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<PERIOD-END> SEP-30-1996
<CASH> 95,500
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</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, 1996
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 jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
100 Sea Horse Drive
Waukegan, Illinois 60085
------------------------------ -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (847) 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. ( )
The aggregate market value of voting stock held by non-affiliates at November
19, 1996 was $333,520,138.
Number of shares of Common Stock of $0.15 par value outstanding at November 19,
1996 were 20,165,574 shares (not including 129,716 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, 1996 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 16, 1997 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" or "OMC"), which was incorporated
in 1936, is engaged principally in the manufacturing and marketing of
marine engines, boats and marine parts and accessories principally for
recreational use. Its major products are as follows:
Evinrude Outboard
Johnson Outboard
Johnson/Evinrude Parts & Accessories
OMC TurboJet Drive Systems
Chris-Craft Boats
Four Winns Boats
Grumman Boats
Haines Hunter Boats
Hydra-Sports Boats
Javelin Boats
Lowe Boats
Princecraft Boats
Quest Boats
Roughneck All-Welded Boats
Sea Nymph 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
1996 1995 1994
---- ---- ----
(In Millions)
Engine Products $ 637.5 $ 690.8 $ 574.3
Boats and Packages 484.0 538.4 504.1
--------- --------- ---------
$ 1,121.5 $ 1,229.2 $ 1,078.4
========= ========= =========
Information by geographic area for the three years ended September 30, 1996
is presented under the heading "Geographic Business Data" which is Note 15
in the 1996 Annual Report to Shareholders, which Note is incorporated
herein by reference and included as part of Exhibit 13.
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.
-4-
<PAGE> 5
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 which compete with OMC, the largest
of which in the United States are Brunswick Corporation, Genmar Industries,
Inc., and Tracker Marine, L.P.
OMC, 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 1996
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 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 and
sales of accounts receivables. See information presented under the heading
"Short-Term Borrowings and Accounts Receivable Sales Agreements" which is
Note 7 in the 1996 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 with FICHT GmbH, to be of considerable value even though no
single patent or license is deemed to be material. In OMC's opinion,
Chris-Craft, Evinrude, FFI, FICHT, Four Winns, Grumman, Haines Hunter,
Hydra-Sports, Javelin, Johnson, Lowe, OMC, OMC Cobra, OMC King Cobra,
Princecraft, Quest, Roughneck, Sea Horse, Sea Nymph, Seaswirl, Springbok,
Stacer, Stratos 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, 1996, 1995, and 1994, OMC spent
$41.8 million, $41.6 million, and $36.5 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.
-5-
<PAGE> 6
The U.S. Environmental Protection Agency (EPA) has adopted regulations
governing emissions from marine engines. As adopted, the rule will phase
in over nine years, beginning in model year 1998 and concluding in model
year 2006. Marine engine manufacturers will be required to reduce
hydrocarbon emissions from outboard engines, on average, by 8.3 percent per
year beginning with the 1998 model year. In 1994, the Company announced
Project LEAP, a $100 million project to develop new low emission
technologies and to convert its entire outboard product line to low
emission products within the next decade. These technologies will add cost
to the product in the short-term. 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 believes this situation will not
have a material impact on future results of operations or the financial
condition of the Company.
In 1996, the Company introduced the new Johnson and Evinrude 150-horsepower
engines with FICHT fuel injection technology. With the FFI system, these
engines meet the EPA emissions standards set for 2006. These engines offer
boaters smooth, quiet operation, 35 percent better fuel economy, reduced
hydrocarbon emissions by up to 80 percent, and virtually no smoke on
start-up, without sacrificing the performance, lighter weight and smaller
size of a two-stroke engine.
The Company estimates that it will spend approximately $6 million and $4
million, respectively, during the 1997 and 1998 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 1996 Annual Report to Shareholders, which Note is incorporated
herein by reference and included as part of Exhibit 13.
As of September 30, 1996, approximately 8,300 people were employed by OMC
and its subsidiaries.
ITEM 2. PROPERTIES
--------------------
Plants located in Waukegan, Illinois; Delavan and 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; 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 or
engage in fabrication. Boats are also manufactured or assembled in Altona,
Victoria, Australia; Yatala, Queensland, Australia; and Princeville,
Quebec, Canada.
The following properties are for sale: Goshen, Indiana; Manawa, Wisconsin;
Peterborough, Ontario, Canada; Swansboro and Rutherfordton, North Carolina.
Also for sale is a distribution warehouse in 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
-6-
<PAGE> 7
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 1996
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 the 1996 fiscal year, there were no matters
submitted to a vote of security holders.
EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------
Number of
Years as
Executive
Name Age Position Officer
-------------------- --- ------------------------------- ------------
Harry W. Bowman 53 Chairman of the Board,
President and Chief Executive
Officer 1
George L. Schueppert 58 Executive Vice President and
Chief Financial Officer Less than 1
Carlisle R. Davis 61 Senior Vice President,
Operations for the Marine Power
Products Group Less than 1
David R. Lumley 42 Senior Vice President, Sales &
Marketing for the Marine Power
Products Group 2
Richard H. Medland 54 Senior Vice President & Chief
Administrative Officer 5
Clark J. Vitulli 50 Senior Vice President and
President, OMC Boat Group Less than 1
D. Jeffrey Baddeley 58 Vice President, Secretary
and General Counsel 6
Miles E. Dean 55 Vice President and Controller Less than 1
John D. Flaig 49 Vice President, Product
Integrity 4
Edgar M. Frandle 56 Vice President, Information
Systems & Technology and
Chief Information Officer Less than 1
Thomas G. Goodman 43 Treasurer Less than 1
Robert J. Moerchen 53 Assistant Treasurer 7
Robert S. Romano 41 Assistant Secretary and
Assistant General Counsel Less than 1
-7-
<PAGE> 8
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.
