate of Incorporation.
Section 7. Meetings
--------------------
The Board of Directors shall elect one of its members to be Chairman of
the Board of Directors and to have such other powers, authority and
duties as the Board of Directors may assign to such office. The
Chairman of the Board of Directors shall preside at all meetings of the
Board of Directors. If the Chairman is not present or available, the
Directors present at the meeting shall appoint, from one of their
members, a Director to act as Chairman of the meeting. The Board of
Directors shall meet to elect the officers of the Company as promptly
as practical after the adjournment of the Annual Meeting of
Stockholders. Other meetings of the Directors may be held at such time,
on such date and in such place as the Board of Directors may from time
to time direct. Special meetings of the Directors may be called at any
time by the Chairman of the Board, the Chief Executive Officer, or the
written request of two-thirds of the entire Board of Directors then in
office. The Secretary shall give notice to the Directors of the time,
date and place of each such meeting no less than two days prior to any
such meeting. The notice shall be sent to the last known address of
each such director as shown on the Company's books and records. Any
Director may, before or after any meeting, waive, in writing, notice
of such meeting.
Section 8. Committees
----------------------
The Board of Directors may, by a resolution passed by a majority of the
entire Board of Directors, designate such committee or committees of
the Board as it deems necessary or appropriate. Each committee shall
consist of two or more Directors. In the absence or disqualification
of a member of any committee, the member or members present at any
meeting and not disqualified from voting may unanimously appoint
another director to act at the meeting in place of such absent or
disqualified member. Each committee shall have such power, authority
and duties as may, by a resolution of the Board of Directors, these
Bylaws, the Certificate of Incorporation or by law, be delegable to a
committee of the Board.
-24-
<PAGE> 25
Section 9. Nominees
--------------------
Only persons who are nominated in accordance with the following
procedures shall be eligible for election as Directors. Nominations of
persons for election to the Board of Directors of the Company may be
made at a meeting of stockholders, by or at the direction of the Board
of Directors, by any nominating committee or person appointed by the
Board of Directors, or by any stockholder of the Company entitled to
vote for the election of Directors at the meeting, who complies with
the notice procedures set forth in this Section 9. Such nominations,
other than those made by or at the direction of the Board of Directors,
shall be made pursuant to timely notice in writing to the Secretary of
the Company. To be timely, a stockholders' notice shall be delivered to
or mailed and received by the Secretary of the Company at the principal
executive offices of the Company not less than 60 nor more than 90 days
prior to the date one year from the date of the immediately preceding
annual meeting of stockholders; provided, however, that in the event
that less than 30 days notice or prior public disclosure of the date of
the meeting is given or made to stockholders, notice by the stockholder
to be timely must be so received no later than the close of business on
the tenth day following the day on which such notice of the date of the
meeting was mailed or such public disclosure was made. Such stockholder's
notice shall set forth: (a) as to each person who the stockholder
proposes to nominate for election or re-election as a Director, (1) the
name, age, business address and residence address of the person, (2)
the principal occupation or employment of the person, (3) the class and
number of shares of stock of the Company which are beneficially owned
by the person, (4) the nominee's written consent to being named in the
proxy statement as a nominee and to serving as a Director if elected
and (5) any other information relating to the person that is required
to be disclosed in solicitations for proxies for election of Directors
pursuant to Rule 14a under the Securities Exchange Act of 1934 or any
successor rule thereto; and (b) as to the stockholder giving the
notice, (1) the name and record address of the stockholder and (2) the
class and number of shares of stock of the Company which are
beneficially owned by the stockholder as of the record date for such
meeting. The Company may require any proposed nominee to furnish such
other information as may reasonably be required by the Company to
determine the eligibility of such proposed nominee to serve as a
Director of the Company.
ARTICLE IV
----------
Officers
Section 1. Required Officers
-----------------------------
The Board of Directors (i) shall elect a Chief Executive Officer, a
President, a Secretary and a Treasurer, and (ii) may elect or appoint
one or more Vice Presidents, such assistant officers or such other
officers of the Company as may be designated by the Board of Directors
from time to time. The Chief Executive Officer may appoint other
Vice President, assistant officers or such other officers provided
any such officer appointed by the Chief Executive Officer shall not
have more powers, authority or duties of any such similarly titled
officer elected by the Board of Directors. Each officer elected or
appointed by the Board of Directors shall have such power and authority
as may be prescribed by the Board Directors or the Chief Executive
Officer or as may be specified by these Bylaws, by the Certificate of
Incorporation or by law.
-25-
<PAGE> 26
Section 2. Term of Office
--------------------------
Except where otherwise expressly provided in a contract duly authorized
by a majority of the Board of Directors or these Bylaws, all officers
elected or appointed by the Board of Directors or the Chief Executive
Officer shall hold office until the annual meeting of stockholders
held next after such election or appointment and until such officer's
successor shall have been duly chosen and qualified or until such
officer shall have resigned or shall have been removed. All agents,
including any employee, representative or officer appointed by the
Board of Directors or the Chief Executive Officer of the Company shall
be subject to removal at any time by the Board of Directors or the
Chief Executive Officer with or without cause. All officers elected by
the Board shall be subject to removal with or without cause at any time
by two-thirds of the Directors then in office. Any vacancy occurring in
any office to which such officer was elected or appointed by the Board
of Directors shall be filled by the vote of a majority of the Directors
then in office. Any vacancy occurring in any office to which such
officer was appointed by the Chief Executive Officer may be filled by
the vote of a majority of the Directors then in office or the Chief
Executive Officer. Notwithstanding the foregoing, any such removal
shall be without prejudice to such officer's contractual rights.
Section 3. Chief Executive Officer
-----------------------------------
The Chief Executive Officer shall be primarily responsible for
formulating and implementing the Company's missions, goals, objectives
and strategies and for generally managing the Company's business and
affairs. The Chief Executive Officer shall have such other powers,
authority and duties as the Board of Directors may assign to such
office.
Section 4. President
---------------------
The President shall ensure that all orders and resolutions of the Board
of Directors are carried into effect, except with respect to any
specific authority as the Board of Directors may grant to any other
officer or agent of the Company. The President shall have such other
powers, authority and duties as the Board of Directors, the Chairman
of the Board or the Chief Executive Officer may assign to such office.
Section 5. Vice President
--------------------------
Any Vice President elected by the Board of Directors, shall, upon
designation by the Board of Directors, in the absence of the President,
have the power and perform the duties of the President, as long as such
absence continues. Any Vice President appointed by the Chief Executive
Officer shall not, in the absence of the President, have the powers and
duties of the President. The Vice President, or Vice Presidents, shall
have such other powers and duties as the Board of Directors or Chief
Executive Officer may assign to such office.
-26-
<PAGE> 27
Section 6. Secretary
---------------------
The Secretary shall attend and record the proceedings of all meetings
of the Board of Directors and, upon request, the committees of the
Board. The Secretary shall give, or cause to be given, notice of all
meetings of the stockholders, the Board of Directors and the committees,
if any, as required by the Chairman of the Board, the Chief Executive
Officer or these Bylaws. The Secretary shall have such other powers
and duties as the Board of Directors or the Chief Executive Officer may
assign to such office. The Secretary shall keep the seal of the Company
in safe custody and shall affix said seal to any instrument requiring
same.
Section 7. Treasurer
---------------------
The Treasurer shall be the custodian of all of the funds and
securities of the Company. The Treasurer shall have the power, in the
regular performance of the duties of the Treasurer, to endorse for
collection, on behalf of the Company, checks, notes and other
obligations, and shall deposit or shall cause to be deposited, all such
checks, notes or other obligations in such bank or banks or depository
or depositories as the Board of Directors or the Chief Executive
Officer, may designate. The Treasurer shall have such other powers and
duties as the Board of Directors or Chief Executive Officer may assign
to such office.
Section 8. Other Assistant Officers
------------------------------------
The Board of Directors or the Chief Executive Officer may appoint such
other assistant officers, with such powers and duties then specified,
as such appointing party may from time to time deem necessary or
appropriate.
Section 9. Officers Holding Multiple Positions
-----------------------------------------------
Any number of offices may be held by the same person unless otherwise
provided in the Certificate of Incorporation or by law, provided, however
that any one of such offices may remain vacant from time to time, except
as otherwise required by law.
ARTICLE V
---------
Stock
Section 1. Form of Stock Certificate
-------------------------------------
Certificates for shares or certificates representing rights with respect
to the capital stock of the Company shall be in such form as shall be
approved by the Board of Directors. The certificate shall be
countersigned by a Transfer Agent and registered by a Registrar, both
of which shall be designated by the Board of Directors and may be the
same person. The stock records shall be kept by a Transfer Agent or by
Transfer Agents or by the Secretary or by such other agent as may be
designated by the Board of Directors.
-27-
<PAGE> 28
Section 2. Transfer of Shares
------------------------------
The shares of the capital stock of the Company shall be transferable on
the records of the Company only by the person in whose name such shares
appear or by such person's duly authorized attorney, upon surrender of
the certificate representing such transferred shares, properly endorsed.
The Board of Directors may make such additional rules and regulations
with respect to the issue, transfer or registration of the shares of
the capital stock of the Company as it deems necessary or appropriate.
Section 3. Lost or Destroyed Certificate
-----------------------------------------
In case of loss or destruction of a certificate of the capital stock of
the Company, a new certificate replacing such lost or destroyed
certificate shall be issued provided the Secretary, or the Secretary's
agent, after receiving satisfactory proof of loss or destruction and of
the posting of satisfactory indemnity bond or otherwise, has approved
such replacement.
Section 4. Holder of Record
----------------------------
The Company shall be entitled to treat the holder of record of any
share of its capital stock as the holder in fact thereof and shall
not be bound to recognize any equitable or other claim to or interest
in such shares on the part of any other person, whether or not it
shall have express or other notice thereof.
ARTICLE VI
----------
Execution of Instruments
Section 1. Authorized Signatures
---------------------------------
All documents, instruments or other writings to be signed by, on behalf
of or in the name of the Company shall be signed, executed, verified,
acknowledged and delivered by such officer, agent or employees of the
Company, or any one of them, and in such manner, as from time to time
may be determined by the Board of Directors.
Section 2. Certificates of the Company
---------------------------------------
Notwithstanding anything herein to the contrary, all certificates made
on behalf of the Company shall be made by the Secretary or an Assistant
Secretary or such other officer or officers or person as the Board of
Directors may from time to time designate.
-28-
<PAGE> 29
ARTICLE VII
-----------
Indemnification
Section 1. Proper Parties
--------------------------
Each person who was or is made a party or is threatened to be made a
party to or is involved in or called as a witness in any threatened,
pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, and any appeal therefrom
(hereinafter, collectively a "proceeding"), by reason of the fact
that he or she, or a person of whom he or she is the legal
representative, is, was or had agreed to become a director the Company
or was or had agreed to become an officer (an "officer" for purposes
herein shall be defined to mean any person elected or appointed by the
Board of Directors or the Chief Executive Officer, in accordance with
Article IV, Section 1 of these Bylaws, and any attorney who is acting
as an officer or employee of the Company or any of its subsidiaries
when acting as an attorney for the Company or any of its subsidiaries)
of the Company (but with respect to such officers and persons agreeing
to become an officer only as to proceedings occurring after a Change in
Control, as defined herein, arising out of acts, events or omissions
occurring prior to such Change in Control) or is a Delegate of the
Company (a "Delegate" for purposes herein shall be defined to mean any
person serving at the request of the Company as a director, officer,
trustee, fiduciary, partner, manager, member, employee or agent of an
entity, partnership, joint venture, trust or other enterprise other
than the Company, including service with respect to employee benefit
plans), shall be indemnified and held harmless by the Company to the
fullest extent permitted under DGCL, as the same now exists or may
hereafter be amended (but, in the case of any such amendment, only to
the extent that such amendment permits the Company to provide broader
indemnification rights than the DGCL permitted the Company to provide
prior to such amendment), against all expenses, liabilities and losses
(including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid or to be paid in settlement) reasonably
incurred or suffered by such person in connection therewith; provided,
that except as explicitly provided herein, the Company shall indemnify
any such person seeking indemnity in connection with a proceeding (or
part thereof) initiated by such person only if authorization for such
proceeding (or part thereof) was not denied by the Board of Directors
of the Company prior to the earlier of (1) 30 days after receipt of
notice thereof from such person or (2) a Change in Control, as defined
herein. For purposes of this Article, a "Change in Control of the
Company" shall be deemed to have occurred if (1) any "Person" (as is
used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934,
as amended) is or becomes (except in a transaction approved in advance
by the Board of Directors of the Company) the beneficial owner (as
defined in Rule 13d-3 under such Act), directly or indirectly, of
securities of the Company representing 20% or more of the combined
voting power of the Company's then outstanding securities, or (2)
during any period of two consecutive years, individuals who at the
beginning of such period constitute the Board of Directors of the
Company cease for any reason to constitute at least a majority thereof
unless the election of each director who was not a director at the
beginning of the period was approved by a vote of at least two-thirds
of the directors then still in office who were directors at the
beginning of the period.
Unless a court interpreting Delaware law shall rule otherwise, this
paragraph shall be deemed to entitle all persons described herein
requesting indemnification covered hereby to such indemnification
without the determination provided for below, provided that if such a
-29-
<PAGE> 30
determination is required, such a determination shall be deemed to have
occurred unless within 60 days of a request for indemnification by the
Company a determination is made as provided below that such
indemnification is not proper in the circumstances because such person
has not met the necessary standard of conduct. If a determination is
required and one of the three parties listed below shall make a
determination that a person is entitled to indemnification under these
by-laws, then a later decision by another party of the parties listed
below that such person is not so entitled shall be of no effect and
shall not work to deny such person indemnification. A determination
shall be made, if required hearunder or by law, (1) by the Board of
Directors by a majority vote of a quorum consisting of directors who
were not parties to such proceeding, or (2) if such quorum is not
obtainable, or even if obtainable a quorum of disinterested directors
so directs, by independent legal counsel (who) may be the regular
counsel of the Company) in a written opinion or (3) by the
stockholders. If there is a Change in Control of the Company (as defined
above), then with respect to all matters thereafter arising out of acts,
omissions or events prior to the Change in Control of the Company
concerning the rights of any director or officer seeking
indemnification under this Article whose request for indemnification
has been denied by one of the parties listed above, such person shall
be entitled to have such decision redetermined as provided below if such
person so requests within 120 days of his or her being informed of the
initial denial of indemnification by the Company (unless the initial
determination had been by the procedure outlined below), and the
Company shall have the issue redetermined by special, independent
counsel selected by such person and approved by the Company (which
approval shall not be unreasonably withheld), which counsel has not
otherwise performed services (other than in connection with similar
matters) within the five years preceding its engagement to render such
opinion for such person or for the Company or any affiliates (as such
term is defined in Rule 405 under the Securities Act of 1933, as
amended) of the Company (whether or not they were affiliates when
services were so performed) ("Independent Counsel"). Unless such person
has theretofore selected Independent Counsel pursuant to this Section 1
and such Independent Counsel has been approved by the Company, the
firms approved by a resolution or resolutions of the Board of Directors
prior to a Change in Control of the Company shall be deemed to have
been approved by the Company as required. Such Independent Counsel
shall determine within 60 days whether and to what extent such person
would be permitted to be indemnified under applicable law and shall
render its written opinion to the Company and such person to such
effect. If such Independent Counsel is engaged by the Company, the
Company agrees to pay the reasonable fees of the Independent Counsel
referred to above and to fully indemnify such Independent Counsel
against any and all expenses, claims, liabilities and damages arising
out of or relating to this Article or its engagement pursuant hereto.
Section 2. Expenses
--------------------
Expenses, including attorneys' fees, incurred by a person referred
to in Section 1 of this Article in defending or otherwise being
involved in a proceeding shall be paid by the Company in advance of
the final disposition of such proceeding, including any appeal
therefrom, upon receipt of an undertaking (the "Undertaking") by or on
behalf of such person to repay such amount if it shall ultimately be
determined that he or she is not entitled to be indemnified by the
Company. Such undertaking shall provide in that if the person to whom
the expenses were advanced has commenced proceedings in a court of
competent jurisdiction to secure a determination that he or she should
-30-
<PAGE> 31
be indemnified by the Company, such person shall not be obligated to
repay the Company during the pendency of such proceeding.
Section 3. Right of Claimant to Bring Suit
-------------------------------------------
If a claim under Section 1 hereof is not paid in full by the Company
within 60 days after a written claim has been received by the Company
or if expenses pursuant to Section 2 hereof have not been advanced
within 10 days after a written request for such advancement accompanied
by the Undertaking has been received by the Company, the claimant may
at any time thereafter bring suit against the Company to recover the
unpaid amount of the claim or the advancement of expenses. (If the
claimant is successful in such suit or any other suit to enforce a
right for expenses or indemnification against the Company or any other
party under any other agreements, in whole or in part, such claimant
shall also be entitled to be paid the reasonable expense of prosecuting
such claim.) It shall be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in defending
any proceeding in advance of its final disposition where the required
Undertaking has been tendered to the Company) that the claimant has not
met the standards of conduct which make it permissible under the DGCL
for the Company to indemnify the claimant for the amount claimed, but
the burden of proving such defense shall be on the Company. Neither the
failure of the Company (including its Board of Directors, independent
legal counsel, or its stockholders) to have made a determination, if
required, prior to the commencement of such action that indemnification
of the claimant is proper in the circumstances because he or she has
met the applicable standard of conduct required under the DGCL, nor an
actual determination by the Company (including its Board of Directors,
independent legal counsel, or its stockholders) that the claimant had
not met such applicable standard of conduct, shall be a defense to the
action or create a presumption that claimant had not met the applicable
standard of conduct.
Section 4. Non-Exclusivity of Rights
-------------------------------------
The rights conferred on any person by this Article shall not be
exclusive of any other right which such person may have or hereafter
acquire under any statue, provision of the Certificate of
Incorporation, Bylaw, agreement, vote of stockholders or disinterested
directors or otherwise. The Board of Directors shall have the
authority, by resolution, to provide for such other indemnification of
directors, officers, employees or agents as it shall deem appropriate.
Section 5. Insurance
---------------------
The Company may maintain insurance, at its expense, to protect itself
and any director, officer, employee or agent of the Company or another
company, partnership, joint venture, trust or other enterprise against
any expenses, liabilities or losses, whether or not the Company would
have the power to indemnify such person against such expenses,
liabilities or losses under the DGCL.
-31-
<PAGE> 32
Section 6. Contractual Nature
------------------------------
The provisions of this Article shall be applicable to all proceedings
commenced after its adoption, whether such arise out of events, acts
or omissions which occurred prior or subsequent to such adoption, and
shall continue as to a person who has ceased to be a director or
officer and shall inure to the benefit of the heirs, executors and
administrators of such person. The Company hereby agrees that, for
a period of six years after any Change in Control, it shall cause to be
maintained policies of directors' and officers' liability insurance
providing coverage at least comparable to and in the same amounts as
that provided by any such policies in effect immediately prior to such
Change in Control. The Company may enter into contracts with any
Director, officer, Delegate or employee of the Company in furtherance
of the provisions of this Article VII and may create a trust fund,
grant a security interest or use other means (including a letter of
credit) to ensure the payment of such amounts as may be necessary to
affect the advancing of expenses and indemnification as provided in
this Article VII. This Article shall be deemed to be a contract between
the Company and each person who, at any time that this Article is in
effect, serves or agrees to serve in any capacity which entitles him to
indemnification hereunder and any repeal or other modification of this
Article or any repeal of modification of the DGCL or any other
applicable law shall not limit any rights of indemnification then
existing or arising out of events, acts or omissions occurring prior to
such repeal or modification, including, without limitation, the right
to indemnification for proceedings commenced after such repeal or
modification to enforce this Article with regard to acts, omissions or
events arising prior to such repeal or modification.
Section 7. Severability
------------------------
If this Article or any portion hereof shall be invalidated or held to
be unenforceable on any ground by any court of competent jurisdiction,
then the Company shall nevertheless indemnify each director and officer
of the Company as to costs, charges and expenses (including attorney's
fees), judgments, fines and amounts paid in settlement with respect to
any proceeding, whether civil, criminal, administrative or investigative,
including an action by or in the right of the Company, to the full
extent permitted by any applicable portion of this Article that shall
not have been invalidated and to the full extent permitted by
applicable law.
ARTICLE VIII
------------
Amendments
Section 1. Power to Amend Bylaws
---------------------------------
The power to adopt, make, amend, alter, change or repeal the Bylaws of
the Company, including the power to increase or decrease the number of
directors, may, except as otherwise provided by these Bylaws, the
Certificate of Incorporation or by law, be exercised by a majority of
stockholders or by a majority of the Board of Directors, and the
stockholders shall have the right to amend, alter, change or repeal
any Bylaw which may be adopted by the Board of Directors.
-32-
<PAGE> 33
Section 2. Exceptions to the Power to Amend Bylaws
---------------------------------------------------
The power to amend, alter, change or repeal Article II, Sections 4 and
9, Article III, Sections 3, 7 and 9, Article VII and this Article VIII
may be exercised only by two-thirds of the stockholders or by two-thirds
of the then current Board of Directors.
ARTICLE IX
----------
Miscellaneous
Section 1. Corporate Seal
--------------------------
The corporate seal of this Company shall be in such form as may be
designated by the Board of Directors.
Section 2. Fiscal year
-----------------------
The fiscal year of the Company shall begin on the first day of October
of each year.
-33-
<PAGE> 34
Exhibit 4 (A)
AGREEMENT OF OUTBOARD MARINE CORPORATION
With respect to Exhibit 4 to the Registrant's Annual Report on Form
10-K for the fiscal year ended September 30, 1995, the Registrant
hereby avers that, except for the Registrant's 7% convertible
subordinated debentures due 2002, 9-1/8% sinking fund debentures due
2017, and Medium-Term Notes, Series A, no single issue of long-term
debt not being registered herein is more than 10 percent of the total
assets of the Registrant and the Registrant hereby agrees to furnish to
the Securities and Exchange Commission, upon request, copies of
instruments with respect to such long-term debt.
OUTBOARD MARINE CORPORATION
BY: JAMES R. MAURICE
----------------------------
James R. Maurice
Vice President and Controller
-34-
<PAGE> 35
Exhibit 10 (F)
February 14, 1995
Mr. Harry W. Bowman
2150 Niles Avenue
St. Joseph, MI 49085
Dear Hank:
This letter sets forth the terms of our offer to you of employment by
Outboard Marine Corporation (the "Company"). If our offer is acceptable
to you, please so indicate by signing and returning a copy of this
letter to me.
1. Position and Base Salary: Effective February 20, 1995, you
will serve as President and Chief Executive Officer of the
Company, reporting to the Board of Directors, with a base
annual salary of $400,000. You will be eligible for a
merit salary review at the end of FY1995 and annually
thereafter, consistent with the Company's compensation
policy for executive officers. If your employment with the
Company terminates other than by reason of death, disability
or cause within three years of the date your employment with
the Company commences, you will continue to receive your
base salary for the balance of such three year period.
Except as provided in Section 12, this salary continuation
benefit is in lieu of any salary continuation, severance or
similar benefit to which you may be entitled under any
Company plan or policy. In accordance with the provisions of
the Company's certificate of incorporation and by-laws, you
will be elected as a director, and as Chairman of the Board
of the Company at the April 1995 regular meeting of the
Board. You will agree that upon termination of your
employment with the Company for whatever reason, you will
resign as Chairman and as a director.
2. Executive Bonus Plan: Based upon performance and achievement
of mutually agreed goals, you will be eligible to receive a
target bonus of 60 percent of base salary, and a maximum
award of 1 75% of target, or 105% of base salary, first,
payable within 90 days following the end of FY1996 for
FY1996 performance. Your FY1995 performance bonus will be
guaranteed at no less than $240,000 and could be greater
depending on performance. For future years, and consistent
with the Company's Executive Bonus Plan, you will continue
to be eligible for a performance bonus based on a target
bonus of 60 percent of your then base salary.
3. Long-Term Incentive Plan: You will participate in the
Company's 1994 Long-Term Incentive Plan which currently calls
for a guideline annual stock option grant of 140% of your
salary range midpoint divided by the share price at the date
of grant, and a guideline annual performance share grant of
70% of salary range midpoint. The Board Compensation
Committee may vary each year's actual grant above or below
these guideline levels based on your performance. However,
your FY1995 grants will be as follows:
-35-
<PAGE> 36
23,000 performance shares; plus,
50,000 stock options with an exercise price at the fair
market value per share on the date of grant; plus,
50,000 stock options with an exercise price 20% above
the fair market value per share on the date of grant;
plus,
50,000 stock options with an exercise price 40% above
the fair market value per share on the date of grant.
4. Retirement Benefit:
a. Provided your employment with the Company terminates
after you attain age 55 and prior to normal Company
retirement age (other than for cause) and provided
further that you have obtained the consent of the Board
of Directors, which consent will not be unreasonably
withheld, you will be entitled, upon such termination, to
a special, supplemental retirement benefit, payable
monthly in the form of a single-life annuity, equal to
the amount determined by multiplying your "final average
compensation" by the percentage set forth in the
following schedule based on your age at the time your
employment terminates:
Percentage of Final
Age at Termination Average Compensation
----------------- -------------------
55 54%
56 56
57 58
58 or older 60
The amount determined in accordance with the foregoing
schedule will be reduced based on your age at the time
your employment terminates as follows: 1/4% for each
month between ages 60 and 65 and 1/2% for each month
between ages 55 and 60; such amount will be further
reduced by the sum of (i) the aggregate benefit, payable
monthly in the form of a single-life annuity, to which
you are entitled at the time your employment terminates
under the Company's Employee Retirement Plan and
Non-Qualified Retirement Plan for Elected Officers and
(ii) your "deemed Whirlpool plan monthly benefit."
You shall be entitled to receive this special,
supplemental retirement benefit in an actuarially
equivalent lump sum. For these purposes, actuarial
equivalence shall be determined using a rate of interest
equal to the Prime Rate as reported in the Wall Street
journal and the mortality table used to determine
benefits under the Company's Employee Retirement Plan,
both as in effect on the date your employment with the
Company terminates.
-36-
<PAGE> 37
For purposes of this special, supplemental retirement
plan, "cause" will mean (i) a felony conviction; (ii) the
commission of an act of fraud or embezzlement against the
Company; (iii) willful misconduct or gross negligence
materially detrimental to the Company; or (iv) the
intentional and habitual neglect by you of your duties to
the Company.
b. For purposes of calculating this special, supplemental
retirement benefit, your "final average compensation"
(calculated in accordance with the Whirlpool plans) will
be the sum of:
(i) the average of your monthly base pay (before any
deductions for pre-tax benefits) for the highest paid
60 consecutive months (or for your entire period of
employment with the Company if less than 60 months)
out of your last 120 months of employment with the
Company (or for your entire period of such employment
if less than 120 months), plus
(ii) one-twelfth of the average of your five highest
annual bonus payments under the Company's Executive
Bonus Plan paid to you for your last full year of
employment with the Company and the nine years of
employment immediately preceding such last full year
(or all your years of employment with the Company if
less than nine such years), whether or not
consecutive; provided, that if you are paid fewer
than five such bonus payments in such period, the
average of such payments will be the sum of all such
bonus payments divided by the lesser of (A) five or
(B) all your years of employment with the Company;
provided, further, that if it would produce a higher
average, your annual bonus for your last partial year
of employment with the Company will be treated as
your bonus for your last full year of employment.
c. For purposes of this special, supplemental retirement
benefit, your "deemed Whirlpool plan monthly benefit,"
will be calculated based on the lump sum benefit you are
eligible to receive at age 55 from the Whirlpool Salaried
Employees Retirement Plan and assuming that (i) such
entire lump sum is rolled over into an IRA, (ii) the
annual rate of return thereon is seven percent, (iii) the
benefit is a single-life annuity and your life expectancy
is 83 years, and (iv) no withdrawals are made prior to
the time that this special, supplemental retirement plan
commences. For illustrative purposes only, assuming a
lump sum benefit from the Whirlpool Salaried Employees
Retirement Plan of $530,000 (which is approximately the
lump sum to which you would have been entitled had your
Whirlpool employment terminated as of March 31, 1994),
these assumptions would produce a deemed Whirlpool plan
monthly benefit as follows:
-37-
<PAGE> 38
Deemed Whirlpool Plan
Age at Termination Monthly Benefit
------------------ ---------------------
55 $3,602
56 3,901
57 4,228
58 4,589
59 4,986
60 5,426
61 5,913
62 6,455
63 7,060
64 7,738
65 8,502
5. Employee Benefits: You have been provided with a description
of the full range of the company's employee benefits,
medical, life, dental, and disability insurances for which
you will be eligible. This will include the Executive Life
Insurance program, which was introduced in September of
1992, and provides a benefit of 150% of salary up to a
maximum of $500,000. It is an individually underwritten
life insurance policy that is owned by the participant with
guaranteed increased benefits. Premiums are "grossed up" by
the Company for income tax purposes. As a rule of thumb,
the cash value of this type of policy at retirement will
equal about 40% of the policy death benefit.
6. Company Car: A company car and operating expenses will be
provided by the Company for your use. Any income imputed to
you as a result will be "grossed up" by the Company for
income tax purposes.
7. Relocation Benefits: You will be entitled to relocation
benefits in accordance with the Company's Employee
Relocation Policy, as applicable to key or executive
employees, a copy of which will be provided to you. The
highlights of this policy are as follows:
Reimbursement of expenses for house hunting,
relocation, travel and temporary living for a period up
to 120 days.
Full movement and handling of household goods and
personal effects.
Assistance on disposal of the current home either
through direct reimbursement or through a third-party
buy-out. In either case, an equity loan can be obtained
for new home purchase.
Reimbursement of closing costs on home purchase.
Payment of a mortgage interest differential for three
(3) years after purchase.
A salary allowance for incidental expenses.
Tax reimbursement at the end of the year on the
expenses that are taxable.
-38-
<PAGE> 39
8. Personal Tax Return Preparation: During your employment with
the Company, you will be entitled to personal income tax
preparation, financial counseling and estate planning fees
up to a maximum of $10,000 per year, "grossed-up" by the
Company for income tax purposes.
9. Consignment of Company Products: You will be granted
consignment of specified Company products for a period of
time for field testing and evaluation purposes. You will be
entitled to purchase these products at the end of the
consignment period in accordance with current Company
practice.
10. Proprietary Information and Inventions: You realize that as
an employee of the Company, you may create or have access to
information, trade secrets, substances and inventions
including confidential information relating to the business
or interests of persons with whom the Company or its
affiliated companies may have commercial, technical or
scientific relationships ("Information") which is valuable
to the Company or its affiliated companies and may lose its
value if disclosed to third parties. Therefore, you agree to
treat all such information as confidential, and you will
not, without the prior written consent of the company,
disclose or use the same otherwise than in the course of
your employment. This obligation shall continue until such
information becomes public knowledge through no fault on
your part, regardless of whether you continue to be employed
by the Company.
11. Physical Exam: An annual physical examination, customary and
reasonable costs for such an examination would be paid by
the Company. While we require all new employees to undergo
an employment physical examination, your September, 1994,
Mayo examination will suffice.
12. Change in Control: Subject to Board approval, you will be
entitled to enter into a severance agreement, consistent
with the Board's April 20, 1989 resolution, providing
certain benefits to you in the event your employment
terminates under certain circumstances following a change of
control of the Company. Any severance benefits provided in
that agreement will be reduced by any salary continuation
payments to which you are entitled under Section 1.
On behalf of the other members of our Board of Directors who have met
and talked with you over these past several weeks, we are very excited
with the prospect of your joining us. I know you will find OMC the
type of organization which will be challenging yet responsive to your
very impressive background and skills.
Sincerely,
RICHARD F. TEERLINK
Richard F. Teerlink
Chairman, Search Committee
and Director for the
Board of Directors of Outboard Marine Corporation
Accepted and Agreed:
HARRY R. BOWMAN 2/14/95
- ----------------------------------------
(name) (date)
-39-
<PAGE> 40
Exhibit 10 (G)
OUTBOARD MARINE CORPORATION
100 SEA-HORSE DRIVE
WAUKEGAN, ILLINOIS 60085-2195
Phone 708/689-6200
February 19, 1995
Mr. Harry W. Bowman
100 Sea Horse Drive
Waukegan, Illinois 60085-2195
Dear Mr. Harry W. Bowman:
Outboard Marine Corporation (the "Corporation") recognizes that
your contribution to the growth and success of the Corporation may be
substantial and desires to assure the Corporation of your continued
employment. In this connection, the Board of Directors of the
Corporation (the "Board") recognizes that, as is the case with many
publicly held corporations, the possibility of a change in control may
exist and that such possibility, and the uncertainty and questions
which it may raise among management, may result in the departure or
distraction of management personnel to the detriment of the Corporation
and its stockholders.
The Board has determined that appropriate steps should be taken to
reinforce and encourage the continued attention and dedication of
members of the Corporation's management, including yourself, to their
assigned duties without distraction in the face of potentially
disturbing circumstances arising from the possibility of a change in
control of the Corporation.
In order to induce you to remain in the employ of the Corporation,
and in consideration of your agreement set forth in paragraph (ii) of
Section 2 hereof, the Corporation agrees that you shall receive the
severance benefits set forth in this letter agreement ("Agreement") in
the event your employment with the Corporation is terminated subsequent
to a "Change in Control of the Corporation" (as defined in Section 2
hereof) under the circumstances described below.
1. Term of Agreement. This Agreement will commence on the date
hereof and shall continue in effect until December 31, 1995, until you
reach age 65, or until your death or Disability, whichever comes first;
provided, however, that commencing on January 1, 1996, and each January
1 thereafter, the term of this Agreement shall automatically be renewed
for one additional year unless, not later than November 1 of the
preceding year, the Corporation shall have given notice that it does
not wish to extend this Agreement; and provided further, that if a
Change in Control of the Corporation shall have occurred during the
original or extended term of this Agreement, this Agreement shall
continue in effect for a period of thirty-six (36) months
beyond the month in which such Change in Control of the Corporation
occurred.
2. Change in Control of the Corporation.
(i) No benefits shall be payable under this Agreement unless
there shall have been a Change in Control of the Corporation, as
set forth below. For purposes of this Agreement, a "Change in
Control of the Corporation" shall be deemed to have occurred if:
-40-
<PAGE> 41
(A) any "person," as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") (other than the Corporation, any trustee
or other fiduciary holding securities under an employee benefit
plan of the Corporation, or any corporation owned, directly or
indirectly, by the stockholders of the Corporation in
substantially the same proportions as their ownership of stock
of the Corporation), is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Corporation representing
fifteen percent (15%) or more of the combined voting power of
the Corporation's then outstanding securities;
(B) during any period of two consecutive years (not
including any period prior to the execution of this Agreement),
individuals who at the beginning of such period constitute the
Board, and any new director (other than a director designated by
a person who has entered into an agreement with the Corporation
to effect a transaction described in clause (A), (C), (D) or (E)
of this Section) whose election by the Board or nomination for
election by the Corporation's stockholders was approved by a
vote of at least two-thirds (2/3) of the directors then still in
office who either were directors at the beginning of the period
or whose election or nomination for election was previously so
approved cease for any reason to constitute at least a majority
thereof;
(C) the stockholders of the Corporation approve a merger or
consolidation of the Corporation with any other corporation,
other than (1) a merger or consolidation which would result in
the voting securities of the Corporation outstanding
immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting
securities of the surviving entity) at least 80% of the
combined voting power of the voting securities of the
Corporation or such surviving entity outstanding immediately
after such merger or consolidation or (2) a merger or
consolidation effected to implement a recapitalization of the
Corporation (or similar transaction) in which no "person" (as
hereinabove defined) acquires more than 15% of the combined
voting power of the Corporation's then outstanding securities;
(D) the stockholders of the Corporation approve a plan of
complete liquidation of the Corporation; or
(E) the Corporation enters into an agreement for the sale
or other disposition of all or substantially all of the
Corporation's assets or the Corporation otherwise disposes of
such assets.
(ii) For purposes of this Agreement, a "potential Change in
Control of the Corporation" shall be deemed to have occurred if
(A) the Corporation enters into an agreement, the
consummation of which would result in the occurrence of a Change
in Control of the Corporation;
(B) any person (including the Corporation) publicly
announces an intention to take or to consider taking actions
which if consummated would constitute a Change in Control of the
Corporation;
-41-
<PAGE> 42
(C) any person, other than a trustee or other fiduciary
holding securities under an employee benefit plan of the
Corporation or a corporation owned, directly or indirectly, by
the stockholders of the Corporation in substantially the same
proportions as their ownership of stock of the Corporation, who
is or becomes the beneficial owner, directly or indirectly, of
securities of the Corporation representing 9.5% or more of the
combined voting power of the Corporation's then outstanding
securities increases his beneficial ownership of such securities
by 5% or more over the percentage so owned by such person on the
date hereof; or
(D) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a potential Change in Control of the
Corporation has occurred.
You agree that, subject to the terms and conditions of this
Agreement, in the event of a potential Change in Control of the
Corporation, you will remain in the employ of the Corporation
until the earliest of (i) a date which is six (6) months from
the occurrence of such potential Change in Control of the
Corporation, (ii) the termination by you of your employment by
reason of your death or Disability, as defined in Subsection
3(a), or (iii) the occurrence of a Change in Control of the
Corporation.
3. Termination Following a Change in Control of the
Corporation. If any of the events described in Section 2(i)
hereof constituting a Change in Control of the Corporation shall
have occurred, you shall be entitled to the benefits provided in
Section 4(d) hereof upon the termination of your employment
during the term of this Agreement unless such termination is (i)
because of your death or Disability, (ii) by the Corporation for
Cause, or (iii) by you other than for Good Reason. Your
entitlement to benefits under any of the Corporation's
retirement plans will not adversely affect your rights to
receive payments hereunder.
(a) Disability. If, as a result of your incapacity due to
physical or mental illness which in the opinion of a licensed
physician renders you incapable of performing your assigned
duties with the Corporation, you shall have been absent from the
full-time performance of your duties with the Corporation for
six (6) consecutive months, and within thirty (30) days after
written notice of termination is given you shall not have
returned to the full-time performance of your duties, the
Corporation may terminate your employment for "Disability".
(b) Cause. Termination by the Corporation of your
employment for "Cause" shall mean termination upon (i) the
willful and continued failure by you to substantially perform
your duties with the Corporation (other than any such failure
resulting from termination by you for Good Reason), after a
demand for substantial performance is delivered to you that
specifically identifies the manner in which the Corporation
believes that you have not substantially performed your duties,
and you have failed to resume substantial performance of your
duties on a continuous basis within fourteen (14) days of receiving
such demand, (ii) the willful engaging by you in conduct which is
demonstrably and materially injurious to the Corporation,
monetarily or otherwise or (iii) your conviction of a felony or
conviction of a misdemeanor which impairs your ability
-42-
<PAGE> 43
substantially to perform your duties with the Corporation. For
purposes of this Subsection, no act, or failure to act, on your
part shall be deemed "willful" unless done, or omitted to be
done, by you not in good faith and without reasonable belief
that your action or omission was in the best interest of the
Corporation.
(c) Good Reason. You shall be entitled to terminate your
employment for Good Reason. For purposes of this Agreement,
"Good Reason" shall mean (i) during the one hundred eighty (180)
day period following a Change in Control of the Corporation, a
good faith determination by you that as a result of such Change
in Control, you are not able to discharge your duties
effectively or (ii) without your express consent, the occurrence
after a Change in Control of the Corporation of any one or more
of the following:
(i) the assignment to you of duties inconsistent with
your present position as Chairman, President and Chief Executive
Officer of the Corporation or a reduction or alteration in the
nature of your position, duties, status or responsibilities
from those in effect as of the date hereof;
(ii) a reduction by the Corporation in your base salary
as in effect on the date hereof (without regard to any temporary
reduction effected by the Corporation prior to a Change in
Control) or as the same shall be increased from time to time
("Base Salary") except for across-the-board temporary salary
reductions of twenty percent (20%) or less similarly affecting
all senior executives of the Corporation and all senior
executives of any person in Control of the Corporation;
(iii) the Corporation's requiring you to be based at a
location other than Waukegan, Illinois;
(iv) the failure by the Corporation to continue in effect
any of the Corporation's employee benefit plans, programs,
policies, practices or arrangements in which you participate (or
substantially equivalent successor or replacement employee benefit
plans, programs, policies, practices or arrangements) or the failure
by the Corporation to continue your participation therein on
substantially the same basis, both in terms of the amount of benefits
provided and the level of your participation relative to other
participants in such plans, as existed as of the date hereof (or as
the same may be increased from time to time);
(v) the failure of the Corporation to obtain a satisfactory
agreement from any successor to the Corporation to assume and
agree to perform this Agreement, as contemplated in Section 5
hereof; and
(vi) any purported termination by the Corporation of your
employment that is not effected pursuant to a Notice of
Termination satisfying the requirements of subparagraph (d)
below, and for purposes of this Agreement, no such purported
termination shall be effective.
Your right to terminate your employment pursuant to this
Section 3 shall not be affected by your incapacity due to
physical or mental illness or your participation in a
Corporation provided salary continuation program (titled
Corporate Policy 2-15, Absences From Work, as of the date
-43-
<PAGE> 44
hereof) or similar policy or your receipt of disability payments
from OMC. Your continued employment shall not constitute
consent to, or a waiver of rights with respect to, any
circumstance constituting Good Reason hereunder.
(d) Notice of Termination. Any termination by the
Corporation for Cause or by you for Good Reason shall be
communicated by Notice of Termination to the other party hereto.
For purposes of this Agreement, a "Notice of Termination" shall
mean a written notice which shall indicate the specific
termination provision in this Agreement relied upon and shall
set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of your employment
under the provision so indicated.
(e) Date of Termination. "Date of Termination" shall mean if
your employment is terminated for Cause, or for any other reason
(other than Disability) the date specified in the Notice of
Termination (which, in the case of a termination for Cause shall
not be less than thirty (30) days, and in the case of any other
termination shall not be less than fifteen (15) nor more than
sixty (60) days, respectively, from the date such Notice of
Termination is given); provided that if within fifteen (15) days
after any Notice of Termination is given, or, if later, prior to
the Date of Termination (as determined without regard to this
proviso), the party notifies the other party that a dispute
exists concerning the termination, the Date of Termination shall
be the date on which the dispute is finally determined, either
by mutual written agreement of the parties or by a binding
arbitration award; provided further that the Date of Termination
shall be extended by a notice of dispute only if such notice is
given in good faith and the party giving such notice pursues the
resolution of such dispute with reasonable diligence. Notwithstanding
the pendency of any such dispute, the Corporation will continue to
pay you your full compensation in effect when the notice giving rise
to the dispute was given (including, but not limited to, base
salary) and continue you as a participant in all compensation,
benefit and insurance plans in which you were participating when
the notice giving rise to the dispute was given, until the
dispute is fully resolved in accordance with this Subsection.
Amounts paid under this Subsection are in addition to all other
amounts due under this Agreement and shall not be offset against
or reduce any other amounts due under this Agreement.
4. Compensation Upon Termination or During Disability.
Following a Change in Control of the Corporation, as defined in
Section 2 hereof, and upon termination of your employment or
during a period of disability, you shall be entitled to the
following benefits:
(a) During any period that you fail to perform your full-time
duties with the Corporation as a result of incapacity due to
physical or mental illness, you shall continue to receive your
Base Salary at the rate in effect at the commencement of any
such period, until your employment is terminated pursuant to
Section 3(a) hereof. Thereafter, your benefits shall be determined
in accordance with the Corporation's retirement, insurance and other
applicable programs and plans then in effect.
(b) If your employment shall be terminated by the Corporation
for Cause or by you other than for Good Reason, the Corporation
shall pay you your full Base Salary through the Date of
Termination at the rate in effect at the time Notice of
Termination is given or on the Date of Termination if no Notice
-44-
<PAGE> 45
of Termination is required hereunder, plus all other amounts to
which you are entitled under any compensation plan of the
Corporation at the time such payments are due, and the
Corporation shall have no further obligations to you under this
Agreement.
(c) If your employment terminates by reason of your death,
your benefits shall be determined in accordance with the
Corporation's retirement, survivor's benefits, insurance and
other applicable programs and plans, then in effect.
(d) If your employment by the Corporation shall be terminated
(i) by the Corporation other than for Cause or Disability or
(ii) by you for Good Reason, you shall be entitled to the
benefits (the "Severance Payments") provided below:
(A) the Corporation shall pay you your full Base Salary
through the Date of Termination at the rate in effect at the
time Notice of Termination is given, or the Date of Termination
where no Notice of Termination is required hereunder; and
(B) the Corporation will pay as severance benefits to you,
not later than the fifth (5th) day following the Date of
Termination, a lump sum severance payment, in cash, equal to (1)
a fraction, the numerator of which is equal to the lesser of (x)
thirty-six (36) or (y) the number of full and partial months
existing between the Date of Termination and your sixty-fifth
(65th) birthday and the denominator of which is equal to twelve
(12), multiplied by (2) the sum of (x) your annual Base Salary
in effect immediately prior to the occurrence of the
circumstances giving rise to such termination, and (y) the
amount, if any, of the highest annual amount awarded to you
(whether paid, payable or deferred) under the OMC Executive
Bonus Plan or any similar annual incentive plan in the five (5)
years immediately preceding the Change in Control of the
Corporation (or, if greater, such annual amount awarded during
the two (2) years following such Change in Control of the
Corporation); and
(C) in lieu of your right to receive deferred compensation
under the OMC Executive Bonus Plan or any other plan, the
Corporation shall pay you a lump sum amount equal to the
deferred amounts together with any earnings credited on such
amounts under such plans; and
(D) for the period beginning on the Date of Termination and
ending on the expiration date of this Agreement, the Corporation
will arrange to provide you at the Corporation's expense with
life, disability, accident and health insurance benefits
substantially similar to those which you were receiving
immediately prior to the Notice of Termination; but benefits
otherwise receivable by you pursuant to this Subsection (D)
shall be reduced to the extent comparable benefits are actually
received by you during such period following your termination,
and any such benefits actually received by you shall be reported
to the Corporation; and
(E) in addition to the retirement benefits to which you are
entitled under the Corporation's qualified retirement plans,
non-qualified supplemental and excess benefits plans, any
successor plan or plans thereto or similar benefits under that
certain letter agreement dated February 14, 1995 between you and
the Corporation, a copy of which is attached hereto, (the
"Pension Plans") and the retiree medical, life and other similar
-45-
<PAGE> 46
benefits to which you are entitled under the Corporation's
welfare benefit plans or any successor plan or plans thereto
(the "Welfare Plans"), the Corporation shall pay you not later
than the fifth (5th) day following the Date of Termination, a
lump sum, in cash, equal to the actuarial equivalent of the
excess of (x) the retirement pension and the medical, life and
other benefits that would be payable to you if you continued to
be employed through the expiration date of this Agreement given
your salary as of the Date of Termination, without regard to any
amendment to the Pension or Welfare Plans made subsequent to a
Change in Control of the Corporation and on or prior to the Date
of Termination, which amendment adversely affects in any manner
the computation of retirement or welfare benefits thereunder
over (y) the retirement pension that you are entitled to receive
(either immediately or on a deferred basis) under the Pension
Plans and the medical, life and other benefits that you are
entitled to receive (either immediately or on a deferred basis)
under the Welfare Plans (for purposes of this Subsection,
"actuarial equivalent" shall be determined using the same
methods and assumptions utilized under the Corporation's
qualified retirement plan for salaried employees immediately
prior to the Change in Control of the Corporation).
(e) In the event that you become entitled to the Severance
Payments, if any of the Severance Payments will be subject to
the tax (the "Excise Tax") imposed by Section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code") (or any
similar tax that may hereafter be imposed), the Corporation
shall pay to you at the time specified in paragraph (f) below,
an additional amount (the "Gross-Up Payment") such that the net
amount retained by you, after deduction of any Excise Tax on the
Total Payments (as hereinafter defined) and any federal, state
and local income tax and Excise Tax upon the payment provided
for by this paragraph, shall be equal to the Total Payments.
For purposes of determining whether any of the Total Payments
will be subject to the Excise Tax and the amount of such Excise
Tax, (i) any other payments or benefits received or to be
received by you in connection with a Change in Control of the
Corporation or your termination of employment (whether pursuant
to the terms of this Agreement or any other plan, arrangement or
agreement with the Corporation, any person whose actions result
in a Change in Control of the Corporation or any person
affiliated with the Corporation or such person) (which, together
with the Severance Payments, shall constitute the "Total
Payments") shall be treated as "parachute payments" within the
meaning of Section 280G(b)(2) of the Code, and all "excess
parachute payments" within the meaning of Section 280G(b)(1)
shall be treated as subject to the Excise Tax, unless, in the
opinion of tax counsel selected by the Corporation's independent
auditors and acceptable to you, such other payments or benefits
(in whole or in part) do not constitute parachute payments, or
such excess parachute payments (in whole or in part) represent
reasonable compensation for services actually rendered within
the meaning of Section 280G(b)(4) of the Code in excess of the
base amount within the meaning of Section 280G(b)(3) of the
Code, or are otherwise not subject to the Excise Tax, (ii) the
amount of the Total Payments which shall be treated as subject
to the Excise Tax shall be equal to the lesser of (A) the amount
of the Total Payments or (B) the amount of excess parachute
payments within the meaning of Section 280G(b)(1) (after
applying clause (i) above), and (iii) the value of any non-cash
benefits or any deferred payment or benefit shall be determined
by the Corporation's independent auditors in accordance with the
-46-
<PAGE> 47
principles of Sections 280G(d)(3) and (4) of the Code. For
purposes of determining the amount of the Gross-Up Payment, you
shall be deemed to pay federal income taxes at the highest
marginal rate of federal income taxation in the calendar year in
which the Gross-Up Payment is to be made and state and local
income taxes at the highest marginal rate of taxation in the
state and locality of your residence on the Date of Termination,
net of the maximum reduction in federal income taxes which could
be obtained from deduction of such state and local taxes. In
the event that the Excise Tax is subsequently determined to be
less than the amount taken into account hereunder at the time of
termination of your employment, you shall repay to the
Corporation at the time that the amount of such reduction in
Excise Tax is finally determined the portion of the Gross-Up
Payment attributable to such reduction (plus the portion of the
Gross-Up Payment attributable to the Excise Tax and federal and
state and local income tax imposed on the Gross-Up Payment being
repaid by you if such repayment results in a reduction in Excise
Tax and/or a federal and state and local income tax deduction)
plus interest on the amount of such repayment at the rate
provided in Section 1274(b)(2)(B) of the Code. In the event
that the Excise Tax is determined to exceed the amount taken
into account hereunder at the time of the termination of your
employment (including by reason of any payment the existence or
amount of which cannot be determined at the time of the Gross-Up
Payment), the Corporation shall make an additional gross-up
payment in respect of such excess (plus any interest payable
with respect to such excess) at the time that the amount of such
excess is finally determined.
(f) The payments provided for in paragraphs (d) and (e) above
shall be made not later than the fifth (5th) day following the
Date of Termination; provided, however, that if the amounts of
such payments cannot be finally determined on or before such
day, the Corporation shall pay to you on such day an estimate as
determined in good faith by the Corporation of the minimum
amount of such payments and shall pay the remainder of such
payments (together with interest at the rate provided in Section
1274(b)(2)(B) of the Code) as soon as the amount thereof can be
determined but in no event later than the thirtieth (30th) day
after the Date of Termination. In the event that the amount of
the estimated payments exceeds the amount subsequently
determined to have been due, such excess shall constitute a loan
by the Corporation to you payable on the fifth (5th) day after
demand by the Corporation (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code).
(g) The Corporation shall also pay to you all legal fees and
expenses incurred by you as a result of such termination of
employment (including all such fees and expenses, if any,
incurred in contesting or disputing any such termination or in
seeking to obtain or enforce any right or benefit provided by
this Agreement or in connection with any tax audit or proceeding
to the extent attributable to the application of Section 4999 of
the Code to any payment or benefit provided hereunder).
(h) You shall not be required to mitigate the amount of any
payment provided for in this Section 4 by seeking other
employment or otherwise, nor shall the amount of any payment
provided for in this Section 4 be reduced by any compensation
earned by you as the result of employment by another employer
after the Date of Termination, or otherwise.
-47-
<PAGE> 48
5. Successors; Binding Agreement.
Provided there has been a Change in Control of the Corporation:
(a) The Corporation will require any successor (whether
direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or
assets of the Corporation or of any division or subsidiary
thereof employing you to expressly assume and agree to perform
this Agreement in the same manner and to the same extent that
the Corporation would be required to perform it if no such
succession had taken place and a Change in Control of the
Corporation had not occurred. Failure of the Corporation to
obtain such assumption and agreement prior to the effectiveness
of any such succession shall be a breach of this Agreement and
shall entitle you to compensation from the Corporation in the
same amount and on the same terms as you would be entitled
hereunder if you terminated your employment for Good Reason,
except that for purposes of implementing the foregoing, the date
on which any such succession becomes effective shall be deemed
the Date of Termination.
(b) This Agreement shall inure to the benefit of and be
enforceable by your personal or legal representatives,
executors, administrators, successors, heirs, distributees,
devisees and legatees. If you should die while any amount
would still be payable to you hereunder if you had continued to
live, all such amounts, unless otherwise provided herein, shall
be paid in accordance with the terms of this Agreement, to your
devisee, legatee or other designee or, if there is no such
designee, to your estate.
6. Notice. For the purpose of this Agreement, notices and all
other communications provided for in the Agreement shall be in
writing and shall be deemed to have been duly given when
delivered or mailed by United States registered mail, return
receipt requested, postage pre-paid, addressed to the respective
addresses set forth on the first page of this Agreement.
7. Miscellaneous. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification
or discharge is agreed to in writing and signed by you and such
officer as may be specifically designated by the Board. The
validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of
Delaware.
8. Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which
shall remain in full force and effect.
9. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original
but all of which together will constitute one and the same
instrument.
10. Arbitration. Any dispute or controversy arising under
or in connection with this Agreement shall be settled exclusively
by arbitration in accordance with the rules of the American
Arbitration Association then in effect. Judgment may be entered
on the arbitrator's award in any court having jurisdiction;
provided, however, that you shall be entitled to seek specific
performance of your right to be paid until the Date of
Termination during the pendency of any dispute or controversy
-48-
<PAGE> 49
arising under or in connection with this Agreement.
11. Entire Agreement. This Agreement supersedes any other
agreement or understanding between the parties hereto except any
agreement covering inventions, writings and confidential
information, and any agreement covering non-competitive
employment, which you may have signed with the Corporation.
12. Effective Date. This Agreement shall become effective
as of the date set forth above. If this letter sets forth our
agreement on the subject matter hereof, kindly sign and return
to the Corporation the enclosed copy of this letter which will
then constitute our agreement on this subject.
Sincerely,
OUTBOARD MARINE CORPORATION
By RICHARD J. STEGEMEIER
---------------------
Name: Richard J. Stegemeier
Title: Chairman of the Compensation
Committee
Agreed to this 23rd day
of February, 1995
By HARRY W. BOWMAN
---------------
Name: Harry W. Bowman
Title: Chairman, President and
Chief Executive Officer
-49-
<PAGE> 50
Exhibit 10 (H)
AMENDMENT NO. 1 TO
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
AMENDMENT NO. 1, DATED AS OF SEPTEMBER 15, 1995, (this
"Amendment") TO AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT, dated
as of December 30, 1994, (the "Credit Agreement") among OUTBOARD MARINE
CORPORATION (the "Company"), certain financial institutions parties
hereto (each a "Bank" and collectively, the "Banks"), THE FIRST
NATIONAL BANK OF CHICAGO, as agent for the Banks (in such capacity, the
"Agent"), and BANK OF AMERICA ILLINOIS, as co-agent for the Banks (in
such capacity, the "Co-Agent").
WHEREAS, the Company, the Banks, the Agent and the Co-Agent
have entered into the Credit Agreement;
WHEREAS, the Company, the Banks, the Agent and the Co-Agent
desire to amend the Credit Agreement as set forth herein;
NOW THEREFORE, in consideration of the premises made hereunder,
and for good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto, intending to be
legally bound, hereby agree as follows:
l. Definitions. Unless otherwise expressly defined herein,
all capitalized terms used herein and defined in the Credit
Agreement shall be used herein as so defined. Unless otherwise
expressly stated herein, all Section and Article references herein
shall refer to Sections and Articles of the Credit Agreement.
2. Section 1.01. The following definitions in Section 1.01 of
the Credit Agreement are amended in the following manner:
(a) Clause (c) of the definition of "Interest Period" shall be
deleted in its entirety and replaced with the following:
"(c) (i) for Eurodollar Advances, a period selected by the
Company, commencing on the date of the relevant Borrowing and
ending not less than seven (7) days or more than 180 days
thereafter, and
(ii) for Optional Currency Advances or LIBOR Loans, the
period requested by the Company, commencing on the date of the
relevant Borrowing and ending one (1), two (2), three (3) or
six (6) months thereafter; and"
(b) The definition of "LIBOR" shall be deleted in its entirety
and restated as follows:
"'LIBOR' means
(a) for each Interest Period in respect of Eurodollar Advances,
the rate of interest determined by the Agent to be the arithmetic
average of the rates reported to the Agent by each Reference Bank as
the rate at which deposits in Dollars are offered by such Reference
Bank to first-class banks in the London interbank market at
approximately 11:00 a.m. (London time) two Banking Days prior to the
first day of such Interest Period, in the approximate amount of such
Reference Bank's relevant Eurodollar Advance and having a maturity
-50-
<PAGE> 51
approximately equal to such Interest Period. If any Reference Bank
fails to provide such quotation to the Agent, then the Agent shall
determine LIBOR for purposes of this clause (a) on the basis of the
quotations by the remaining Reference Bank(s); and
(b) for each Interest Period in respect of LIBOR Loans or
Optional Currency Advances, the rate of interest determined by the
Agent to be the applicable London interbank offered rate for deposits
in Dollars or the applicable Optional Currency appearing on the
Bloomberg System Money Market Function (Page LR) as of 11:00 a.m.
(London time) two Banking Days prior to the first day of such Interest
Period and having a maturity equal to such Interest Period. If no
London interbank offered rate of such maturity then appears on
Bloomberg Page LR, the LIBOR for purposes of this clause (b) shall be
equal to the London interbank offered rate for deposits in Dollars or
the applicable Optional Currency having a maturity immediately before
or immediately after the maturity of such Interest Period, whichever is
higher, as determined by the Agent from Bloomberg Page LR."
3. Section 1.01. The following definition is hereby inserted
between the definitions of "Plan" and "Reference Rate" in Section 1.01
of the Credit Agreement:
"'Reference Banks' means, collectively, First Chicago, Bank of
America Illinois, and Royal Bank of Canada; and "Reference Bank"
means any one of the Reference Banks."
4. Section 2.06. Section 2.06 of the Credit Agreement is hereby
deleted in its entirety and replaced with the following:
"2.06. Notification of LIBOR for Eurodollar Advances. In the
case of Eurodollar Advances, the Agent will notify each Bank of
LIBOR promptly upon determination of such interest rate. Each
Reference Bank agrees to furnish to the Agent timely information
for the purpose of determining LIBOR with respect to Eurodollar
Advances."
5. Effective Date. This Amendment shall become effective and
the Credit Agreement shall be amended for a period of only three
months, commencing on the date hereof (the "Amendment Period"),
when the Company, the Banks and the Agent shall have executed and
delivered signature pages hereto to the Agent. This Amendment Period
shall be extended to the Termination Date unless a Bank notifies the
Company and the Agent of an objection to the extension no less than 14
days prior to the end of the initial three months of the Amendment
Period. The Agent shall notify each Bank no less than 21 days prior to
the end of the initial three months of its right to object to the
extension. If a Bank so notifies the Company and the Agent, no less
than 14 days prior to the end of the Amendment Period, this Amendment
shall, as of the end of the Amendment Period, no longer be of any force
or effect and the Credit Agreement shall remain in full force and
effect in accordance with its terms as in effect prior to the execution
of this Amendment.
6. Company Representations. The Company hereby represents and
warrants that, as of the date hereof, (i) the Credit Agreement (both
prior to and after the effectiveness of this Amendment), each Note and
any and all other agreements, documents, certificates and other
instruments executed in connection therewith are in full force and
effect and constitute the valid and binding obligations of the Company,
(ii) the representations of the Company set forth in Article IV (other
than Section 4.09 and 4.13(a)) are true and correct in all material
-51-
<PAGE> 52
respects on and as of the date hereof, and (iii) the Company is in
compliance with all of the terms and conditions in the Credit Agreement
to be performed or observed on its part and no Default or Event of
Default has occurred and is continuing under the Credit Agreement.
7. Effect of Amendment. The parties agree that, except as
amended hereby and solely for the Amendment Period, the Credit
Agreement shall remain in full force and effect in accordance with its
terms. During the Amendment Period, any reference to the Credit
Agreement shall be deemed to be a reference to the Credit Agreement as
amended by this Amendment.
8. Counterparts. This Amendment may be executed in any number
of counterparts, each of which shall constitute an original, but all of
which when taken together shall constitute but one instrument.
9. Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of Illinois.
10. Fees and Expenses. The Company agrees to pay all
out-of-pocket fees and expenses of the Agent (including the fees and
expenses of counsel) incurred in the negotiation, drafting and
execution of this Amendment.
IN WITNESS WHEREOF, the Company, the Agent, the Co-Agent and
the Banks have caused this Amendment to be duly executed by their
respective authorized officers as of the day and year first above
written.
OUTBOARD MARINE CORPORATION
By JAMES R. MAURICE
Name: James R. Maurice
Title: Vice President and
Controller
THE FIRST NATIONAL BANK OF CHICAGO, individually
and as Agent
By DEBORAH E. STEVENS
Name: Deborah E. Stevens
Title: Authorized Agent
BANK OF AMERICA ILLINOIS, individually
and as Co-Agent
By MICHAEL G. HEALY
Name: Michael G. Healy
Title: Vice President
ROYAL BANK OF CANADA
By KAREN T. HULL
Name: Karen T. Hull
Title: Manager, Corporate Banking
-52-
<PAGE> 53
THE BANK OF NEW YORK
By RICHARD A. RAFFETTO
Name: Richard A. Raffetto
Title: Asst. Vice President
NBD BANK, N.A.
By JENNY GILPIN
Name: Jenny Gilpin
Title: Second Vice President
ABN AMRO BANK N.V.
By DAVID C. SAGINS
Name: David C. Sagins
Title: Vice President
ABN AMRO BANK N.V.
By R. MICHIEL SCHWARTZ
Name: R. Michiel Schwartz
Title: Vice President
THE BANK OF NOVA SCOTIA
By F. C. H. ASHBY
Name: F. C. H. Ashby
Title: Senior Manager Loan Operations
FIRSTAR BANK MILWAUKEE, N.A.
By F. R. DENGEL
Name: F. R. Dengel
Title: Vice President
-53-
<PAGE> 54
EXHIBIT 11
OUTBOARD MARINE CORPORATION AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
(In millions except amounts per share)
<TABLE>
<CAPTION>
Three Months Ended Twelve Months Ended
September 30 September 30
-------------------- --------------------
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Primary Earnings Per Share:
Net earnings (loss) $ 8.5 $ 10.7 $ 51.4 $ 48.5
======== ======== ======== ========
Weighted average number of shares 20.0 19.9 20.0 19.8
Common stock equivalents (stock options) .1 .2 .1 .2
-------- -------- -------- --------
Average shares outstanding 20.1 20.1 20.1 20.0
======== ======== ======== ========
Primary earnings (loss) per share $ .42 $ .53 $ 2.56 $ 2.42
======== ======== ======== ========
Fully Diluted Earnings per Share:
Net earnings (loss) $ 8.5 $ 10.7 $ 51.4 $ 48.5
Add: After-tax interest and
related expense amortiza-
tion on 7% convertible
subordinated debentures .8 .8 3.4 3.4
-------- -------- -------- --------
Net earnings (loss) adjusted $ 9.3 $ 11.5 $ 54.8 $ 51.9
======== ======== ======== ========
Weighted average number of shares 20.0 19.9 20.0 19.8
Common stock equivalents (stock options) .1 .2 .1 .2
Weighted average common
shares assuming
conversion of 7% convertible
subordinated debentures 3.4 3.4 3.4 3.4
-------- -------- -------- --------
Average shares outstanding 23.5 23.5 23.5 23.4
======== ======== ======== ========
Fully diluted earnings (loss) per share $ .40 $ .49 $ 2.33 $ 2.22
======== ======== ======== ========
-54-
</TABLE>
<PAGE> 55
EXHIBIT 12
OUTBOARD MARINE CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In millions except ratios)
<TABLE>
<CAPTION>
Twelve Months Ended September 30
--------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Earnings (loss):
Earnings (loss) before provision for
income taxes and cumulative effect
of changes in accounting principles $ 60.8 $ 53.4 $(159.9) $ 12.5 $(105.9)
Interest expense 23.1 15.1 19.8 19.0 31.1
Interest portion of rent expense 1.3 1.3 1.0 1.0 1.1
-------- -------- -------- -------- --------
Earnings $ 85.2 $ 69.8 $(139.1) $ 32.5 $ (73.7)
======== ======== ======== ======== ========
Fixed Charges:
Interest expense $ 23.1 $ 15.1 $ 19.8 $ 19.0 $ 31.1
Interest portion of rent expense 1.3 1.3 1.0 1.0 1.1
-------- -------- -------- -------- --------
Fixed Charges $ 24.4 $ 16.4 $ 20.8 $ 20.0 $ 32.2
======== ======== ======== ======== ========
Ratio of earnings to fixed charge 3.5 4.3 1.6
======== ======== ========
Excess of fixed charges over earnings $ 159.9 $ 105.9
======== =========
-55-
</TABLE>
<PAGE> 56
EXHIBIT 13
Outboard Marine Corporation 1995 Annual Report
Proud Heritage
New Vision
Letter to Shareholders by Harry W. Bowman
-----------------------------------------
OMC's chairman, President and Chief Executive Officer Harry W. Bowman,
who joined the company in 1995, says OMC is in the process of remaking
itself. It is creating a new vision of its future and defining a new
corporate strategy that will more effectively leverage its historical
strengths and position the company to grow and deliver continuing
improvement in shareholder value.
The Value of Strong Brands by David R. Lumley
---------------------------------------------
Developing high value brands with strong imagery is critical to the
continuing creation of shareholder value.
Staying Close to Our Markets by L. Earl Bentz
---------------------------------------------
If we want to know what our customers value, we have to adopt a
marketplace focus. We have to listen.
Nourishing a Culture of Innovation by John D. Flaig
---------------------------------------------------
We can't win by following our competitors, and we won't win by
pursuing the same course we've pursued in the past.
Creating Quality by Carlisle R. Davis
-------------------------------------
The standards for acceptable quality is being raised every day
and the requirements for quality go beyond our products.
1995 Review of Operations
Management's Discussion and Analysis
Eleven-Year Summary
Consolidated Financial Statement
Notes to Consolidated Financial Statements
Management's Responsibility for Financial
Statements and Report of Independent Public Accountants
Directors and Officers
Shareholder Information
Operating Groups and Product Lines
Outboard Marine Corporation
100 Sea-Horse Drive
Waukegan, Illinois 60085
708.689.6200
-56-
<PAGE> 57
Financial Highlights
(Dollars in millions except per share data)
<TABLE>
<CAPTION>
Year Ended September 30 1995 95-94 1994 94-93 1993
% Change % Change
---------- ----- --------- ------ ----------
<S> <C> <C> <C> <C> <C>
Operating Results
- -----------------
Net Sales
Engine Products $ 690.8 20% $ 574.3 (2)% $ 587.2
Boats and Packages 538.4 7% 504.1 13% 447.4
---------- ----- --------- ------ ----------
Total $ 1,229.2 14% $ 1,078.4 4% $ 1,034.6
========== ===== ========= ====== ==========
Net Earnings (Loss)
Before Accounting Changes $51.4 6% $ 48.5 129% $ (165.0)
Cumulative Effect of Changes in
Accounting Principles -- --% -- --% (117.5)
---------- ----- ========= ------ ==========
Total $ 51.4 6% $ 48.5 117% $ (282.5)
========== ===== ========= ====== ==========
Primary Net Earnings (Loss) per Share
Before Accounting Changes $ 2.56 6% $ 2.42 129% $ (8.42)
Cumulative Effect of Changes in
Accounting Principles -- --% -- --% (6.00)
--------- ----- --------- ------ ----------
Primary Net Earnings (Loss)
per Share $ 2.56 6% $ 2.42 117% $ (14.42)
========== ===== ========= ====== ==========
Fully Diluted Net Earnings (Loss)
per Share $ 2.33 5% $ 2.22 115% $ (14.42)
========== ===== ========= ====== ==========
Dividends per Share $ .40 --% $ .40 -% $ .40
========== ===== ========= ====== ==========
Capital Structure
- -----------------
Long-Term Debt $ 177.4 --% $ 178.2 (3)% $ 183.0
Shareholders' Investment $ 255.8 22% $ 209.0 30% $ 160.9
Shareholders' Investment per
Share (Year-End) $ 12.78 22% $ 10.49 29% $ 8.14
Return on Shareholders'
Investment 22.8% (18)% 27.8% 147% (59.8)%
Number of Shareholders 4,716 4% 4,519 (7)% 4,855
Average Number of Shares
Outstanding and
Common Stock Equivalents,
if applicable (Millions) 20.1 1% 20.0 2% 19.6
========== ===== ========= ====== ==========
Other
- -----
Research and Development Expense $ 41.6 14% $ 36.5 1% $ 36.0
Capital and Tooling Expenditures $ 66.5 (2)% $ 68.2 36% $ 50.0
Employees at Year-End 8,905 5% 8,472 5% 8,073
========== ===== ========= ====== ==========
</TABLE>
-57-
<PAGE> 58
Building Value
Harry W. Bowman, Chairman, President and CEO
To Our Shareholders
- -------------------
Outboard Marine Corporation today is a work in progress, a company being
remade. We currently have underway a broad-ranging management effort to
define a new vision of our company's future and to develop a clear
strategy that will enable us to achieve that vision.
The ultimate product of our work will be a better managed company
that uses its resources more effectively and is equipped to win in the
markets in which it chooses to compete. Most importantly, it will be a
company capable of consistently adding to the value of its shareholders'
investments. We have a great deal of work to do before we can become that
company, capable of providing that kind of steady growth in value. But,
in 1995, we began to make progress toward that objective.
Sales growth in every one of our worldwide markets and market share
gains produced increased earnings in 1995. Worldwide sales grew 14 percent
to $1.23 billion, up from $1.08 billion for 1994. Net earnings grew 6
percent to $51.4 million, or $2.56 per share ($2.33 fully diluted), up
from $48.5 million, or $2.42 per share ($2.22 fully diluted) for 1994.
Strong Core Earnings Growth
- ---------------------------
Our true earnings improvement for 1995 was significantly better than our
net results indicate, since last year's results were increased by $17.3
million (pre-tax) in non-operating gains from a real estate transaction
and other benefits. Looking at the real improvement in our core
performance for the year, 1995 gross profit improved by 18 percent, or
$45.4 million. Our gross margin moved up to 24.2 percent from 23.4
percent in 1994, reflecting the manufacturing efficiencies we gained in
1995 from our higher outboard volumes. That was the highest gross margin
OMC has achieved since 1988. Our 1995 operating earnings jumped 46
percent to $67.2 million, up from $46 million in 1994.
All of our worldwide operations contributed to the sales increase
that drove our earnings improvement in the past year. In the United
States, which accounted for nearly three-fourths of our total revenues
in 1995, strong outboard engine sales were the primary driver of our
13.9 percent sales growth. The Marine Power Products Group, which sells
Johnson and Evinrude Outboards as well as parts and accessories, achieved
a 22 percent U.S. sales increase in 1995 and increased its share of the
very competitive U.S. outboard market. Our U.S. boat operations
increased their sales by 8 percent in 1995.
Outside the U.S., our sales grew 14.3 percent in 1995. All of our
international operating groups posted solid sales increases, with OMC
Europe showing the strongest increase. Outboards also drove our sales
gains outside the U.S.
Fourth quarter results followed a similar pattern. Sales in the
fourth quarter of 1995 increased 10.8 percent to $338.2 million, up from
$305.3 million for the fourth quarter of 1994. Net earnings fell to $8.5
million, or 42 cents per share (40 cents, fully diluted), from $10.7
million, or 53 cents per share (49 cents, fully diluted), for the fourth
quarter of 1994.
-58-
<PAGE> 59
Our 1995 fourth quarter net earnings comparison suffered because
$6.8 million of the pre-tax $17.3 million non-operating gain in 1994
occurred in that year's fourth quarter. Once again, looking at our
operating performance, gross earnings improved more than 17 percent to
$77.3 million, up from $66 million for the fourth quarter of 1994. Our
gross margin moved up to 22.9 percent from 21.6 percent for the fourth
quarter of 1994. And operating earnings increased 50 percent to $9.9
million, up from $6.6 million for the fourth quarter of 1994.
U.S. sales growth of 14 percent accounted for the improvement in our
operating performance for the 1995 fourth quarter. Sales outside the
U.S. increased less than one percent, primarily the result of weakening
economies and sales in some of our Latin American markets.
The Future of OMC
- -----------------
While the growth of the marine products markets and our market share
growth in outboards created OMC's 1995 earnings improvement, we cannot
rely on these dynamics to provide the kind of steady growth that our
shareholders have a right to expect from us. We believe it's not enough
to simply ride the cyclical tides of the marine industry, delivering
growth in earnings, margins and returns in the good years, and trying
to stem losses with cost cutting programs in the downturns. We must
find ways to overcome the cyclicality of our business and consistently
build shareholder value.
-59-
<PAGE> 60
To remake OMC into a company capable of delivering this kind of
consistent improvement, we have to first create a vision of the company
we want OMC to become. This isn't an exercise in wishful thinking. Our
vision of OMC as we will remake it will grow out of a fact-based analysis
of our core competencies, our weaknesses, and the opportunities and
competitive threats in the markets in which we choose to do business.
Based on this new vision, we will implement a new strategic planning
process to create plans that will become the bridge to move OMC from
where we are today to where we want to be in the next 10 to 20 years.
We expect to complete our visioning process and our first strategic
planning cycle next spring. When those tasks have been accomplished, we
will have made decisions about the markets in which we want to compete
and how we will compete in them. We will have set clear operating
objectives for all of our business units that will add long-term value
to our shareholders' investments.
While our visioning and strategic planning efforts are still in
progress, we have already begun initiatives that will address the
revitalization of OMC.
Building on Our Heritage
- ------------------------
First, we will make far better use of OMC's heritage, which rests on
three fundamental strengths, to build the value of our current portfolio
of businesses.
The first of these historical strengths is the high level of name
recognition and customer loyalty enjoyed by some of our brands,
especially the Johnson and Evinrude outboard brands. During the last
industry downturn, we didn't support our brands as we should have and,
as a result, they lost some of their historical strength. We will rebuild
them, and then leverage their strength to gain both market share and
margin improvement. To do this, we must become more marketplace focused,
providing our dealers with the products and services they and their
customers really want, and bringing those products and services up to
world class quality standards. We will make important strides in this
area in 1996.
-60-
<PAGE> 61
The second of our historical strengths is our dealer distribution
system, primarily built on the Johnson and Evinrude dealer networks that
were established in the early years of this century. It's a high quality
dealer network; many of our retailers today are second or third generation
Johnson or Evinrude dealers with deep roots in their local markets. It's
also the industry's most comprehensive. Our network has more U.S. dealers
than any other marine manufacturer's, and it reaches into every corner
of the globe. It gives OMC an important marketplace advantage.
We are making more effective use of this advantage by doing a better
job of partnering with our dealers and allying our interests with theirs.
We took an important step in this area in 1995 with the introduction of
the CashPort program, which invests one percent of a dealer's purchases
of OMC products in an annuity for the dealer's retirement or for a
beneficiary he designates.
The third of OMC's historical strengths is our advanced technology.
Our engineering organization has consistently excelled in developing
innovative products and technologies for marine engines, and we have a
manufacturing system built largely on new plants and new manufacturing
process technology.
To gain the full benefit from our advanced engineering organization,
we are fostering a culture of innovation that will nourish the development
of leading edge products and processes. We are supporting that culture
with funding and, where necessary, with strategic acquisitions or
partnerships. We demonstrated that commitment in 1995 with our acquisition
of 51 percent of FICHT GmbH, the German engineering firm that pioneered
the direct fuel injection process we will use in our most advanced,
low-emission outboards, the first of which are slated for market
introduction in the second half of calendar year 1996.
In our manufacturing operations, we also are implementing quality
and productivity systems that will enable us to gain the full benefit from
the capital investments we've made. In all of our operations, we are
creating a culture of quality that will provide the basis for bringing
the full range of our products, services and business processes up to
world class standards. In 1996, we will launch our People Driven Quality
effort, a company-wide, total quality management system focused on
achieving customer-driven, world-class quality levels.
Seeking New Opportunities
- -------------------------
Beyond making better use of OMC's heritage of strengths to build the
value of our existing portfolio of businesses, we will look beyond our
current business lines to new opportunities that can help us grow and
balance our cyclicality. We'll seek these opportunities in the marine
industry, but we won't be limited by the industry's bounds. Our
opportunities will be determined by our core competencies, and we
believe our competencies, especially in engineering and technology,
will enable us to develop new business approaches in other industries.
In any new venture we undertake, our approach will be strategically
driven, based on a clear understanding of marketplace dynamics, and
capable of establishing a strong market position for OMC.
In summary, what we plan to become is a company committed to
building and leveraging the strength of a portfolio of strong brands;
a company focused on and driven by the marketplace and our strong
dealer network; a company committed to innovation and technological
superiority; and a company dedicated to continuous improvement and
world class quality.
We know that we won't make all of this happen overnight. It will
take time to revitalize our company. But, as the following feature
section of this report shows, we've begun the process; and the
benefits from it will build over the coming months and years.
-61-
<PAGE> 62
1996 Outlook
- ------------
In the near term, we expect 1996 to be another year of growth for
OMC. We expect industrywide retail unit sales in the U.S. market to
grow at a 5 to 7 percent rate in 1996, slower than the 8 to 10
percent growth rate we estimate was achieved for 1995, but still
strong. Our dealers' field inventories are at appropriate levels,
and we and they are well equipped to meet the needs of the
marketplace.
For the first quarter of 1996, we expect solid sales. However,
in terms of earnings, our first quarter will get off to a slower start
than the first quarter of 1995, when we had a $3.1 million net loss.
While we normally incur a first quarter net loss due to the seasonal
nature of our business, we expect this year's first quarter loss to
be greater than last year's.
We entered the first quarter of 1995 with extensive back-orders
for outboard engines, and our manufacturing operations ran at a very
high level to catch up with market demand and to build inventory for
the spring selling season. That production level gave us unusually
high manufacturing operating efficiencies for the quarter.
By comparison, in the first quarter of this year, we're reducing
production in our engine plants to better control our inventories. As
a result, manufacturing operating expense will be higher, contributing
to a deeper net loss for the quarter.
For the full year, however, we expect continued earnings growth,
due both to increased sales and to the actions we are taking to improve
the quality of our earnings: improving quality and productivity in our
manufacturing operations, reducing our SG and A expense as a
percentage of sales and better managing our working capital.
OMC today is a company that is confident of what lies ahead, both
in the near and longer terms. We have a proud and valuable heritage of
core strengths on which we can build. And we enjoy the support of a
committed group of employees who are genuinely enthusiastic about the
opportunity to create and work toward a vision of a more successful
and profitable tomorrow. Proud of our past and sure of our future, we
are moving forward.
HARRY W. BOWMAN
November 27, 1995
Harry W. Bowman
Chairman, President and Chief Executive Officer
-62-
<PAGE> 63
The Value of Strong Brands
David R. Lumley, Senior V.P., Worldwide Marketing and Sales, MPPG
Brand Value
- -----------
Do strong brands really make a difference in today's price competitive
marine products marketplace? That's a question OMC asked itself in the
depths of the marine products industry's most severe recession, between
1989 and 1993.
In that environment, the company was unable to continue to strengthen
the brand images of its product lines because of the investment required.
As a result, the high-value positions of our brands, including Johnson
and Evinrude Outboards, were not fully supported.
The recession and lack of industry innovation led to price cutting
and the consumer perception that all brands were relatively equal. Since
OMC boasts a range of strong marine brands, one of our important
advantages wasn't fully utilized.
The Value Cycle
- ---------------
OMC, however, has to pay the same or greater attention to our brands as
any other marketer of consumer goods, and that attention is reflected in
our current strategic planning. Developing high-value brands with strong
identities is critical to the continuing creation of shareholder value
because of a marketing phenomenon called the value cycle. The cycle works
like this:
We make investments in building stronger brand identities than our
competitors. That doesn't just include investment in advertising and
promotion. It includes investments to ensure we have the products that
really excite our customers with their performance, quality and reliability.
Our strong brand identities then create superior consumer value
for our products. This lifts them above the fray of the marketplace and
allows us to realize greater value for them.
The improved profitability gives us a stronger flow of cash to
reinvest in the business, allowing us to better fund areas like technology
and product research and development, higher quality manufacturing systems,
and increased marketing support for our brands, combining to complete the
value cycle.
A Stable of Brands
- ------------------
Beyond providing us with better margins on our products, outstanding brand
management equips OMC to compete more efficiently in all of the segments
of the marine products market in which we choose to participate.
The fact that we have a stable of engine and boat brands gives us the
flexibility to create a family of branded product lines, each with distinct
features and personalities, to fit the needs of various kinds of boaters
at various price points. We are now defining and segmenting the brands in
our portfolio, and we will position each brand so that its image is clearly
communicated to its targeted customer base.
-63-
<PAGE> 64
Segmenting the Portfolio
- ------------------------
With our outboard brands, we enjoy a premium position, but we will use our
strategic planning process to determine how we can realistically "stretch"
the Johnson and Evinrude brands as we compete for sales across the full
range of price points in the marine engine marketplace.
With our boat brands, we are developing an effective tiering of our
portfolio of 20 brands, allowing consumers at various price/value points
to choose an OMC boat with a combination of brand imagery, features,
performance and price that meets their needs. Doing this will boost sales
and also help us achieve higher operating margins for our entries at every
price point in every market segment due, in part, to our greater
efficiencies in marketing these products.
A Powerful Force
- ----------------
Because brand personalities are long lasting and resistant to change
we've conducted research to ensure that we really understand what our
brands and those of our competitors mean to the consumer. Our strategy
to move from where we are today to the achievement of our vision will
be based on strengthening our brands, properly positioning them and
investing in the future. Strong brands may be an intangible asset on
the balance sheet, but they are a powerful and differentiating force
in the marketplace.
-64-
<PAGE> 65
Staying Close to our Markets
L. Earl Bentz, V.P.; and President, OMC Fishing and Aluminum Boat Groups
Knowing the Customer
- --------------------
When I was a kid in grade school, a teacher, introducing our class to
the stock market, gave me what certainly seemed to be the formula for
financial success: buy low, sell high.
It made sense; it was beautiful in its simplicity; and I thought
I had captured one of the great secrets in life until I grew up and
became personally acquainted with the market. It was then that
I realized, while the theory was simple, the application took some doing.
Companies like OMC, manufacturing and marketing consumer products,
face a similar challenge. The secret of success in our business is giving
the customer what he or she wants - giving them what they really value.
That, too, sounds easy. But knowing what the customer values and
delivering on his value expectations is where both the science and art
of our business come into play.
If we want to know what our customers value, we have to adopt a
marketplace focus. We have to stay close to our customers, listen to what
they have to say, and respond to their wishes with a sense of urgency.
Staying close to our markets demands that we don't just walk in and
out of our customers' lives. We have to view our relationship as a life
cycle in which the company touches the customer at each phase of the
product's life. We have to focus on delivering high-quality interactions
at each stage of this life cycle, which typically has six phases.
Going Shopping
- --------------
Beginning in the shopping phase, first-time and repeat buyers have very
different information needs and motivations. The first-time buyer is
deciding whether to invest his discretionary dollars in the sport, and
our marketing efforts have to provide him with information that breaks
down barriers to boat ownership.
The repeat buyer probably is deciding what kind of boat or engine
to buy, and we need to reach him with articles, advertisements and word
of mouth endorsements that confirm his good sense in choosing our brand
in the first place.
In the next phase, the Purchase Experience, our partnering relationship
with the dealer is critical, since he plays an extremely important role
in influencing the customer's decision to buy our product or a competitors'
brand. The dealership also is critical in orienting the customer to the
product with a description of its features and benefits; consequently, we
have to reach out to the dealer with training and materials to make him
knowledgeable and credible.
During the Delivery Experience, how well the product is prepped
before it's handed over to the customer is a key issue, and we have to
provide training and feedback to our dealers to ensure that they make the
delivery of our product a pleasurable experience.
The Delivery Experience extends through the first month of ownership
and, in that period, customers have gut responses to the fit, feel and
finish of their new products. Our boats and engines must be everything
our customers hoped they would be, because impressions in this phase
establish a frame of reference that influences the owner's feelings about
the product throughout the entire Ownership Experience.
-65-
<PAGE> 66
Soon, the customer is enjoying our product on the water. During this
Ownership Experience, the quality of our design and manufacturing
processes again are critical in determining his level of satisfaction.
The boat and engine must perform to a consistently high standard. But,
beyond providing a high quality product, we can enhance our customer's
ownership experience by giving him psychological reinforcement from
magazine articles and advertisements that demonstrate the value of his
product. We also need to add value to the quality of his boating
experience with fishing tournaments or other special events that
strengthen the bond between us.
Service is Critical
- -------------------
Next, inevitably, comes the Service Experience. Once again, here our
partnership with the dealer is critical, and how well we support him
in doing his job can make all of the difference in our customer's level
of brand loyalty.
Finally, comes the Repurchase Experience. Here, using warranty
registration records, we can target customers who are probably getting
ready to consider going back into the market to buy a replacement product;
and we can offer them incentives to tip the scale in their decision to
repurchase our brand. Ultimately, though, the acid test of our customers'
loyalty will be how well we have managed our relationship through all of
the earlier five phases.
-66-
<PAGE> 67
Nourishing a Culture of Innovation
John D. Flaig, V.P., Worldwide Research and Engineering, MPPG
The Less Traveled Road
- ----------------------
What is innovation? Why do we need it? And how do we get it?
Innovation is breakthrough thinking; breaking the mold of the obvious
solution and exploring the non-obvious; allowing the mind to move along
a path other than the well traveled road.
Innovation is essential to creating systems that produce continuous
improvement; but innovation, itself, is not a continuous or evolutionary
process. It's not just the next step. It's a mental leap that, if it's
well executed, produces an "order of magnitude" improvement.
The best metaphor I can think of for innovation comes from the sport
of sailboat racing. If two well matched sailboats are racing into the wind,
and one has a lead on the other, the following boat isn't likely to be
able to win as long as its crew pursues the same course as the lead boat.
Following the same course gives the second boat the same angle into the
wind and, as a result, the same speed.
If the crew of the second boat wants to win the race instead of just
finishing it, they have to choose a different course that will give them a
different angle into the wind, allowing their sail to catch it more
efficiently and produce greater boat speed. In other words, they have to
innovate.
Taking a Different Tack
- -----------------------
This maneuver is called "taking a different tack." It requires the boldness
of conviction to take a risk, because, if the new angle the crew takes into
the wind is wrong, the sail can lose efficiency and the boat can fall
farther behind. So the maneuver also requires knowledge and skill to be
successful. But, ultimately, the choice to make the maneuver is based on
the crew's understanding that it's necessary, because the physics of the
competition are such that they can't win by taking the same tack.
In addition to being a good metaphor for innovation, I think this is
a good model for explaining why we need innovation at OMC. We simply can't
win by taking the same tack.
We can't win by following our competitors, and we won't win by pursuing
the same course we've pursued in the past. We are pursuing a different
course to gain speed and take the leadership position in our markets.
To win, we need innovation. We need innovation in product development
because, to be the value leaders in our markets and still command higher
margins, it's not going to be good enough to have the same product
features and benefits our competitors have. We have to offer leading edge
technologies, designs and features first. We have to create the perception
that we lead trends, and the market follows us.
But being innovative in product development won't be sufficient to
move OMC into the lead if we lack innovation in our other business
processes. Our entire corporation needs to move onto the new tack, and our
future is going to depend upon all of us caring enough to become innovators:
to find new and better ways to do our jobs.
That level of caring to seek innovation will take a culture change in
many areas of our company. Our visioning process will address that culture
change. But, in broad strokes, we know what we have to do to nourish the
culture of innovation that we want and need.
We have to create a work environment that communicates to employees
that a new idea is a good thing. That, in turn, will require our managers
and supervisors at every level to understand that it is part of their job
to encourage employee innovation.
Failing to manage a company in this way is a waste of employees'
minds, a tremendous resource that should be driving change and producing
improvement and growth throughout the company.
-67-
<PAGE> 68
We, as managers, have to resist the urge to reject a new idea at the
first signs of difficulty. We can't give in to the knee-jerk reaction of
closing the door on the process of exploration to eliminate the problems.
That means we have to keep funding exploration rather than starving it to
death.
We also have to train our employees in using analytical tools to
prove-out their ideas. This is critical, because innovation inherently
involves risk. To minimize risk, innovation has to be accompanied by the
willingness to challenge and test assumptions.
Finally, assuming an idea proves out in fact-based testing, we need
to celebrate its success and reward its originators to encourage them and
others to continue to take intelligent risks.
The bulk of the burden in nourishing an innovative culture lies on
our management organization. We're ready for that challenge because we
recognize that, to be a company that creates value for our shareholders,
we need to unlock the power of innovation that lies within our
organization. We need to take a new tack.
-68-
<PAGE> 69
Creating Quality
Carlisle R. Davis, V.P., Quality Assurance
People Driven Quality
- ---------------------
After a number of years at General Motors, I joined OMC in 1995 as the
company's first vice president of Quality Assurance, charged with
coordinating the development of a companywide total quality management
system. Shortly after my arrival, I was asked, why do we need this kind
of quality effort? My response was, it's absolutely central to the
continuing creation of shareholder value. And if we don't have it, we're
going to go out of business.
It's not that the quality of OMC's products is below marine industry
standards; it's not. The reasons for implementing People Driven Quality,
OMC's own total quality management system, are much more fundamental than
that.
For one, the bar that represents the acceptable level of quality
in today's marketplace is being raised higher every day. For another,
the requirements for quality go beyond the products we sell. A company's
quality is judged not just on the basis of its products, but also on its
services, administrative systems and everything else we do that supports
the sale of the product and the customer's after-sale satisfaction with
it. Finally, improving our quality by reducing wasted time and material
throughout our operations will reduce our costs and improve our
productivity.
Climbing the Quality Ladder
- ---------------------------
But what, exactly, is quality; and how do we know when we've provided
it? Actually, if we look at quality as a hierarchy with three levels,
customer feedback can tell us which level we've achieved. At the bottom
of the hierarchy, there is the expected level of quality. That's what
comes to mind when most of us think about quality. It means the product
or service does what it's supposed to do. It works, and it has no
problems, or only minimal ones.
The second level of quality is the desired level. The desired level
means that the product or service does something more than just work. It
begins to deliver some psychological benefits to the user. For example,
it has some advantages over the competition; it gets positive reviews
in magazines; and owning or using it reinforces the buyer's perception
that he or she made a smart choice.
At the top of the quality hierarchy, though, is the exciter level.
Exciters are products or services that are so widely recognized as being
superior that everybody - friends, relatives and the man on the street -
recognizes the owner or user as smart and successful for buying the
product or service. The farther we can bring our customers up the quality
hierarchy, the more brand loyal they're going to be. That customer
loyalty is what makes a company successful.
To begin to climb the quality hierarchy with our products and
services, we have to know what to change. Nobody knows more about what
to change than our employees who make our products and provide our
business support services. People are the heart of every successful
quality effort; and no quality effort that isn't based on employee
involvement succeeds.
For that reason, we began our People Driven Quality effort by
forming six leadership teams representing the entire company. Each of
the teams reached all the way down to the shop and office floor level
to gather information and compile a list of the whats that need fixing.
Each leadership team brought its list to a steering team headed by Hank
Bowman that selected the issues that will have the greatest impact on
our business and handed them back to the leadership teams for action.
-69-
<PAGE> 70
The next step in People Driven Quality is identifying the hows -
how do we eliminate the problems. That process is happening now. But,
in general, there are three basic ways to improve the quality of a
product or business process: containment, control and creation.
The least effective way to attain quality is to contain problems
after they have been created. An example of containment is inspection,
where a defective product is pulled off the line and repaired before
it can reach a customer. Relying solely on inspection systems for
defect containment can provide an initial quality improvement; but,
ultimately, inspectors get bored and quality actually falls off.
The next best way to achieve quality is through control, such as
statistical process control. Control systems are good, but they reach
a point where they can't functionally provide additional quality benefits.
But the best way to achieve quality is by creating products or
processes that are naturally resistant to errors. We're doing some of
this now, primarily in our engine operations. Creating products and
processes that are error resistant - after we make the time and dollar
investment to establish them - has, by far, the biggest payoff. We're
going to have to make this our way of doing business.
-70-
<PAGE> 71
1995 Review of Operations
Engine Operations
Marine Power Products Group
- ---------------------------
Strong sales of Johnson and Evinrude outboard engines drove the Marine
Power Products Group's sales gains in 1995.
In the United States, the group's dollar sales increased 22 percent
for the year. Two price increases totaling approximately four percent
contributed to the U.S. sales growth, and average horsepower increased
by three horsepower, helping to improve both sales and margins. But, by
far, the bulk of the sales improvement came from growth in outboard
unit sales. The group increased its wholesale unit share of the U.S.
outboard market in 1995.
MPPG's U.S. market was strong for the bulk of 1995, importantly
in the first half of the spring selling season. The U.S. retail marine
products market softened significantly in the late spring through early
summer; however, the market recovered in late summer and the group finished
the year with a strong fourth quarter.
"Loose" outboard sales, outboards sold directly to dealerships,
increased significantly in 1995. At the same time, a new OEM Sales Group
increased outboard sales through pre-rigging agreements with independent
boat builders. The programs provide boat builders with incentive payments
to equip their boats with controls and hardware that are compatible with
Johnson and Evinrude outboards, which then are installed by dealers. Strong
sales to the OMC Fishing Boat Group, which packages primarily higher
horsepower, higher priced outboards with its fiberglass fishing boats,
also contributed to MPPG's U.S. sales gains.
A major organizational initiative following the close of the 1995
fiscal year was the consolidation of the OMC International Group's
operations into the Marine Power Products Group. As a result, worldwide
responsibility for the marketing, sales, and servicing of outboards,
parts and accessories was consolidated in the Marine Power Products Group
under David R. Lumley, who was named senior vice president of Worldwide
Marketing and Sales. Similarly, worldwide responsibility for design,
manufacturing, procurement and logistics for power products was
consolidated within MPPG. A senior vice president to head this second group
is yet to be named.
The consolidation of both marketing and manufacturing operations
within a worldwide MPPG organization will allow OMC to become a more
effective global competitor by providing central coordination of both
marketing and manufacturing strategy. The move will permit consistent
positioning of the Johnson and Evinrude brands and also produce cost
efficiencies.
Increased outboard sales also were responsible for sales growth in
markets outside the U.S. in 1995. OMC's outboard market share grew both
in Europe and Latin America. In addition, important footholds were gained
in developing markets in the Far East, Middle East and Africa.
New products helped spur growth in 1995. In the U.S. market, new 90
and 115-horsepower Johnson and Evinrude outboards incorporating the "Eagle"
technology used on OMC's popular 150 and 175-horsepower engines won sales
in the bass fishing, saltwater fishing and ski market segments. An expanded
line of boating accessories and a broader offering of replacement parts for
competitors' engines increased U.S. parts and accessories sales. In Europe,
new low-emission, 9.9 and 15-horsepower outboards as well as new 25 and 35-
horsepower models improved OMC's competitive positions in key markets.
-71-
<PAGE> 72
The company made solid progress in 1995 in developing direct-injected
two-cycle outboards based on FICHT fuel injection technology. We expect
this new outboard design, which is proprietary to OMC, to use fewer parts
and be simpler to manufacture than competitors' low-emission designs. We
believe it will provide OMC with an important advantage in the changing
U.S. outboard market, where we expect Environmental Protection Agency
regulations to require manufacturers to begin phasing in low-emission
outboards, beginning in 1998. We plan to introduce the first of our FICHT
technology outboards late in calendar 1996.
Structural changes in the past year also laid the foundation for
improved customer service, satisfaction and loyalty. MPPG established a
new U.S. customer service organization that eliminated telephone bottlenecks
and improved dealer access to sales, shipping, service and warranty
information. The group also announced the consolidation of its U.S. parts
and accessories distribution operations and committed to making a $4 million
investment in new computerized wareharehousing and inventory management
systems to improve its next-day delivery capability to dealers.
Boat Operations
OMC Fishing Boat Group
- ----------------------
The OMC Fishing Boat Group achieved a very substantial sales increase in
1995, primarily due to increased sales of its bass fishing boats. The
group identified opportunities in a number of economy market segments
and targeted them with new, lower price-point, high-value products.
All of the group's brands - Stratos, Javelin, Hydra-Sports and
Quest - achieved strong sales gains for the year. Additionally, the group
experienced less sales impact than other OMC operating groups from last
spring's downturn in the U.S. retail marine products market. Stratos, the
group's premium bass boat line, introduced eight new models at the entry
and mid-level price points in 1995 that accounted for much of the sales
gain. Hydra-Sports also gained sales with new bass fishing models that
targeted lower price points.
While most of the OMC Fishing Boat Group's sales improvement came
from freshwater fishing boats, the group also boosted sales in the saltwater
segment with an expanded offering of entry-level rolled edge boats in its
Quest line. Rolled edge boats have a one-piece, fiberglass hull without a
separate molded deck structure. The design is less expensive to build than
comparable two-piece hull designs and is popular among fishermen in coastal
waters from New England to Texas.
Even lower price-point bass and saltwater fishing boat packages,
however, are equipped with relatively high-horsepower engines that are
among OMC's most profitable power products.
In the past year, the OMC Fishing Boat Group's profitability
benefitted from a total quality management program implemented in 1994
that boosted the efficiency of the group's manufacturing operations and
established the basis for a significant improvement in its working
capital management.
OMC Aluminum Boat Group
- -----------------------
The OMC Aluminum Boat Group, the world's largest manufacturer of aluminum
boats, experienced a small sales reduction in 1995 due both to market
conditions and a significant increase in the price of aluminum, its primary
raw material.
Cool, rainy weather slowed retail activity and diminished the OMC
Aluminum Boat Group's sales in many of its markets in the early spring.
The poor weather conditions early in the selling season were followed by
the industrywide sales slump in the U.S. retail marine products market,
which continued to depress sales in the late spring and early summer.
-72-
<PAGE> 73
To regain its sales momentum, the OMC Aluminum Boat Group launched
the RainCheck sales initiative, a consumer rebate program designed to pull
sales through its dealerships. The program was effective in creating a
second selling season for the group in the fourth quarter, allowing it to
put a strong sales finish on the year. Additionally, it helped to bring
year-end field inventories in dealerships essentially into line with
year-end 1994 levels.
The group's sales also were negatively impacted during the year by
a significant increase in the cost of aluminum. The cost increase pushed
the prices of the OMC Aluminum Boat Group's higher price-point boats to
a level at which they faced competition from lower price-point fiberglass
models, which took sales from the group.
To combat sales losses to fiberglass boats, the group offered
special value boat packages in its Lowe and Grumman lines. The packages,
equipped with lower-featured Johnson and Evinrude outboard models, were
targeted to customers seeking high-value fishing boats and priced at
levels below competitors' fiberglass models.
New products and line extensions helped to support sales in the face
of difficult market conditions. The OMC Aluminum Boat Group updated its
Sea Nymph line to make its models more competitive in its primary upper
mid-western markets. Roughneck, a brand of all-welded boats originally
targeted to southern U.S. markets, launched a line of deep-vee models
aimed at building dealer support and sales in the northern U.S.
In 1995, the OMC Aluminum Boat Group also added the DuraNautic brand
to expand its penetration of the New England market. DuraNautic is a
well-known line of utility boats that OMC acquired in fiscal 1995 and
re-launched for the 1996 selling season featuring popular original designs.
OMC Recreational Boat Group
- ---------------------------
The OMC Recreational Boat Group, which markets four brands of fiberglass
runabouts and cruisers - Chris-Craft, Four Winns, Seaswirl and Sunbird -
achieved a slight sales increase for 1995 in spite of experiencing a
severe late spring and early summer sales downturn caused by the
industrywide slowdown in U.S. retail marine products sales.
Sunbird and Chris-Craft led the group with double digit sales increases
driven by a variety of new, high-value runabout and small cruiser models
designed for the family boating market. Sunbird also benefited from
organizational changes that improved the effectiveness of its field sales
organization in 1995.
Chris-Craft shifted its emphasis to smaller boats of 33 feet and less,
allowing it both to better serve the majority of its dealers whose
businesses are built on sales of smaller craft, and also to reduce its costs.
Shifting its manufacturing operations to focus on smaller boats reduced
engineering and development expense and also allowed more efficient line
production methods that permitted a 25 percent reduction in manufacturing
staff. Additionally, the move allowed Chris-Craft to increase its
production of outboard powered boats, enhancing its synergy within the OMC
organization.
Seaswirl, which also introduced a range of new runabout and cruiser
models for 1995, as well as a limited number of fishing models, achieved
a more modest sales increase for the year in its primarily western U.S.
markets. Four Winns' sales declined in 1995, due in part to declining
sales of the brand's mini jet boat models.
-73-
<PAGE> 74
Management's Discussion and Analysis of Results of Operations and
Financial Condition
Results of Operations 1995
- --------------------------
The company had net earnings of $51.4 million or $2.56 per share in 1995
and $48.5 million or $2.42 per share in 1994. Pretax earnings were $60.8
million in 1995 compared with $53.4 million in 1994, a 13.9% increase.
The 1995 pretax earnings were up 68.4 percent after adjusting 1994 pretax
earnings to exclude $17.3 million in pre-tax non-operating income from a
real estate transaction, a tax interest adjustment and a favorable
insurance settlement.
Revenues were $1,229.2 million in 1995 compared to $1,078.4 million
in 1994, an increase of $150.8 million or 14 percent. In the U.S., which
accounted for 75 percent of total outside revenues, sales grew 13.9
percent, driven primarily by the growth in the Johnson and Evinrude
branded outboards. International sales increased 14.3 percent over 1994
with all of the international operating groups recording gains.
Gross earnings improved 18 percent to $297.4 million from $252.0
million in 1994 or $45.4 million. Gross margin improved to 24.2 percent
of net sales from 23.4 percent in 1994, and was the highest gross
margin percentage experienced since 1988. Gross margins improved because
manufacturing ran at higher capacity utilization than the previous year.
Also the U.S. marine power group experienced higher horsepower sales and
grew at a higher rate than our lower margin segments in the U.S.
Selling, general and administrative expenditures increased to $230.2
million in 1995 from $206.0 million in 1994 or 11.7 percent due primarily
to an increase in promotion expense to support the strong revenue growth
and an investment in additional resources to strengthen the customer and
dealer service organizations. As a percent to sales, selling, general
and administrative costs declined to 18.7 percent of revenues from 19.1
percent in 1994.
Earnings from operations increased 46.1 percent to $67.2 million
in 1995 from $46.0 million in 1994 reflecting the additional margin from
a 14 percent sales gain, manufacturing efficiency improvements and
favorable product mix partially offset by increased selling, general
and administrative expenditures. Savings from the restructuring charges
taken in the third and fourth quarters of 1993 are fully reflected in
earnings for 1995 except for the reorganization of the U.S. parts and
accessories distribution process which is scheduled for implementation
in 1996.
Interest expense increased to $23.1 million in 1995 compared to
$15.1 million in 1994. After adjusting for a favorable interest adjustment
on past tax liabilities of $5.3 million, adjusted interest expense in 1994
was $20.4 million. The increase of $2.7 million over adjusted 1994
interest expense was due primarily to higher debt levels required to
support increased working capital.
Other non-operating income was $16.7 million in 1995 and $21.0
million in 1994. After adjusting for income from a real estate transaction
of $10.5 million, adjusted other non-operating income in 1994 was $10.5
million. The increase of $6.2 million in 1995 is due primarily to $2.9
million in interest recognized on the company's investment in I.J.
Holdings, Inc. and from improved joint venture earnings.
Provision for income taxes was $9.4 million in 1995 and $4.9 million
in 1994 and is explained in Note 14 to the Consolidated Financial
Statements.
-74-
<PAGE> 75
Results of Operations 1994
- --------------------------
Earnings before tax were $53.4 million in 1994 and were benefitted from
$17.3 million of non-operating income including $10.5 million from a
transfer of land rights in Hong Kong, $5.3 million from a tax interest
adjustment on past tax liabilities and a $1.5 million special refund
for environmental expense. Excluding these benefits, earnings before
tax were $36.1 million in 1994. A loss before tax of $159.9 million
was incurred in 1993 prior to the cumulative effect of changes in
accounting principles. This loss included charges of $144.8 million
for restructuring and a $12.5 million benefit for a special refund for
environmental expense. Excluding the restructuring and the special refund,
the 1993 loss before provision for income taxes and cumulative effect of
changes in accounting principles was $27.6 million. After adjustments for
benefits and charges for both years, earnings before tax have improved
to $36.1 million in 1994 from a loss of $27.6 million in 1993 or an
improvement of $ 63.7 million.
Sales were $1,078.4 million in 1994 compared to $1,034.6 million in
1993 which resulted in a $43.8 million or 4.2 percent increase in sales.
Sales in the United States were $805.5 million in 1994 and $753.4 million
in 1993 resulting in a $52.1 million or 6.9 percent improvement. U.S.
boat sales increases more than offset a small decline in U.S. marine
power sales which was due primarily to the termination of the Tracker
Marine contract and to production issues that constrained sales of
outboard engines. International sales were $272.9 million in 1994 and
$281.2 million in 1993, a decline of $8.3 million or 3.0 percent. Canadian
and European operations had sales declines primarily as a result of the
company's decision announced in 1993 to terminate its lawn care products
distribution business in Canada and to shift European sales of U.S. built
boats to the U.S. recreational boat group rather than as a part of the
European sales organization. Double digit sales gains were achieved in our
Asian, Australian and Latin American operations. The company believes that
its market share increased in these markets.
Gross earnings improved $34 million to $252 million in 1994 compared
to $218 million in 1993 resulting in a margin improvement of 2.3 percent.
This was due to an improvement in core efficiency and profitability
resulting from restructuring.
Selling, general and administrative expenses decreased $20.1 million to $206
million in 1994 from $226.1 million in 1993. The majority of the decrease
can be attributed to planned cost reductions. Also the decrease was due to
an $8.8 million reduction of bad debt provisions mostly from write-offs
in European operations in 1993, primarily in France.
Earnings from operations, excluding restructuring charges in 1993,
improved $54.1 million to $46.0 million in 1994, from a loss of $8.1 million
in 1993. Improved sales, improvements in core efficiencies, partial cost
reductions from the 1993 restructuring actions and reduction of bad debt
provisions were the primary reasons for this improvement. Interest expense
declined $4.7 million because previously recorded interest expense of $5.3
million was reversed when the Internal Revenue Service completed its
determination of the company's liability for interest on federal taxes
for prior years.
In June 1993, after analyzing the propriety of maintaining the stated
value of certain recreational boat related intangibles, the company
concluded the recreational boat market was not going to grow substantially
and, in fact, had reached a new level much lower than the 1988 level. This
conclusion was reached in the third quarter of 1993 and the company wrote
off substantially all the intangible assets related to those recreational
boats.
-75-
<PAGE> 76
Other income and expense improved $20.7 million to $21.0 million in
income in 1994 from $.3 million in income in 1993. The improvement came
from the transfer of land rights held by the company in Hong Kong for $10.5
million, net proceeds related to the company's joint venture, improvement
on translation and favorable gains on disposal of assets. Provision for
income taxes was $4.9 million in 1994 and $5.1 million in 1993 and is
explained in Note 14 to the Consolidated Financial Statements. The net
income for 1994 was $48.5 million or $2.42 per share (fully diluted
$2.22 per share). The net loss for 1993 including restructuring and the
adoption of SFAS 106 and 109 was $282.5 million or $14.42 per share.
Financial Condition
- -------------------
The company's ratio of current assets to current liabilities was 2.0
at September 30, 1995 as compared to 1.8 at September 30, 1994. Current
assets were up $72.4 million. Cash and cash equivalents decreased $22.0
million due to increased working capital requirements. Receivables
increased $50.4 million due primarily to higher sales in the fourth
quarter of fiscal 1995 and to the recorded miscellaneous receivable in
1995 of $17.8 million based on the company's decision to redeem its
investment in I.J. Holdings, Inc. Inventories increased $30.4 million
due primarily to increased sales and higher than planned inventories.
Deferred income tax benefits increased $13.4 million as explained in Note
14 to the Consolidated Financial Statements.
Product tooling and plant and equipment increased $3.7 million and
$7.2 million, respectively, due to the introduction of new outboard motor
models. Expenditures for capital and tooling were $66.5 million in 1995,
down $1.7 million from the 1994 level of $68.2 million. Expenditures
include the investment required to bring low emission outboards on stream
and is consistent with our previous projections of $100 million for the
Low Emissions Advanced Propulsion ("LEAP") product introductions indicated
over a year ago.
Accrued liabilities increased $14.0 million due primarily to
increased participation levels in dealer programs and increased warranty
accruals partially offset by lower restructuring accrual balances. Other
non-current liabilities increased $28.4 million due primarily to an
increase in tax liabilities.
The company has a revolving credit agreement with its banks that
expires December 31, 1997. This agreement provides for borrowings of up
to $200 million. The company's non-U.S. subsidiaries had additional
noncommitted lines of credit of approximately $8.8 million as of September
30, 1995. The total available unused lines of credit were $187.6 million
as of September 30, 1995.
Long-term debt decreased to $177.4 million in 1995 from $178.2 million
in 1994. Debt as a percent to total capitalization decreased to 41 percent
in 1995 from 46 percent in 1994. Total shareholders' investment increased
$46.8 million.
Liquidity and Capital Resources
- -------------------------------
Due to the seasonal nature of OMC's business, receivables, inventory and
accompanying short-term borrowing to satisfy working capital requirements
are usually at their highest levels in the second and third fiscal
quarters and decline thereafter, as the company's products enter their
peak selling seasons. Short-term borrowings averaged $55.3 million and
$7.6 million in 1995 and 1994, respectively, with month-end peak borrowings
of $100.0 million and $40.0 million in May 1995 and February 1994,
respectively. Higher peak borrowings in fiscal 1995 were due to higher sales
and higher than planned working capital needs.
Cash provided by operations was $51.4 million in 1995 compared with
$57.3 million in 1994 and $39.6 million in 1993. Expenditures for plant and
equipment, and tooling were $66.5 million in 1995, $68.2 million in 1994
and $50.0 million in 1993.
-76-
<PAGE> 77
Based on the company's performance since the 1993 restructuring,
current expectations of financial performance, the flexibility that comes
with an improved balance sheet, a $200 million revolving credit agreement
and other available sources of capital, the company believes that it has
available sufficient internal and external financial resources to invest
in low emission engines and to continue making long term investments for
future growth at least through the next few years. Expenditures for new
plant and equipment in 1996 are expected to be about the same as in 1995.
Trends and Forward-Looking Factors
- ----------------------------------
The company believes that the current marine industry growth cycle that
began in 1994 will continue through 1996 although at a slower rate than
in 1995. The company believes that U.S. retail unit sales grew at
somewhat less than 10 percent in 1995. Additional unit growth of 5 to 7
percent is anticipated for 1996. However, to the extent that the marine
industry growth is less than anticipated, continued financial improvement
may be restricted.
Cost reductions and savings due to the 1993 restructuring actions
will not reach the originally estimated annualized levels of $65 million
by fiscal year 1996 due primarily to offsetting increases in cost for the
development of low emission product, increased investment in promotional
activities to better participate in the marine growth cycle and an increase
in spending to develop a world-class customer service organization. The
only outstanding restructuring action not yet completed is the
reorganization of the U.S. parts and accessories distribution operation.
The parts distribution reorganization is scheduled for completion in 1996
and was fully reserved for in 1993. Likewise, a boost in new product
development and tooling spending is anticipated to accelerate the
production of a new generation of products.
Annualized savings from actions taken to date are approximately $41
million, partially offset by the increased spending in the other areas
discussed above. Savings from restructuring are fully reflected in earnings
for 1995 except for the reorganization of the U.S. parts and distribution
process. The company believes the long-run benefits to shareholders have
been better served by the combination of these actions (cost reduction
initiatives and additional investment in growth and technology) and that
the deferral of the reorganized parts distribution process will provide OMC
customers and our shareholders with improved service levels and enhanced
returns.
The company adopted Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" (SFAS No. 109), beginning with its fiscal
year ended September 30, 1993. Under SFAS No. 109, the tax benefit of a
deferred tax asset can be recognized provided there will be future
profitability to assure realization. The cumulative losses which the company
incurred for its fiscal years ended September 30, 1990 through 1993,
prevented the company from providing an assurance of future profitability.
Accordingly, the company did not recognize a tax benefit for all of the
deferred tax assets.
Under SFAS No. 109, three years of consecutive profitability in a
taxing jurisdiction would generally enable the company to realize the
deferred tax assets that have not otherwise been recognized. In the U.S.,
the 1995 and 1994 fiscal years were profitable. When the company is better
able to determine that this trend of profitability will likely continue
into fiscal 1997, the majority of the remaining U.S. deferred tax assets
for which no tax benefit has been recognized may be realized, through a
reversal of the valuation allowance. The company anticipates that this
will occur late in fiscal year 1996 or early in fiscal year 1997. This
would significantly increase earnings at that time.
-77-
<PAGE> 78
A collective bargaining agreement at OMC-Calhoun (Georgia) is
effective through September 30, 1998. The company and employees of the
OMC-Waukegan (Illinois) facility signed a new four-year collective
bargaining agreement effective through October 30, 1999. The OMC-Milwaukee
(Wisconsin) contract expires March 31, 1998. While the company cannot
fully predict the outcome of future labor negotiations, the company
believes it can maintain competitive labor costs while providing employees
with favorable wages and benefits.
The U.S. Environmental Protection Agency has issued proposed
regulations governing emissions from marine engines. As proposed, the
rule would phase in over 9 years, beginning in model year 1998 and
concluding in model year 2006. Marine engine manufacturers would be
required to reduce hydrocarbon emissions from outboard motors and
personal watercraft, on average, by 8.3 percent per year beginning with
the 1998 model year. The final rule is expected some time in 1996.
In 1994, the company announced Project LEAP, a $100 million project
to convert its entire outboard product line to low emission products within
the next decade. The company believes these technologies, in some
combination, will provide reduced emissions, better fuel economy and
improved performance, and will meet the proposed regulation on or before
the required dates for compliance.
These technologies will add cost to the product. However, this
situation is not seen as a major deterrent to sales since value will be
added to the product at the same time and the entire industry is faced
with developing solutions to the same regulatory requirements. The company
does not believe that this situation will have a material negative impact
on future results of operations or the financial condition of the company.
Under the requirements of the Federal Comprehensive Environmental
Response, Compensation and Liability Act of 1980 ("Superfund") and certain
other laws, the company is potentially liable for the cost of clean-up at
various contaminated sites identified by the United States Environmental
Protection Agency ("USEPA") and other agencies. The company has been
notified that it is a potentially responsible party ("PRP") for study
and clean-up costs at a number of sites. In some cases there are several
named PRPs and in others there are hundreds. The company generally
participates in the investigation or clean-up of these sites through cost
sharing agreements with terms that vary from site to site. Costs are
typically allocated based upon the volume and nature of the materials
sent to the site and/or the amount of time the site was owned or operated.
However, under Superfund and certain other laws, as a PRP the company can
be held jointly and severally liable for all environmental costs
associated with the site. Although unable to determine its liability for
clean-up and remediation costs in connection with all of these sites,
management believes that appropriate accruals have been recorded. While
the results of the proceedings discussed above cannot be predicted with
any certainty, based upon the information presently available, management
is of the opinion that the final outcome of such proceedings, in the
aggregate, after giving consideration to the amounts accrued, should not
have a material impact on the company's Financial Position or the
Consolidated Earnings. For further information see Note 17 to the
Consolidated Financial Statements.
The company is currently in the process of filling the positions of
chief financial officer (CFO), the newly created position of senior vice
president of operations and president of the recreational boat group. The
company expects to fill these positions in fiscal year 1996.
-78-
<PAGE> 79
Eleven-Year Summary of Selected Financial Data
<TABLE>
<CAPTION>
Years ended September 30 1995 1994 1993 1992 1991 1990
Operations ($ in millions)
- --------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales $1,229.2 $1,078.4 $1,034.6 $1,064.6 $983.6 $1,145.6
Gross Earnings 297.4 252.0 218.0 247.6 191.9 176.4
Selling, General and Administrative 230.2 206.0 226.1 216.6 224.1 251.1
Research and Development Expense 41.6 36.5 36.0 36.1 40.8 43.3
Earnings (Loss) from Operations 67.2 46.0 (152.9) 31.0 (73.5) (101.4)
Interest Expense 23.1 15.1 19.8 19.0 31.1 29.8
Earnings (Loss) from Continuing
Operations before Provision
(Credit) for Income Tax 60.8 53.4 (159.9) 12.5 (105.9) (123.0)
Net Earnings (Loss)
Continuing Operations 51.4 48.5 (165.0) 1.9 (85.9) (77.3)
Discontinued Operations -- -- -- -- -- --
Extraordinary Income and
Accounting Change -- -- (117.5) -- 1.6 1.8
---------------------------------------------------------------------
Total Net Earnings (Loss) $ 51.4 $ 48.5 $ (282.5) $ 1.9 $(84.3) $ (75.5)
=====================================================================
Financial Position ($ in millions)
- ----------------------------------
Cash and Cash Equivalents $ 58.3 $ 80.3 $ 104.4 $ 142.6 $ 79.6 $ 15.3
Receivables, net 200.9 150.5 136.3 157.9 163.4 219.2
Inventories 194.1 163.7 154.1 181.5 181.1 239.6
Current Liabilities 248.8 233.6 251.4 231.8 252.1 287.9
Working Capital 253.4 196.2 173.9 323.4 248.4 301.0
Plant and Equipment, net 224.3 217.1 210.3 242.8 258.7 290.5
Total Assets 907.0 817.1 791.8 997.1 957.0 1,104.7
Long-Term Debt 177.4 178.2 183.0 198.1 133.1 157.5
Total Shareholders' Investment 255.8 209.0 160.9 454.5 463.3 558.3
Per Common Share (Dollars)
- --------------------------
Average Number of Common Shares
Outstanding and Common Stock
Equivalents, if applicable (Millions) 20.1 20.0 19.6 19.8 19.4 19.4
Net Earnings (Loss)
Primary $ 2.56 $ 2.42 $ (14.42) $ .10 $(4.34) $ (3.89)
Fully Diluted 2.33 2.22 (14.42) .10 (4.34) (3.89)
Primary Net Earnings (Loss) From
Continuing Operations 2.56 2.42 (8.42) .10 (4.42) (3.98)
Dividends Paid .40 .40 .40 .40 .50 .80
Market Price - High 24.88 25.88 25.25 26.63 19.38 31.75
Market Price - Low 17.50 17.38 15.13 14.00 9.00 10.87
Shareholders' Investment, year-end 12.78 10.49 8.14 23.32 23.85 28.73
Other Statistics
- ----------------
Operating Earnings as a Percent of Net Sales 5.5% 4.3% (14.8)% 2.9% (7.5)% (8.9)%
Return on Average Shareholders' Investment 22.8% 27.8% (59.8)% .4% (16.6)% (12.4)%
Return on Average Total Capitalization 11.3% 13.0% (29.2)% .3% (11.9)% (9.1)%
Current Ratio 2.0 1.8 1.7 2.4 2.0 2.0
Debt/Total Capitalization 41.0% 46.1% 54.6% 31.4% 29.2% 27.0%
Capital & Tooling Expenditures
($ in millions) $ 66.5 $ 68.2 $ 50.0 $ 40.6 $ 36.1 $ 61.1
-79-
<PAGE> 80
</TABLE>
Eleven-Year Summary of Selected Financial Data
<TABLE>
<CAPTION>
Years ended September 30 1989 1988 1987 1986 1985
Operations ($ in millions)
- --------------------------
<S> <C> <C> <C> <C> <C>
Net Sales $1,464.2 $1,360.0 $1,095.4 $803.9 $713.4
Gross Earnings 320.2 341.5 248.2 149.0 147.9
Selling, General and Administrative 241.9 214.2 160.9 129.2 105.7
Research and Development Expense 41.9 37.6 35.1 36.8 36.0
Earnings (Loss) from Operations 70.2 127.3 87.3 19.8 42.2
Interest Expense 36.1 24.6 21.8 12.6 11.9
Earnings (Loss) from Continuing
Operations before Provision
(Credit) for Income Tax 38.5 106.4 77.8 (2.6) 38.8
Net Earnings (Loss)
Continuing Operations 21.0 61.5 38.4 3.4 21.8
Discontinued Operations 49.3 10.3 8.4 7.6 7.6
Extraordinary Income and
Accounting Change -- 5.8 15.0 3.3 --
--------------------------------------------------------
Total Net Earnings (Loss) $ 70.3 $ 77.6 $ 61.8 $ 14.3 $ 29.4
========================================================
Financial Position ($ in millions)
- ----------------------------------
Cash and Cash Equivalents $ 19.8 $ 23.1 $ 48.6 $ 9.7 $ 47.8
Receivables, net 297.0 364.9 318.2 286.5 213.8
Inventories 297.4 278.3 186.2 187.7 178.1
Current Liabilities 281.5 304.1 241.0 212.4 172.3
Working Capital 471.4 395.3 335.3 302.7 310.8
Plant and Equipment, net 283.7 277.3 240.7 204.5 190.5
Total Assets 1,254.4 1,141.1 966.4 775.0 720.7
Long-Term Debt 233.1 178.2 131.9 85.8 86.3
Total Shareholders' Investment 642.7 579.5 517.6 392.5 385.2
Per Common Share (Dollars)
- --------------------------
Average Number of Common Shares
Outstanding and Common Stock
Equivalents, if applicable (Millions) 19.3 19.2 18.3 17.0 16.9
Net Earnings (Loss)
Primary $ 3.64 $ 4.04 $ 3.38 $ .85 $ 1.74
Fully Diluted 3.64 4.04 3.38 .85 1.74
Primary Net Earnings (Loss) From
Continuing Operations 1.09 3.20 2.10 .39 1.29
Dividends Paid .80 .70 .64 .64 .64
Market Price - High 46.00 37.12 38.00 38.50 31.50
Market Price - Low 28.00 16.25 23.87 21.37 19.62
Shareholders' Investment, year-end 33.08 30.09 26.67 23.06 22.77
Other Statistics
- ----------------
Operating Earnings as a Percent of Net Sales 4.8% 9.4% 8.0% 2.5% 5.9%
Return on Average Shareholders' Investment 12.0% 14.2% 13.9% 3.8% 8.0%
Return on Average Total Capitalization 8.3% 10.7% 10.6% 2.9% 6.2%
Current Ratio 2.7 2.3 2.4 2.4 2.8
Debt/Total Capitalization 28.3% 28.1% 20.5% 24.6% 20.1%
Capital & Tooling Expenditures
($ in millions) $ 110.3 $ 88.8 $ 57.9 $ 56.5 $ 64.1
</TABLE>
-80-
<PAGE> 81
Statements of Consolidated Earnings
- -----------------------------------
Years ended September 30 (Dollars in millions except amounts per share)
1995 1994 1993
--------- --------- ---------
Net Sales $1,229.2 $1,078.4 $1,034.6
Cost of Goods Sold 931.8 826.4 816.6
--------- --------- ---------
Gross earnings 297.4 252.0 218.0
Selling, General and Administrative
Expense 230.2 206.0 226.1
Restructuring Charges -- -- 144.8
--------- --------- ---------
Earnings (Loss) from operations 67.2 46.0 (152.9)
--------- --------- ---------
Non-Operating Expense (Income)
Interest expense 23.1 15.1 19.8
Special refund for
environmental contingency -- (1.5) (12.5)
Other, net (16.7) (21.0) (.3)
--------- --------- ---------
6.4 (7.4) 7.0
--------- --------- ---------
Earnings (Loss) before provision
for income taxes, and
cumulative effect of changes in
accounting principles 60.8 53.4 (159.9)
Provision for Income Taxes 9.4 4.9 5.1
--------- --------- ---------
Net earnings (loss) before
cumulative effect of changes
in accounting principles 51.4 48.5 (165.0)
Cumulative effect on prior years of
changes in accounting principles
Income taxes -- -- (10.0)
Postretirement benefits other
than pensions -- -- (107.5)
--------- --------- ---------
Net earnings (loss)
for the year $ 51.4 $ 48.5 $ (282.5)
========= ========= =========
Net Earnings (Loss) Per Share of
Common Stock
Primary
Before accounting changes $ 2.56 $ 2.42 $ (8.42)
Cumulative effect of changes
in accounting principles -- -- (6.00)
--------- --------- ---------
Primary $ 2.56 $ 2.42 $ (14.42)
========= ========= =========
Fully diluted $ 2.33 $ 2.22 $ (14.42)
========= ========= =========
The accompanying notes are an integral part of these statements.
-81-
<PAGE> 82
Statements of Consolidated Financial Position
- ---------------------------------------------
Years ended September 30 (Dollars in millions)
1995 1994
Assets -------- --------
Current Assets
Cash and cash equivalents $ 58.3 $ 80.3
Receivables (less reserve for doubtful
receivables of $14.9 million in 1995 and
$13.9 million in 1994) 200.9 150.5
Inventories 194.1 163.7
Deferred income tax benefits 23.8 10.4
Other current assets 25.1 24.9
-------- --------
Total current assets 502.2 429.8
Product Tooling, net 52.0 48.3
Plant and Equipment, net 224.3 217.1
Intangibles 40.6 32.1
Other Assets 87.9 89.8
-------- --------
Total assets $ 907.0 $ 817.1
======== ========
Liabilities and Shareholders' Investment
Current Liabilities
Accounts payable $ 99.6 $ 102.9
Accrued liabilities 142.8 128.8
Accrued income taxes 6.2 1.7
Current maturities and sinking fund
requirements of long-term debt .2 .2
-------- --------
Total current liabilities 248.8 233.6
Long-Term Debt 177.4 178.2
Postretirement Benefits Other than Pensions 102.6 102.3
Other Non-Current Liabilities 122.4 94.0
-------- --------
Shareholders' Investment
Common stock-- 90 million shares authorized
at 15 cents par value each and 20 million
shares outstanding in 1995 and 1994 3.0 3.0
Capital in excess of par value of common
stock 112.2 110.7
Accumulated earnings employed in the
business 149.7 106.3
Cumulative translation adjustments ( 5.5) (6.6)
Treasury stock at cost, .2 million shares (3.6) (4.4)
-------- --------
Total shareholders' investment 255.8 209.0
-------- --------
Total liabilities and shareholders'
investment $ 907.0 $ 817.1
======== ========
The accompanying notes are an integral part of these statements.
-82-
<PAGE> 83
Statements of Consolidated Cash Flows
- -------------------------------------
Years ended September 30 (Dollars in millions)
1995 1994 1993
-------- -------- --------
Cash Flows from Operating Activities
- ------------------------------------
Net earnings (loss) $ 51.4 $ 48.5 $(282.5)
Adjustments to reconcile net earnings (loss)
to net cash provided by operations
Cumulative effect of changes in
accounting principles -- -- 117.5
Non-current asset write downs -- -- 78.2
Depreciation and amortization 47.6 44.0 55.6
Changes in current accounts excluding
the effects of acquisitions and
noncash transactions
Decrease (increase) in receivables (32.4) (10.4) 10.8
Decrease (increase) in inventories (29.5) (8.5) 18.6
Decrease (increase) in other current
assets (13.2) (12.2) 30.2
Increase (decrease) in accounts payable,
accrued liabilities and income taxes 14.1 (3.7) 36.0
Increase (decrease) in deferred items 13.7 .2 (25.8)
Other, net (.3) (.6) 1.0
-------- -------- --------
Net cash provided by
operating activities 51.4 57.3 39.6
-------- -------- --------
Cash Flows from Investing Activities
- ------------------------------------
Investments (9.9) -- (14.9)
Expenditures for plant and equipment,
and tooling (66.5) (68.2) (50.0)
Proceeds from sale of plant and equipment 11.8 6.8 3.8
Other, net (1.2) (1.6) 9.2
-------- -------- --------
Net cash used for investing
activities (65.8) (63.0) (51.9)
-------- -------- --------
Cash Flows from Financing Activities
- ------------------------------------
Payments of long-term debt, including
current maturities (1.1) (15.1) (15.3)
Cash dividends paid (8.0) (7.9) (7.9)
Other, net 1.0 3.3 (1.5)
-------- -------- --------
Net cash used for
financing activities (8.1) (19.7) (24.7)
-------- -------- --------
Exchange Rate Effect on Cash .5 1.3 (1.2)
-------- -------- --------
Net Decrease in Cash and
Cash Equivalents (22.0) (24.1) (38.2)
Cash and Cash Equivalents at Beginning of Year 80.3 104.4 142.6
-------- -------- --------
Cash and Cash Equivalents at End of Year $ 58.3 $ 80.3 $ 104.4
======== ======== ========
Supplemental Cash Flow Disclosures
- ----------------------------------
Interest paid $ 19.7 $ 17.1 $ 21.3
Income taxes paid $ 3.4 $ 7.4 $ 9.1
======== ======== ========
The accompanying notes are an integral part of these statements.
-83-
<PAGE> 84
Statements of Changes in Consolidated Shareholders' Investment
- --------------------------------------------------------------
<TABLE>
<CAPTION>
Years ended September 30 (In millions)
Capital Cumula-
in Excess Accumulated tive
Issued of Par Earnings Trans-
Common Stock Value of Employed lation
----------------- Common in the Adjust- Treasury
Shares Amount Stock Business ments Stock
------ ------ -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance--September 30, 1992 19.7* $ 3.0 $ 105.9 $ 356.1 $ (6.1) $(4.4)
Net loss -- -- -- (282.5) -- --
Dividends--$.40 per share -- -- -- (7.9) -- --
Shares issued under stock
plans .3 -- 1.5 -- -- --
Translation adjustments -- -- -- -- (4.7) --
----- ----- ------- -------- ------- ------
Balance--September 30, 1993 20.0* $ 3.0 $ 107.4 $ 65.7 $(10.8) $(4.4)
Net earnings -- -- -- 48.5 -- --
Dividends--$.40 per share -- -- -- (7.9) -- --
Shares issued under stock
plans .2 -- 3.3 -- -- --
Translation adjustments -- -- -- -- 4.2 --
----- ----- -------- -------- ------- ------
Balance--September 30, 1994 20.2* $ 3.0 $ 110.7 $ 106.3 $ (6.6) $(4.4)
Net earnings -- -- -- 51.4 -- --
Dividends--$.40 per share -- -- -- (8.0) -- --
Shares issued under stock
plans . . 1.5 -- -- .8
Translation adjustments -- -- -- -- 1.1 --
----- ----- ------- -------- ------- ------
Balance--September 30, 1995 20.2* $ 3.0 $ 112.2 $ 149.7 $ (5.5) $(3.6)
====== ===== ======== ======== ======= ======
<FN>
* Includes .2 million shares of treasury stock.
<FN>
The accompanying notes are an integral part of these statements.
-84-
</TABLE>
<PAGE> 85
Notes to Consolidated Financial Statements
Note 1 Significant Accounting Policies
- --------------------------------------
Principles of Consolidation: The accounts of all significant
subsidiaries were included in the Consolidated Financial Statements.
Intercompany accounts, transactions and earnings have been eliminated
in consolidation. At September 30, 1995 , all subsidiaries were wholly
owned except those referred to in Note 2 to the Consolidated Financial
Statements.
Cash and Cash Equivalents: For purposes of the Statements of
Consolidated Cash Flows, marketable securities purchased with an
original maturity of three months or less are considered cash
equivalents.
The company's domestic banking system provides for the daily
replenishment of major bank accounts for check clearing requirements.
Accordingly, outstanding checks of $26.4 million that had not yet been
paid by the banks on both September 30, 1995 and 1994 were reflected
in trade accounts payable in the Statements of Consolidated Financial
Position.
Inventories: The company's domestic inventory is carried at the
lower of cost or market using principally the last-in, first-out
(LIFO) cost method. All other inventory (26% in 1995 and 28% in 1994)
is carried at the lower of first-in, first-out (FIFO) cost or market.
During 1993, the liquidation of LIFO inventory quantities acquired
in prior years at costs lower than 1993 purchases, increased earnings
before tax by $5.7 million. There were no material liquidations of LIFO
inventory quantities in 1995 or 1994.
Product Tooling: Product tooling costs are amortized over a period
not exceeding five years, beginning the first year the related product
is sold. Amortization of product tooling was $16.6 million, $13.6
million and $17.8 million for 1995, 1994 and 1993, respectively.
Plant and Equipment and Depreciation: Plant and equipment are
recorded at cost and depreciated substantially on a straight-line basis
over their estimated useful lives as follows: buildings, 10 to 40
years; machinery and equipment, 4 to 12 1/2 years. Depreciation is not
provided on construction in progress until the related assets are
placed into service.
Depreciation of plant and equipment was $28.8 million, $28.4
million and $31.1 million for the years ended September 30, 1995, 1994
and 1993, respectively.
When plant and equipment is retired or sold, its costs and related
accumulated depreciation are written off and the resulting gain or loss
is included in net earnings.
Maintenance and repair costs are charged directly to earnings as
incurred and were $31.5 million, $28.0 million and $27.0 million for
1995, 1994 and 1993, respectively. Major rebuilding costs that
substantially extend the useful life of an asset are capitalized and
depreciated.
The company continually reviews plant and equipment to determine
that the carrying values have not been impaired.
Intangibles: The Statements of Consolidated Financial Position
included net amounts for intangibles, including goodwill, of $40.6
million on September 30, 1995, as compared with net intangibles of
$32.1 million on September 30, 1994. Intangibles are amortized over
15 to 40 years. The company continually reviews its intangible assets
and analyzes the propriety of maintaining the stated values.
Amortization of intangibles was $1.2 million, $1.3 million and
$5.6 million for 1995, 1994 and 1993, respectively. A write-off of
intangibles of $75.8 million was included in restructuring charges in
1993.
-85-
<PAGE> 86
Revenue Recognition: Upon shipment of products to unaffiliated
customers, the company recognizes sales and related expenses including
warranty expense.
Advertising Costs: Advertising costs are charged to expense as
incurred and were $34.4 million, $29.3 million and $28.3 million for
1995, 1994 and 1993, respectively.
Warranty: The company generally provides the ultimate consumer a
warranty with each product and accrues warranty expense at time of
sale based upon actual claims history. Actual warranty costs incurred
are charged against the accrual when paid.
Research and Development Costs: Research and development costs are
charged to expense as incurred and were $41.6 million, $36.5 million
and $36.0 million for 1995, 1994 and 1993, respectively.
Translation of Non-U.S. Subsidiary Financial Statements: The
financial statements of non-U.S. subsidiaries are translated to U.S.
dollars substantially as follows: all assets and liabilities at
year-end exchange rates; sales and expenses at average exchange rates;
shareholders' investment at historical exchange rates. Gains and losses
from translating non-U.S. subsidiaries' financial statements are
recorded directly in shareholders' investment. The Statements of
Consolidated Earnings for 1995, 1994 and 1993 include foreign exchange
losses (gains) of $(.6) million, $2.6 million and $3.6 million,
respectively, which resulted primarily from commercial transactions and
forward exchange contracts.
Earnings Per Share of Common Stock: Primary earnings (loss) per
share of common stock are computed based on the weighted average number
of shares of common stock and common stock equivalents (stock options,
if applicable) outstanding of 20.1 million, 20.0 million and 19.6
million for the years ended September 30, 1995, 1994 and 1993,
respectively. The computation of fully diluted earnings (loss) per
share of common stock assumed conversion of the 7% convertible
subordinated debentures due 2002; accordingly, net earnings (loss) were
increased by after-tax interest and related expense amortization on the
debentures. For 1995 and 1994, fully diluted earnings per share
computation, shares were computed to be 23.5 million and 23.4 million,
respectively. For 1993, the computation of fully diluted earnings
(loss) per share was antidilutive; therefore, the amounts reported for
primary and fully diluted earnings (loss) per share were the same.
Note 2 Joint Venture and Investments
- ------------------------------------
In July 1993, the company and AB Volvo Penta and Volvo Penta of
the Americas, Inc. formed a joint venture company to produce gasoline
stern drive and gasoline inboard marine power systems.
The joint venture is 60% owned by Volvo Penta of the Americas,
Inc. (Volvo Penta) and 40% owned by the company. The jointly produced
marine power systems are marketed by Volvo Penta to independent boat
builders worldwide and are used in boats manufactured by subsidiaries
of the company. The units carry the Volvo Penta brand name.
The equity method of accounting is used for the joint venture. At
September 30, 1995 and 1994, the company's investment including current
net accounts receivable was $18.8 million for both years. The joint
venture is a manufacturing and after market joint venture. The company
recognizes gross profit relating to certain parts sales and expenses
for product development that are part of the joint venture. The
company's share of the joint venture's earnings were $4.9 million, $4.1
million and $.4 million in 1995, 1994 and 1993, respectively, which
were included in other expense (income) in the Statements of
Consolidated Earnings.
-86-
<PAGE> 87
In May 1993, the company purchased, for $14.9 million,
approximately a 6% equity interest in IJ Holdings, Inc., the ultimate
parent company of boat manufacturer Genmar Industries, Inc. and
affiliated companies. In 1994, through a series of related
transactions, the company's interest in IJ Holdings, Inc., became an
approximate 4% interest in Genmar Holdings, Inc. The company issued its
notice of redemption in August 1995 and proceeds were received on
October 6, 1995. The company recorded interest income of $2.9 million
in September 1995.
In July 1995, the company and FICHT GmbH of Kirchseeon, Germany
announced the formation of a strategic alliance for the development and
worldwide manufacturing and marketing of high pressure fuel injection
systems and other technologies. Under the terms of the strategic
alliance, the company acquired a 51% interest in FICHT GmbH. The Ficht
family retained a 49% interest and will continue to operate the
business. This investment did not have a material effect on the
Statements of Consolidated Earnings for 1995.
Note 3 Restructuring Charges
- ----------------------------
During fiscal year 1993, the company recorded $144.8 million in
restructuring charges designed to reduce costs, improve long-term
profits and record assets at net realizable value. The restructuring
included $69.0 million for closings and transfers of manufacturing and
distribution operations including severance costs resulting from staff
reduction programs. The restructuring also included a write-off of the
remaining goodwill and intangibles of $75.8 million primarily related
to the recreational boat group. The recreational boat group segment had
not realized the improvements that the other boat segments had
experienced. Therefore, in fiscal year 1993, these companies were
restructured including the consolidation of manufacturing and
engineering operations, a plant closing, the elimination of selected
product lines and the reorganization of marketing functions. This
write-off of intangibles recognized the fundamental change in the
operating profit margins and growth characteristics of this segment of
the company's business at the time of the write-off as compared with at
the time of purchase.
Accrued liabilities included restructuring charges of $11.4
million and $20.0 million at September 30, 1995 and 1994, respectively.
The remaining accrual at September 30, 1995 represents amounts
primarily for severance payments and for the reorganization of the U.S.
parts and accessories distribution operation.
Note 4 Inventories
- ------------------
The various components of inventory were as follows:
(Dollars in millions)
September 30 1995 1994
----------------------------- ------- -------
Finished product $ 78.1 $ 65.8
Raw material, work in process
and service parts 156.4 131.5
------- -------
Inventory at current cost
which is less than market 234.5 197.3
Excess of current cost over
LIFO cost 40.4 33.6
------- -------
Net inventory $194.1 $163.7
======= =======
-87-
<PAGE> 88
Note 5 Plant and Equipment
- --------------------------
Plant and equipment components were as follows:
(Dollars in millions)
September 30 1995 1994
------------------------ ------- -------
Land and improvements $ 21.4 $ 21.7
Buildings 144.0 144.2
Machinery and equipment 367.9 341.9
Construction in progress 25.6 27.8
------- -------
558.9 535.6
Accumulated depreciation 334.6 318.5
------- -------
Plant and equipment, net $224.3 $217.1
======= =======
Note 6 Accrued Liabilities
- --------------------------
Accrued liabilities were as follows:
(Dollars in millions)
September 30 1995 1994
--------------------------------- ------- -------
Compensation and pension programs $ 23.0 $ 22.6
Postretirement medical (current) 7.2 8.2
Warranty 25.4 20.8
Marketing program 35.9 19.0
Restructuring 11.4 20.0
Other 39.9 38.2
------- -------
Accrued liabilities $142.8 $128.8
======= =======
Note 7 Short-Term Borrowings
- ----------------------------
A summary of short-term borrowing activity follows:
(Dollars in millions)
1995 1994 1993
------- ------ ------
Outstanding at September 30-
Bank borrowing $ -- $ -- $ --
Average interest rate -- -- --
Average for the year-
Borrowing $ 55.3 $ 7.6 $10.0
Interest rate 7.2% 6.4% 7.1%
Maximum month end borrowing $100.0 $40.0 $37.7
====== ====== ======
The company has a revolving credit agreement which provides for
loans of up to $200 million. The agreement expires not later than
December 31, 1997. As set forth in Note 8 to the Consolidated Financial
Statements, the company is required to meet certain financial covenants
throughout the year. A facility fee is payable under the revolving
credit agreement.
The company's non-U.S. subsidiaries had additional noncommitted
lines of credit of approximately $8.8 million on September 30, 1995.
As of September 30, 1995, the company and non-U.S. subsidiaries
together had unused lines of credit of $187.6 million (net of
outstanding letters of credit of $21.2 million).
-88-
<PAGE> 89
Note 8 Long-Term Debt
- ---------------------
Long-term debt on September 30, 1995 and 1994, net of current
maturities and sinking fund requirements included in current
liabilities, consisted of the following:
(Dollars in millions)
1995 1994
------ ------
7% convertible subordinated debentures due 2002 $ 74.8 $ 74.8
9-1/8% sinking fund debentures due through 2017 64.8 65.7
Medium-term notes due 1998 through 2001 with rates
ranging from 8.16% to 8.625% 24.5 24.1
Industrial revenue bonds with rates ranging from
6.0% to 12.037% and other debt 13.3 13.6
------ ------
$177.4 $178.2
====== ======
On September 30, 1995, the company held $34.8 million of its
9 1/8% sinking fund debentures, which will be used to meet sinking fund
requirements of $5.0 million per year in the years 1998 through 2004.
Amounts are recorded as a reduction of outstanding debt.
The agreements covering both long and short-term significant debt
instruments contain, among other things, a dividend and other
restricted payments test, interest coverage ratios, capitalization
ratios and limits the redemption or retirement of shares of common
stock. At September 30, 1995, the company was in compliance with these
financial covenants.
Maturities and sinking fund requirements of long-term debt for
each of the next five years are as follows:
(Dollars in millions)
---------------------
1996 $ .2
-----
1997 $ .2
-----
1998 $ 5.2
-----
1999 $11.2
-----
2000 $ 7.0
-----
Note 9 Financial Instruments
- ----------------------------
The company enters into various financial instruments in the
normal course of business to help manage certain assets and
liabilities. The agreements are with major financial institutions which
are expected to fully perform under the terms of the instruments,
thereby mitigating the credit risk from the transactions.
The carrying value of cash and cash equivalents, receivables, the
current maturities of long-term debt and accounts payable approximate
their fair value because of the short maturity of these instruments.
The fair value of the long-term debt was $180.9 million and $181.1
million at September 30, 1995 and 1994, respectively, versus carrying
amounts of $177.4 million and $178.2 million at September 30, 1995 and
1994, respectively. The fair value of long-term debt was based on
quoted market prices where available or discounted cash flows using
market rates available for similar debt of the same remaining
maturities.
-89-
<PAGE> 90
The company has entered into several interest rate swap
agreements as a means of managing its proportion of fixed to variable
interest rate exposure and to lower the overall cost of borrowings. The
differential to be paid or received is accrued consistent with the
terms of the agreements and market interest rates.
At September 30, 1995 and 1994, the company had outstanding fixed
to floating interest rate swap agreements having a total notional
principal amount of $100 million expiring November 25, 1996. These
agreements effectively convert a fixed interest rate (company receives)
for a floating rate (company pays) based on the London Interbank
Offered Rate (LIBOR), which is reset every six months in arrears.
The fair value of the interest rate swap agreements at September
30, 1995 and 1994 was an estimated termination liability of $1.8 and
$5.0 million, respectively. This potential expense at each fiscal year
end had not yet been reflected in net earnings as it represents the
hedging of long-term activities to be amortized in future reporting
periods. The fair value is the estimated amount the company would have
paid to terminate the swap agreements.
In 1994, in order to limit fluctuations in future foreign currency
denominated receipts, the company entered into a number of currency
hedging transactions. As of September 30, 1994, the company had entered
into foreign currency forward exchange contracts to receive $12.5
million in U.S. dollars in exchange for 17.0 million Canadian dollars.
Contracts matured on dates through March 31, 1995. A $.2 million loss
was recorded based on quoted market prices for foreign exchange
contracts at September 30, 1994. No similar instruments were
outstanding at September 30, 1995.
The company purchases currency options to hedge particular
anticipated but not yet committed sales expected to be denominated in
such currencies. The company amortizes the cost of the options over the
term of the instruments. At September 30, 1995, the company had Belgium
franc put options for $34 million with a market value of $1.0 million
and a French franc put option for $10 million with a market value of
$.2 million, both of which settle October 2, 1996. This potential
income had not yet been reflected in net earnings at September 30, 1995
as it represents hedging of fiscal 1996 activities. The fair values were
obtained from major financial institutions based upon the market values
as of September 30, 1995.
The company uses commodity options to hedge anticipated purchases
of aluminum. Under commodity options, the company pays a premium which
results in a cash payment to the company in the amount by which the
commodity price exceeds the strike price of the option at maturity,
unless the company sells the option prior to its expiration. The
company amortizes the cost of the options over the term of the
instruments. At September 30, 1995 the company had options covering
approximately 50% of annual forecasted aluminum purchases. The fair
market value of these options was $2.8 million at September 30, 1995.
The fair market value was obtained from a major financial institution
based upon the market value of those options at September 30, 1995.
Note 10 Preferred Stock and Stockholder Rights Plan
- ---------------------------------------------------
The company has 3,000,000 shares of $10 par value preferred stock
authorized. None has been issued. The board of directors has the
authority to establish certain rights, preferences and limitations of
the preferred stock prior to its issuance.
On June 12, 1986, the company adopted a stockholder rights plan.
All shareholders of record today have one right per share of the
company's common stock held. The rights will expire on June 23, 1996
unless extended.
-90-
<PAGE> 91
Each right will entitle its holder to buy 1/100 of a newly-issued
share of company's preferred stock at an exercise price of $95. The
rights will be exercisable only if a person or group acquires
beneficial ownership of 15% or more of the company's common stock or
commences a tender or exchange offer that would, if successful, result
in such person or group owning beneficially 15% or more of the
company's common stock.
If a 15%-or-more shareholder ("15% holder") engages in certain
transactions in which the company survives, each right not owned by the
15% holder or related parties will entitle its holder to purchase, at
the right's then current exercise price, shares of the company's common
stock having a value of twice the right's then current exercise price.
In addition, if after any person has become a 15% holder, the company
is involved in certain transactions with another person, after which
the company ceases to exist, each right will entitle its holder to
purchase, at the right's then current exercise price, shares of common
stock of such other person having a value of twice the right's then
current exercise price.
The company will generally be entitled to redeem the rights at
$.05 per right at any time until 20 days (subject to extension)
following a public announcement that a 15% position has been acquired.
Under the stockholder rights plan, there have been reserved for
issuance 900,000 shares of the company's preferred stock.
Note 11 Common Stock
- --------------------
Under the provisions of the OMC Executive Equity Incentive Plan
which was adopted in 1989, 1,200,000 shares of common stock were
reserved for non-incentive and incentive stock options and stock
appreciation rights granted or to be granted to executive employees at
not less than 85% of the fair market value at the date of grant.
Non-incentive stock options and stock appreciation rights are
exercisable not later than fifteen years after the date of grant. The
plan also reserved 250,000 shares of common stock for issuance as
restricted stock. On November 7, 1990, under the provisions of the
company's 1982 and 1987 Stock Option and Performance Unit Plans and the
OMC Executive Equity Incentive Plan, the stock option committee of the
board of directors determined to cancel, with respect to each optionee
then employed by the company and subject to obtaining such optionees'
consent, all currently outstanding stock options held by such optionees
and grant new options at an exercise price of $10. There were 1,150,146
outstanding stock options held by then current employees. Under
agreements executed by such optionees, 1,098,611 options were
cancelled, and 325,100 options were issued to begin vesting on May 7,
1992 and 471,200 options were issued to begin vesting on November 7,
1991. All new options have a ten-year-and-one-day term which began on
November 7, 1990.
Under the provisions of the OMC Executive Equity Incentive Plan,
126,100 shares of restricted stock were granted on September 8, 1993.
The market value of these shares of $2.3 million is recorded as part of
capital in excess of par value of common stock and amortized over the
five-year period during which the transfer of stock is restricted
except for forfeited shares.
Under the provisions of the OMC Executive Equity Incentive Plan,
the board of directors extended from two years to five years the period
in which stock options can be exercisable after an optionees'
retirement. This change resulted in $.2 million, $.2 million and $1.7
million of expense in 1995, 1994 and 1993, respectively.
In 1992, the company issued $74.75 million principal amount of 7%
subordinated convertible debentures. The debentures are convertible
into 3,359,550 shares of common stock which have been reserved.
-91-
<PAGE> 92
Under the provisions of the 1994 OMC Long-Term Incentive Plan,
1,000,000 shares of common stock were reserved for non-incentive stock
options and stock appreciation rights granted or to be granted to
executive employees at not less than 100% of the fair market value at
the date of grant and for restricted stock, performance shares or units
and limited stock appreciation rights. Non-incentive stock options and
stock appreciation rights are exercisable not later than 15 years after
the date of grant.
A summary of option data for all plans follows:
Number of Option Exercise
Option Shares Price Per Share
------------- -----------------
Options outstanding and unexercised
at September 30, 1992 863,603 $ 10.00- $ 31.25
Options activity for the fiscal
year ended September 30, 1993
Options granted 273,100 $ 19.375
Options exercised (153,860) $ 10.00- $ 21.375
Options cancelled (58,543) $ 10.00- $ 31.25
----------- -----------------
Options outstanding and unexercised
at September 30, 1993 924,300 $ 10.00- $ 23.00
Options activity for the fiscal
year ended September 30, 1994
Options granted 457,000 $ 18.50- $ 24.625
Options exercised (181,855) $ 10.00- $ 21.375
Options cancelled (87,225) $ 10.00- $ 21.375
----------- -----------------
Options outstanding and unexercised
at September 30, 1994 1,112,220 $ 10.00- $ 24.625
Options activity for the fiscal
year ended September 30, 1995
Options granted 153,200 $ 20.875- $ 29.225
Options exercised (41,715) $ 10.00- $ 21.375
Options cancelled (40,460) $ 18.50- $ 24.625
----------- ------------------
Options outstanding and unexercised
at September 30, 1995 1,183,245 $ 10.00- $ 29.225
=========== =================
-92-
<PAGE> 93
Note 12 Retirement Benefit and Incentive Compensation Programs
- --------------------------------------------------------------
The company and its subsidiaries have retirement benefit plans
covering a majority of its employees. Worldwide pension calculations
resulted in income of $.5 million, $.3 million and $1.4 million in
1995, 1994 and 1993, respectively.
The following schedule of pension income (expense) presents
amounts relating to the company's material pension plans (United
States and Canada):
(Dollars in millions)
Years ended September 30 1995 1994 1993
---------------------------------- ------- ------- -------
Benefits earned during the period $ (5.4) $ (6.2) $ (5.8)
Interest cost on projected benefit
obligation (24.2) (23.3) (22.7)
Actual return on assets 66.0 (2.6) 43.2
Net amortization and deferral (34.3) 34.0 (12.1)
------- ------- -------
Net periodic pension income $ 2.1 $ 1.9 $ 2.6
======= ======= =======
Actuarial assumptions used for the company's principal defined
benefit plans:
September 30 1995 1994 1993
--------------------------------------- ------ ------ ------
Discount rates 7-3/4% 8-1/4% 7-1/4%
Rate of increase in compensation levels
(salaried employee plans) 5% 5% 5%
Expected long-term rate of return on
assets 9-1/2% 9-1/2% 9-1/2%
-93-
<PAGE> 94
The funded status and pension liability were as follows:
(Dollars in millions)
Plans Whose Plans Whose
Assets Exceed Accumulated
Accumulated Benefits Benefits
Exceed Assets
September 30 1995 1994 1995 1994
-------------------------- -------- -------- ------- -------
Actuarial present value
of benefit obligation
Vested $ 269.7 $ 245.2 $ 11.6 $ 9.5
Nonvested 28.0 26.1 1.1 .8
-------- -------- ------- -------
Accumulated benefit
obligation 297.7 271.3 12.7 10.3
Effect of projected future
compensation increases 19.7 20.5 1.0 .8
-------- -------- ------- -------
Projected benefit
obligation 317.4 291.8 13.7 11.1
Plan assets at fair market
value 360.9 317.2 -- --
-------- -------- ------- ------
Plan assets (in excess of) less
than projected benefit
obligation (43.5) (25.4) 13.7 11.1
Unrecognized net loss (13.2) (29.7) (2.7) (1.4)
Prior service cost not yet
recognized in net
periodic pension expense (9.5) (10.7) (.7) (.4)
Remaining unrecognized net
asset (obligation)
arising from the initial
application of SFAS No. 87 20.9 24.6 (.7) (.9)
Adjustment required to
recognize minimum liability -- -- 3.1 1.9
-------- -------- ------- -------
Pension liability (asset)
recognized in the
Statements of Consolidated
Financial Position $ (45.3) $ (41.2) $ 12.7 $ 10.3
======== ======== ======= =======
One of the company's major defined benefit plans provides that
upon a change in control of the company and upon certain other actions
by the acquirer, all participants of this plan would become vested in
any excess of plan assets over total accumulated benefit obligations.
-94-
<PAGE> 95
Effective October 1, 1992, the company adopted Statement of
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions" (SFAS No. 106). The statement requires
the cost of such benefits to be recognized in the financial statements
during the period employees provide service to the company, rather than
the company's past practice of recognizing these costs as claims were
incurred. The cumulative effect of this change in accounting principle
of $107.5 million, ($5.49) per share, was recorded as of October 1,
1992. See Note 14 of Notes to the Consolidated Financial Statements
concerning deferred income taxes on this accounting change. Although
the adoption of SFAS No. 106 unfavorably impacts net earnings,
adoption does not impact the company's cash flow since the company
plans to continue paying these costs when incurred. In addition to the
cumulative effect, adopting the new standard increased the company's
postretirement healthcare and life insurance costs by approximately
$3.6 million (before tax) for fiscal year 1993.
The company provides certain healthcare and life insurance
benefits for eligible retired employees, primarily employees of the
Milwaukee, Wisconsin; Waukegan, Illinois; and former Galesburg,
Illinois plants as well as the Corporate office. Employees at these
locations become eligible if they have fulfilled specific age and
service requirements. These benefits are subject to deductible,
co-payment provisions and other limitations, which are amended
periodically. The company reserves the right to make additional changes
or terminate these benefits in the future.
Effective January 1, 1994, the company introduced a cap tied to the
Consumer Price Index for the employer-paid portion of medical costs begin-
ning in 1998 for non-union active employees. This plan change was reflected
in the accumulated postretirement benefit obligation in fiscal 1993.
The net cost of providing postretirement healthcare and life
insurance benefits included the following components:
(Dollars in millions)
Years ended September 30 1995 1994
-------------------------------- ------- -------
Service cost-benefits attributed
to service during the period $ 1.0 $ 1.3
Interest cost on accumulated
postretirement benefit
obligation 6.9 7.0
Net amortization and deferral (1.8) (1.8)
------- -------
Net periodic postretirement
benefit cost $ 6.1 $ 6.5
======= =======
The amounts recognized in the company's statements of consolidated
financial position included:
(Dollars in millions)
September 30 1995 1994
--------------------------- ------- -------
Accumulated postretirement
benefit obligation
Retirees $ 64.5 $ 72.3
Fully eligible active plan
participants 8.2 7.6
Other active plan
participants 20.3 23.3
Prior service credit 12.5 14.2
Unrecognized net gain (loss) 4.3 (6.9)
------- -------
Net obligation $109.8 $110.5
======= =======
-95-
<PAGE> 96
The accumulated postretirement benefit obligation was determined
using a 7.75% and 8.25% weighted average discount rate at September 30,
1995 and 1994, respectively. The healthcare cost trend rate was assumed
to be 10% in fiscal year 1995, gradually declining to 7% over three
years and remaining constant thereafter. In fiscal year 1994, the
healthcare cost trend rate was assumed to be 11%, gradually declining
to 7% over four years and remaining constant thereafter. A one percentage
point increase of this annual trend rate would increase the accumulated
post retirement benefit obligation at October 1, 1994 by approximately
$7.3 million and the net periodic cost by $.7 million for the year.
Under the OMC Executive Bonus Plan, the compensation committee of
the board of directors, which administers the plan and whose members
are not participants in the plan, has authority to determine the
extent to which the company meets, for any fiscal year, the performance
targets for that fiscal year which are set by the committee no later
than the third month of the fiscal year. In fiscal years 1995 and 1994,
$5.1 million and $3.9 million, respectively, was charged to earnings
under this plan.
In 1993, no incentive compensation was paid or provided under this
plan.
The OMC Executive Equity Incentive Plan authorizes the awarding of
performance units or performance shares, each with a value equal to the
value of a share of common stock at the time of award. Performance
units or performance shares will be earned and paid in cash or shares,
or both, based upon the judgment of the compensation committee of the
company's board of directors whose members are not participants in the
plan, as to the achievement of various goals over multi-year award
cycles. In 1995, 1994 and 1993, respectively, $1.1 million, $1.4
million and $.6 million were charged to earnings for the estimated cost
of performance units earned under the OMC Executive Equity Incentive
Plan.
Note 13 Other Expense (Income), Net
- -----------------------------------
Other non-operating expense (income) in the Statements of
Consolidated Earnings consisted of the following items:
(Dollars in millions)
Years ended September 30 1995 1994 1993
----------------------------- ------- ------- -------
Expense (Income)--
Interest earned $ (7.0) $ (3.6) $ (3.6)
Foreign exchange losses (gains) (.6) 2.6 3.6
(Gain) loss on disposition
of plant and equipment (1.8) (.6) 1.0
Transfer of Hong Kong
land rights -- (10.5) --
Joint venture earnings (4.9) (4.1) (.4)
Miscellaneous, net (2.4) (4.8) (.9)
------- ------- -------
$(16.7) $(21.0) $ (.3)
======= ======= =======
-96-
<PAGE> 97
Note 14 Income Taxes
- --------------------
The company adopted Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes" (SFAS No. 109), beginning with
its fiscal year ended September 30, 1993. The adoption of SFAS No. 109
changed the company's method of accounting for income taxes to a
liability method from the previous deferral method. The liability
method requires that deferred assets and liabilities be recognized for
the expected future tax effects of the temporary differences between
the tax and book bases of the assets and liabilities. The cumulative
effect of this change in accounting principle decreased net income by
$10 million ($.51 per share) in fiscal year 1993.
The provision for income taxes consisted of the following
components:
(Dollars in millions)
Years ended September 30 1995 1994 1993
------------------------------------ ------- ------- ------
Provision for current income taxes -
Federal $19.8 $ 12.5 $ 1.1
State 3.7 2.4 1.2
Non-U.S. 10.6 5.7 2.8
------- ------- ------
Total current 34.1 20.6 5.1
Reversal of valuation allowance (24.7) (15.7) --
Provision for deferred income taxes -- -- --
------- ------- ------
Total provision $ 9.4 $ 4.9 $ 5.1
======= ======= ======
The significant short-term and long-term deferred tax assets and liabilities
were as follows:
(Dollars in millions)
September 30 1995 1994
----------------------------------- -------- --------
Deferred tax assets
Litigation and claims $ 14.8 $ 14.6
Product warranty 10.3 9.0
Marketing programs 15.2 7.7
Postretirement medical benefits 43.5 43.1
Restructuring 8.2 12.9
Loss carryforwards 22.0 39.7
Other 46.0 38.2
Valuation allowance (92.8) (113.9)
-------- --------
Total deferred tax assets $ 67.2 $ 51.3
======== ========
Deferred tax liabilities
Depreciation and amortization $ ( 7.5) $ (14.0)
Employee benefits (12.3) (10.5)
Other (12.0) (13.5)
-------- --------
Total deferred tax liabilities (31.8) (38.0)
-------- --------
Net deferred tax assets $ 35.4 $ 13.3
======== ========
-97-
<PAGE> 98
The company believes the recorded net deferred assets of $35.4
million, of which $11.6 million is reflected as a net long-term asset,
will be realized through the reduction of future taxable income. The
change in the valuation allowance from 1994 to 1995 is primarily due to
deductible deferred tax assets which reduced income tax expense for the
current year. As required by SFAS No. 109, a valuation allowance of
$92.8 million has been recorded at September 30, 1995 to reduce the
deferred tax assets to their current net realizable value. Of this
valuation allowance, $22.0 million relates to deferred tax assets
established for foreign and state loss carryforwards.
As of September 30, 1995, certain non-U.S. subsidiaries of the
company had net operating loss carryforwards for income tax purposes of
$51.0 million. Of this amount, $12.2 million will expire by 2000, with
the remaining balance being unlimited. In addition, the company has
$73.7 million of state net operating loss carryforwards expiring
between 1996 and 2010. No benefit for these carryforwards has been
recognized in the Consolidated Financial Statements.
Under SFAS No. 109, three years of consecutive profitability in a
taxing jurisdiction would generally enable the company to realize the
deferred tax assets that have not otherwise been recognized. In the
U.S., the 1995 and 1994 fiscal years were profitable. When the company
is better able to determine that this trend of profitability will
likely continue into fiscal 1997, the majority of the remaining U.S.
deferred tax assets for which no tax benefit has been recognized may
be realized, through a reversal of the valuation allowance. The
company anticipates that this will occur late in fiscal year 1996 or
early in fiscal year 1997.
The following summarizes the major differences between the actual
provision for income taxes on earnings (loss) and the provision
(credit) based on the statutory United States Federal income tax rate:
% to pretax earnings
Years ended September 30 1995 1994 1993
---------------------------------- ------- ------- -------
At statutory rate 35.0% 35.0% (34.7)%
State income taxes, net of
Federal Tax deduction 4.0 3.0 .5
Tax effect of non-U.S.
subsidiary earnings (loss) taxed
at other than the U.S. rate 9.6 (6.2) .5
Tax benefit not provided on
foreign operating losses 1.2 -- 1.7
Tax effect of goodwill
amortization and write-offs 8.7 5.4 7.1
U.S. tax benefit not realized -- -- 27.7
Reversal of valuation allowance (44.8) (29.2) --
Federal benefit of prior years
state income taxes paid -- .6 (.1)
Other 1.7 .6 .5
------- ------- -------
Actual provision 15.4% 9.2% N.M.
======= ======= =======
-98-
<PAGE> 99
Domestic and non-U.S. earnings before provision (credit) for income
taxes consisted of the following:
(Dollars in millions)
Years ended September 30 1995 1994 1993
---------------------------------- ------- ------- ---------
Earnings (Loss) before provision
for income taxes
and accounting changes
United States $ 46.8 $ 33.2 $ (119.1)
Non-U.S. 14.0 20.2 (40.8)
------- ------- ---------
Total $ 60.8 $ 53.4 $ (159.9)
======= ======= =========
The above non-U.S. earnings of $14.0 million is a net amount that
includes both earnings and losses. Due to the integrated nature of the
company's operations, any attempt to interpret the above pretax
earnings (loss) as resulting from stand-alone operations could be
misleading.
No U.S. deferred taxes have been provided on $47.3 million of
undistributed non-U.S. subsidiary earnings. The company has no plans to
repatriate these earnings and, as such, they are considered to be
permanently invested. While no detailed calculations have been made of
the potential U.S. income tax liability should such repatriation occur,
the company believes that it would not be material in relation to the
company's Consolidated Financial Position or Consolidated Earnings.
The Internal Revenue Service is currently auditing the company's
1989 through 1991 fiscal years. The audit will be concluded in the 1996
fiscal year. The company believes that it has adequately reserved for
all contingencies related to these years.
-99-
<PAGE> 100
Note 15 Business Segments
- -------------------------
The company, which operates in a single business segment, is a
manufacturer of boats, marine engines and related products. The company
markets its products primarily through dealers in the United States,
Europe and Canada and through distributors in the rest of the world.
Information by geographic area follows:
(Dollars in millions)
Years ended September 30 1995 1994 1993
-------------------------- ---------- ---------- ----------
Net sales
United States $ 917.4 $ 805.5 $ 753.4
Europe 106.5 86.7 108.2
Other 205.3 186.2 173.0
---------- ---------- ----------
Total $ 1,229.2 $ 1,078.4 $ 1,034.6
========== ========== ==========
Sales between geographic
areas from
United States $ 178.1 $ 145.5 $ 133.4
Europe 7.9 18.2 17.3
Other 58.0 47.6 40.5
---------- ---------- ----------
Total $ 244.0 $ 211.3 $ 191.2
========== ========== ==========
Total revenue
United States $ 1,095.5 $ 951.0 $ 886.8
Europe 114.4 104.9 125.5
Other 263.3 233.8 213.5
Eliminations (244.0) (211.3) (191.2)
---------- ---------- ----------
Total $ 1,229.2 $ 1,078.4 $ 1,034.6
========== ========== ==========
Earnings (Loss)
from operations
United States $ 66.6 $ 56.0 $ (92.2)
Europe (2.8) (6.3) (43.6)
Other 30.1 22.9 11.8
Corporate expenses (26.7) (26.6) (28.9)
---------- ---------- ----------
Total $ 67.2 $ 46.0 $ (152.9)
========== ========== ==========
Total assets at September 30
United States $ 615.7 $ 547.8 $ 537.6
Europe 99.4 76.4 68.5
Other 145.6 135.6 105.4
Corporate assets 46.3 57.3 80.3
---------- ---------- ----------
Total $ 907.0 $ 817.1 $ 791.8
========== ========== ==========
Sales between geographic areas reflect the basis used by the company to
price intercompany sales. Corporate assets consist of cash, securities
and property. Due to the integrated nature of the company's operations,
any attempt to interpret the above geographic area data as resulting
from unique or stand-alone types of operations could be misleading.
-100-
<PAGE> 101
Note 16 Quarterly Information (Unaudited)
- -----------------------------------------
A summary of pertinent quarterly data for the 1995 and 1994 fiscal
years follows:
(Dollars in millions except amounts per share)
Quarter ended Dec. 31 March 31 June 30 Sept.30
------------------------ -------- -------- -------- --------
Fiscal 1995
Net sales $ 242.6 $ 318.8 $ 329.6 $ 338.2
Gross earnings 51.2 85.8 83.1 77.3
Net earnings (loss) (3.1) 18.0 28.0 8.5
======== ======== ======== ========
Net earnings (loss) per share
Primary $ (.16) $ .90 $ 1.39 $ .42
======== ======== ======== ========
Fully diluted $ (.16) $ .81 $ 1.22 $ .40
======== ======== ======== ========
Quarter ended Dec. 31 March 31 June 30 Sept.30
------------------------ -------- -------- -------- --------
Fiscal 1994-
Net sales $ 190.8 $ 263.5 $ 318.8 $ 305.3
Gross earnings 36.4 64.6 85.0 66.0
Net earnings (loss) (9.3) 19.1 28.0 10.7
======== ======== ======== ========
Net earnings (loss) per share:
Primary $ (.47) $ .95 $ 1.40 $ .53
======== ======== ======== ========
Fully diluted $ (.47) $ .85 $ 1.23 $ .49
======== ======== ======== ========
Earnings per share amounts for each quarter are required to be
computed independently and, therefore, may not equal the amount
computed for the total year.
Due to the seasonal nature of the company's business, it is not
appropriate to compare the results of operations of different fiscal
quarters.
The price range at which the company's common stock traded on the
New York Stock Exchange and the dividends paid per share during the
last eight fiscal quarters were as follows:
Market Price Dividend
Quarter ended High Low Paid
------------------ ----- ------- -------
September 30, 1995 $ 22.63 $ 18.00 $ .10
June 30, 1995 22.88 18.88 .10
March 31, 1995 22.00 19.50 .10
December 31, 1994 24.88 17.50 .10
September 30, 1994 25.25 19.00 .10
June 30, 1994 23.38 17.50 .10
March 31, 1994 25.88 19.00 .10
December 31, 1993 22.75 17.38 .10
-101-
<PAGE> 102
Note 17 Commitments and Contingent Liabilities
- ----------------------------------------------
As a normal business practice, certain subsidiaries have made
arrangements by which qualified retail dealers may obtain inventory
financing. Under these arrangements, the company will repurchase its
products in the event of repossession upon a retail dealer's default.
These arrangements contain provisions which limit the company's annual
repurchase obligation. The maximum potential repurchase commitment on
September 30, 1995, was approximately $60 million. The company resells
any repurchased products. The company accrues for losses that are
anticipated in connection with expected repurchases. Losses incurred
under this program have not been material.
Minimum commitments under operating leases having initial or
remaining terms greater than one year are $6.2 million, $4.9 million,
$3.6 million, $2.5 million, $.9 million and $.3 million for the years
ending September 30, 1996, 1997, 1998, 1999, 2000 and after 2000,
respectively.
The company is engaged in a substantial number of legal
proceedings arising in the ordinary course of business. While the
result of these proceedings cannot be predicted with any certainty,
based upon the information presently available, management is of the
opinion that the final outcome of all such proceedings should not have
a material effect upon the company's Consolidated Financial Position or
the Consolidated Earnings of the company.
The environmental proceedings disclosed previously are not being
individually disclosed because the company believes that monetary
sanctions will not result therefrom and the proceedings are not
material to the company's Consolidated Financial Position or the
Consolidated Earnings.
Under the requirements of Superfund and certain other laws, the
company is potentially liable for the cost of clean-up at various
contaminated sites identified by the United States Environmental
Protection Agency ("USEPA") and other agencies. The company has been
notified that it is named a potentially responsible party ("PRP") for
study and clean-up costs at various sites which the company does not
believe to be material. In some cases there are several named PRPs and
in others there are hundreds. The company generally participates in the
investigation or clean-up of these sites through cost sharing
agreements with terms that vary from site to site. Costs are typically
allocated based upon the volume and nature of the materials sent to the
site or the amount of time the site was owned or operated. However,
under Superfund, and certain other laws, as a PRP the company can be
held jointly and severally liable for all environmental costs
associated with a site.
The company has substantial experience in the remediation of
contaminated sites. Once the company becomes aware of its potential
liability at a particular site, it uses this experience to determine if
it is probable that a liability has been incurred and whether or not
the amount of the loss can be reasonably estimated. Once the company
has sufficient information necessary to support a reasonable estimate
or range of loss for a particular site, an amount is added to the
company's aggregate enviromental contingent liability accrual. The
amount added to the accrual for the particular site is determined by
analyzing the site as a whole and reviewing the probable outcome for
the remediation of the site. This is not necessarily the minimum or
maximum liability at the site but, based on the company's experience,
most accurately reflects the company's liability based on the
information currently available. The company takes into account the
number of other participants involved in the site, their
experience in the remediation of sites as well as the company's
knowledge of their ability to pay.
-102-
<PAGE> 103
As a general rule, the company accrues remediation costs for
continuing operations on an undiscounted basis and does not accrue for
normal operating and maintenance costs for site monitoring and
compliance requirements. However, the company does accrue for
environmental close down costs associated with discontinued operations
or facilities, including the environmental costs of operation and
maintenance until disposition. At September 30, 1995, the company has
accrued approximately $12 million for costs related to remediation at
continuing and closed down operations. The possible recovery of
insurance proceeds has not been considered in estimating contingent
environmental liabilities.
Each site, whether or not remediation studies have commenced, is
reviewed on a quarterly basis and the aggregate environmental
contingent liability accrual is adjusted accordingly. Because the
sites are reviewed and the accrual adjusted quarterly, the company is
confident that the accrual accurately reflects the company's liability
based on the information available at the time.
While the results of the proceedings discussed above cannot be
predicted with any certainty, based upon the information presently
available, management is of the opinion that the final outcome of such
proceedings, after giving consideration to the amounts accrued, should
not have a material effect on the company's Consolidated Financial
Position or the Consolidated Earnings of the company.
-103-
<PAGE> 104
Management's Responsibility for Financial Statements
- ----------------------------------------------------
Management has prepared and is responsible for the company's
Consolidated Financial Statements and related Notes. They have been
prepared in accordance with generally accepted accounting principles
applied on a consistent basis. All financial information in this annual
report is consistent with the Consolidated Financial Statements.
The company is responsible for the integrity and objectivity of
the financial statements and, accordingly, these statements include
some amounts based upon judgments by management. The company maintains
internal accounting control systems and related policies and procedures
designed to provide reasonable assurance that assets are safeguarded,
that transactions are executed in accordance with management's
authorization and properly recorded, and that accounting records may be
relied upon for the preparation of Consolidated Financial Statements and
other financial information.
The Consolidated Financial Statements for the years ended
September 30, 1995, 1994 and 1993 have been audited by Arthur Andersen
LLP and their report is included herein.
The audit committee of the board of directors monitors the
financial and accounting operations of the company, including the review
and discussion of periodic financial statements, and the basis of
engagement and report of independent public accountants. The audit
committee is composed of directors who are not officers or employees of
the company. It meets periodically with the internal auditors and
management to assure that each is carrying out its responsibilities.
The independent public accountants have full and free access to the
audit committee, and meet regularly with them to discuss auditing
and financial reporting matters.
HARRY W. BOWMAN JAMES R. MAURICE
--------------- ----------------
Harry W. Bowman James R. Maurice
Chairman, President and Vice President and
Chief Executive Officer Controller
-104-
<PAGE> 105
Report of Independent Public Accountants
- ----------------------------------------
To the Shareholders of Outboard Marine Corporation:
We have audited the accompanying Statements of Consolidated
Financial Position of Outboard Marine Corporation (a Delaware
corporation) and subsidiaries as of September 30, 1995 and 1994, and
the related Statements of Consolidated Earnings, Cash Flows and Changes
in Consolidated Shareholders' Investment for each of the three years in
the period ended September 30, 1995. These financial statements are the
responsibility of the company's management. Our responsibility is to
express an opinion on these financial statements 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 financial statements referred to above present
fairly, in all material respects, the financial position of Outboard
Marine Corporation and subsidiaries as of September 30, 1995 and 1994,
and the results of their operations and their cash flows for each of
the three years in the period ended September 30, 1995, in conformity
with generally accepted accounting principles.
As discussed in Notes 12 and 14 to Consolidated Financial
Statements, effective October 1, 1992, the company changed its methods
of accounting for postretirement benefits other than pensions and
income taxes.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin Arthur Andersen LLP
October 27, 1995
-105-
<PAGE> 106
Corporate Directors and Officers
Directors Officers
- --------- --------
Harry W. Bowman Harry W. Bowman
Chairman of the Board, Chairman of the Board,
President and Chief Executive Officer President and Chief Executive Officer
Frank Borman D. Jeffrey Baddeley
Chairman of the Board Vice President and General Counsel
and Chief Executive Officer
Patlex Corporation L. Earl Bentz
Vice President; and President,
William C. France OMC Fishing and Aluminum Boat Groups
Chairman of the Board,
President and Chief Executive Officer John D. Flaig
International Speedway Company Vice President, Worldwide Research
and Engineering, MPPG
Urban T. Kuechle
Consultant David R. Lumley
Senior Vice President,
Richard T. Lindgren Worldwide Marketing
President and Sales, MPPG
The Lorr Corporation
Howard Malovany
J. Willard Marriott, Jr. Secretary and Senior Counsel
Chairman of the Board,
President and Chief Executive Officer James R. Maurice
Marriott International, Inc. Vice President and Controller
Richard J. Stegemeier Richard H. Medland
Chairman Emeritus of the Board Vice President, Human Resources
Unocal Corporation
Christopher R. Sachs
Charles D. Strang Treasurer
Consultant; former Chairman,
President and Chief Executive Officer Laurin M. Baker
Outboard Marine Corporation Vice President, Government
and Public Affairs
Richard F. Teerlink
President and Chief Executive Officer R. Warren Comstock
Harley-Davidson, Inc. Assistant Secretary
Carlisle R. Davis
Vice President, Quality Assurance
Robert J. Moerchen
Assistant Treasurer
-106-
<PAGE> 107
Shareholder Information
Common Stock Listing
- --------------------
New York Stock Exchange
Chicago Stock Exchange
Ticker Symbol: OM
Newspaper Listing Symbol: OutbdM
Transfer Agent, Registrar and Dividend Disbursing Agent
- -------------------------------------------------------
First Chicago Trust Company of New York
P.O. Box 2500
Jersey City, NJ 07303-2500
800.446.2617
Annual Meeting
- --------------
Notice of the Annual Meeting of Shareholders, as well as the proxy
statement and proxy card, are mailed to shareholders each December.
The annual meeting will be held at 9:00 a.m. January 18, 1996, at The
First Chicago Conference Center, One First National Plaza, Chicago, IL
60670-0123
Incorporation
- -------------
Outboard Marine Corporation is incorporated under the laws of the state
of Delaware.
Dividend Reinvestment Plan
- --------------------------
OMC shareholders may participate in an automatic dividend reinvestment
and cash stock purchase plan. For information contact:
Outboard Marine Corporation
100 Sea-Horse Drive
Waukegan, IL 60085
708.689.5438
Trademarks
- ----------
Trademarks owned by Outboard Marine Corporation that appear in this
report are indicated by the use of italics.
*Chris-Craft is a registered trademark of Chris Craft Industries, Inc.,
and is licensed to OMC.
*Grumman is a registered trademark of Grumman Corporation and is
licensed to OMC.
Investor Relations
- ------------------
Outboard Marine Corporation
100 Sea-Horse Drive
Waukegan, IL 60085
708.689.5246 telephone
708.689.6082 facsimile
-107-
<PAGE> 108
Independent Public Accountants
- ------------------------------
Arthur Andersen LLP
777 East Wisconsin Avenue
Milwaukee, WI 53202
10-K Report
- -----------
A copy (without exhibits) of Form 10-K filed with the Securities and
Exchange Commission for the year ended September 30, 1995, is available
without charge from Investor Relations, Outboard Marine Corporation,
100 Sea-Horse Drive, Waukegan, IL 60085
-108-
<PAGE> 109
OMC Operating Groups and Product Lines
--------------------------------------
Outboard Marine Corporation (OM-NYSE) is a major global manufacturer
and marketer of marine engines, boats and accessories, primarily
for recreational use. OMC is the world's largest manufacturer of
outboards, with our Johnson and Evinrude Brands. We are the second
largest boat builder in the United States and a leading boat
manufacturer, worldwide. Some of our boat brands, like Chris-Craft
boats, are among the best known brands in the world. We also market
a full line of marine parts and accessories. Our products are sold
through the marine industry's most comprehensive network of dealers and
distributors. In 1995, 75 percent of our sales came from the United
States, the world's largest market for recreational marine products.
The remainder came from markets around the globe.
OMC Marine Power Products Group
-------------------------------
Johnson Outboards, Evinrude Outboards, OMC TurboJet Drive Systems,
Johnson/Evinrude Parts and Accessories, Stacer Boats, Haines Hunter
Boats, Ryds Boats.
The Marine Power Products Group manufactures one of the industry's
widest ranges of outboards, from 2 to 250 horsepower, retailing from
$800 to $14,600. It also markets other innovative marine drive systems,
like the OMC TurboJet for the popular mini jet boat market, and a full
range of accessories, from propellers and water skis to engine care
products. The Marine Power Products Group markets products
internationally through the industry's largest distribution network.
The group manufactures outboards or outboard components in the United
States, Mexico, Hong Kong, China and Brazil; and boats in Australia,
Canada, France and Sweden.
OMC Fishing Boat Group
----------------------
Stratos Boats, Hydra-Sports Boats, Javelin Boats, Quest Boats.
The OMC Fishing Boat Group is a leading marketer of fresh and saltwater
fiberglass fishing boats for a wide range of enthusiasts, from bass to
marlin fishermen. Freshwater models, primarily bass boats, range from
15 to 20 feet in length and retail from $8,000 to $26,000. Saltwater
models range from 16 to 33 feet and retail from $9,000 to $115,000.
Most boats are equipped with Johnson or Evinrude Outboards and sold in
the United States.
OMC Aluminum Boat Group
-----------------------
Princecraft Boats, Lowe Boats, Sea Nymph Boats, Grumman Boats and
Canoes, Suncrusier Pontoon and Deck Boats, Roughneck All-Welded Boats,
DuraNautic Boats.
The OMC Aluminum Boat Group is the industry's largest maker of
aluminum boats. Products, sold primarily in the U.S., retail from $400
to $25,000 and include canoes, utilities, jon boats, deep-vee models
for larger waters, jet boats for shallow waters and pontoon, deck and
houseboats for cruising and entertaining. Most larger boats are
equipped with Johnson or Evinrude Outboards.
-109-
<PAGE> 110
OMC Recreational Boat Group
---------------------------
Chris-Craft Boats, Four Winns Boats, Seaswirl Boats, Sunbird Boats.
The OMC Recreational Boat Group offers a range of fiberglass mini jet
boats, runabouts and cruisers, plus a limited line of fishing boats,
which allows it to compete in every major segment of the recreational
marine marketplace. Boats range from 14 to 38 feet in length and retail
at prices from $8,000 to $200,000. Most boats are equipped with stern
drive marine engines or Johnson or Evinrude outboards. The U.S. is the
group's largest market, but its brands are sold around the world.
Outboard Marine Corporation
100 Sea-Horse Drive
Waukegan, Illinois 60085
708.689.6200
OMC
-110-
<PAGE> 111
EXHIBIT 21
Domestic Subsidiaries
-----------------------
(As of September 30, 1995)
Jurisdiction of
Subsidiary and Address Incorporation Ownership
- ---------------------- -------------- ---------
DNZI, Inc. Florida 100%
(Inactive)
OMC Aluminum Boat Group, Inc. Delaware 100%
(formerly OMCGB, Inc.)
Syracuse Transportation, Inc. Indiana 100%
OMC Dealer Development Inc. Delaware 100%
OMC Development Inc. Delaware 100%
(Inactive)
OMC Distributors, Inc.-Fort Wayne Delaware 100%
4515 Merchant Road
P. O. Box 8328
Fort Wayne, IN 46898
OMC Distributors, Inc.-Minneapolis Delaware 100%
3070 Lunar Lane
P. O. Box 21038
Eagen, MN 55121
OMC Distributors, Inc.-San Francisco California 100%
OMC Europe, Inc. Delaware 100%
OMC & Co. Delaware 100%
OMC Central & Eastern Europe Co. Delaware 100%
100 Sea-Horse Drive
Waukegan, IL 60085
OMC Fishing Boat Group, Inc. Delaware 100%
(formerly Stratos Boats, Inc.)
931 Industrial Road
Old Hickory, TN 37138
OMC Holdings, Inc. Delaware 100%
-111-
<PAGE> 112
Jurisdiction of
Subsidiary and Address Incorporation Ownership
- ---------------------- -------------- ---------
OMC Latin America/Caribbean, Inc. Delaware 100%
403 Sawgrass Corporate Pkwy.
Sunrise, FL 33325
OMC Partners, Inc.
(Inactive) Delaware 100%
OMC Venture, Inc. (formerly Lawn-Boy Delaware 100%
Distributors, Inc.-New England)
(Inactive)
OMC Recreational Boat Group, Inc. Delaware 100%
100 Sea-Horse Drive
Waukegan, IL 60085
Recreational Boat Group Limited 1
Partnership Delaware 62.2%
Outboard Marine Acceptance Corporation Delaware 100%
Outboard Marine Holdings, Inc. Delaware 100%
Recreational Boat Group Leasing 2
Limited Partnership Delaware 51%
Outboard Marine Venture Capital Delaware 100%
Corporation
100 Sea-Horse Drive
Waukegan, IL 60085
Phoenix Marine Inc. Arizona 100%
3
Skipper Bud's of Illinois, Inc. Illinois 75%
- -----------------------------------------------------------------
1 Outboard Marine Corporation owns the other 37.8%
2 100% OMC Subsidiary, 51% Ownership - Spinnaker Investment, Inc.
(Unaffilated third party) 49% Ownership
3 Skipper Bud's of Illinois, Inc. is owned 75% by OMC and 25%
by Skipper Bud's of Wisconsin, Inc., a company unaffiliated
with OMC.
-112-
<PAGE> 113
International Subsidiaries
--------------------------
Jurisdiction of
Subsidiary and Address Incorporation Ownership
- ---------------------- -------------- ---------
Outboard Marine Corporation Hong Kong 100%
Asia Limited
35.47 Tsing Yi Road
Tsing Yi Island, N.T.
Hong Kong
Outboard Marine Corporation Australia 100%
(Australia), PTY, Ltd.
84 Canterbury Road
Bankstown 2200
New South Wales, Australia
OMC Europe, V.O.F. Belgium 100%
Broowerijstraat, 1
9031 Gent
Belgium
OMC Holdings France, S.N.C. France 100%
14, Rue Bois du Pont
Z.A. Les Bethunes
F. 95310 St. Quen D'Aumone
OMC Power Boats S.A.R.L. France France 100%
14, Rue Bois du Pont
Z.A. Les Bethunes
F. 95310 St. Quen D'Aumone
OMC France, S.N.C. France 100%
14, Rue Bois du Pont
Z.A. Les Bethunes
F. 95310 St. Quen D'Aumone
Kelt, S.A France 100%
Outboard Marine International S.A. Switzerland 100%
(Inactive)
OMC (Deutschland) G.M.B.H. Germany 100%
Neckavorlandstrabe 97
Postfach 10 23 40
D. 6800 Mannheim 1
Germany
Outboard Marine Foreign Inter- Hong Kong 100%
national Sales Corporation
(Inactive)
Outboard Marine Nederland B.V. Netherlands 100%
P. O. Box 237
NL. 1380 AE WEESP
Nederlands
-113-
<PAGE> 114
Jurisdiction of
Subsidiary and Address Incorporation Ownership
- ---------------------- -------------- ---------
OMC Norge AS Norway 100%
Bjornstjerne Bjornsonsgt. 92
N. 3000 Drammen
Norway
OMC Outboard Marine (Switzerland) AG Switzerland 100%
SCHWARZACKERSTRASSE 11
CH - 8304 WALLISELLEN
Switzerland
OMC Sverige Aktiebolag Sweden 100%
Krossgatan 26-28
S-16226 Vallingby
Sweden
Outboard Marine Corporation Ontario 100%
of Canada, Ltd.
910 Monoghan Road
Peterborough
Ontario, Canada K97 7B6
Altra Marine Products, Inc. Quebec 100%
65 St. Henri Street
Princeville, Quebec
Canada G0P 1E0
Outboard Marine Foreign Sales U.S. Virgin Islands 100%
Corporation
P. O. Box 12270
18-13 Smith Bay
St. Thomas, U.S. Virgin Islands 00801
Outboard Marine de Mexico, Mexico 100%
S.A. de C.V.
Parque Industrial
Antonio J. Bermudez
Cuidad Juarez,
Chihuahua, Mexico
Outboard Marine Motors Amazonia LTDA Brazil 100%
RUA 44, #1025 Terreo
Conjunto 31 De Mareo
Bairro. JAPIIM
Mauzus, Amazonia, Brazil
Outboard Marine (UK) Ltd. United Kingdom 100%
8 Harrowden Road
Blackmills,
Northhampton
NN4 OPD
United Kingdom
-114-
<PAGE> 115
Jurisdiction of
Subsidiary and Address Incorporation Ownership
- ---------------------- -------------- ---------
OMC Finland Oy Finland 100%
Nahkahousuntie 4
S.F. 00210 Helsinki 21
Finland
Ryds Batindustri Aktiebolag Sweden 100%
Box 60
S-360 10 RYD
Sweden
-115-
<PAGE> 116
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our reports incorporated by reference and
included in this Form 10-K, into the Company's previously filed
Registration Statements on Form S-8 (File Nos. 2-52729, 2-79743,
33-19141, 33-37557, 33-55751, 33-55883, 33-55889, 33-56031 and
33-56033) and Form S-3 (File Nos. 33-12759 and 33-47354).
BY: ARTHUR ANDERSEN LLP
-------------------
Arthur Andersen LLP
Milwaukee, Wisconsin
December 13, 1995
-116-