George L. Schueppert,
--------------------
who was elected Executive Vice President and Chief Financial Officer in 1996,
had previously been employed with CBI Industries, Inc., from 1987 to 1995 as
Executive Vice President-Finance and served as a Director.
Carlisle R. Davis,
-----------------
who was appointed Vice President in 1995 and was elected Senior Vice President,
Operations for the Marine Power Products Group in 1996, had previously been
employed with General Motors from 1958 to 1995, most recently as Program
Manager - Midsize Car Division from 1992 to 1995 and Platform Manager - "A"
Cars and Corvette from 1988 to 1992.
David R. Lumley,
---------------
who was elected Vice President in 1994 and Senior Vice President, Marketing and
Sales for the Marine Power Products Group in 1996, and had previously been
employed as Vice President, Sales and Marketing - Golf Division, for Wilson
Sporting Goods Company from 1990 to 1994.
Richard H. Medland,
------------------
who was elected Vice President in 1991 and Senior Vice President and Chief
Administrative Officer in 1996, had previously been employed as Vice President,
Human Resources of the Tenneco Automotive Division of Tenneco, Inc.
Clark J. Vitulli,
----------------
who was elected Senior Vice President and President, OMC Boat Group in 1996,
had previously been employed with Mark III Industries, Inc. from 1993 to 1995
as President and CEO and prior to that with Mazda Motor of America, Inc. from
1989 to 1993 as Senior Vice President and Chief Operating Officer
D. Jeffrey Baddeley
-------------------
was elected Secretary and Associate General Counsel in 1990, General Counsel in
1993, Vice President and General Counsel in 1994, and Vice President, Secretary
and General Counsel in 1996.
Miles E. Dean,
-------------
who was appointed Vice President & Controller in 1996, had previously been a
Peace Corps privatization consultant to state owned companies and business
valuation instructor in Poland from 1990-1992 and following that was self
employed from 1992-1996. From 1985 to 1990 he was Vice President - Division
Director, Industry Analysis for Continental Bank.
-8-
<PAGE> 9
John D. Flaig,
-------------
who was elected Vice President, Product Integrity in 1996, had been employed by
OMC as Vice President in various engineering, research and manufacturing
capacities for OMC's Marine Power Products Group since 1992, and had previously
been employed by OMC in various executive capacities for at least one year
prior thereto.
Edgar M. Frandle,
----------------
who was appointed Vice President in 1996, had previously been employed with
AmeriData Technologies from 1993 to 1996 as the Chief Information Officer/Vice
President of Information Systems and prior to that with DataCard Corporation
from 1987 to 1993 as Vice President, MIS.
Thomas G. Goodman,
-----------------
who was elected Treasurer in 1996, had previously been employed by OMC as
Director, Financial Planning since 1993, and had previously been employed by
OMC in various executive capacities for at least two years prior thereto.
Robert J. Moerchen
-------------------
was appointed Assistant Treasurer in 1989.
Robert S. Romano,
----------------
who was appointed Assistant Secretary in 1996 and Assistant General Counsel in
1994, had previously been employed by OMC as Senior Counsel since 1993, and had
previously been employed by OMC in various capacities for at least two years
prior thereto.
PART II.
--------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
-----------------------------------------------------------
There were 4,505 record holders of common stock of OMC at September 30,
1996.
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 1996 Annual
Report to Shareholders, which Note is incorporated herein by reference and
is included as part of Exhibit 13.
-9-
<PAGE> 10
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, 1996.
Years Ended September 30 1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
(In millions except amounts per share)
Net sales $1,121.5 $1,229.2 $1,078.4 $1,034.6 $1,064.6
Net earnings (loss) (7.3) 51.4 48.5 (165.0) 1.9
Average number of shares of
common stock outstanding and
common stock equivalents,
if applicable 20.1 20.1 20.0 19.6 19.8
Per average share of common
stock--
Net earnings (loss)
Primary (.36) 2.56 2.42 (8.42) .10
Fully diluted (.36) 2.33 2.22 (8.42) .10
Dividends declared .40 .40 .40 .40 .40
Total Assets 873.7 907.0 817.1 791.8 997.1
Long-Term Debt 177.6 177.4 178.2 183.0 198.1
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 1996 Annual Report to
Shareholders, which is incorporated herein by reference and is included as
part of Exhibit 13.
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 1996
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 1996 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.
-10-
<PAGE> 11
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------------------------------
Certain of the material required by Item 10 is presented under the headings
"Director and Executive Officer Table" and "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 16, 1997, 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 16, 1997, 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 16, 1997, 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 16, 1997, 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 1996 Annual Report to
Shareholders:
Statements of Consolidated Earnings (page 39).
Statements of Consolidated Financial Position (page 40).
Statements of Consolidated Cash Flows (page 41).
Statements of Changes in Consolidated Shareholders'
Investment (page 42).
Notes to Consolidated Financial Statements (pages 43
through 61).
Management's Discussion and Analysis of Results of
Operations and Financial Condition (pages 31
through 36).
Report of Independent Public Accountants (page 63).
2. Financial statement schedules required to be filed by Item 8 of
this Annual Report on Form 10-K:
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 15 through 17).
(b) During the fourth quarter of the year ended September 30, 1996, 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 12, 1996 By HARRY W. BOWMAN Chairman of the
----------------- --------------- Board of Directors,
Harry W. Bowman President and Chief
Executive Officer
Date December 12, 1996 By GEORGE L. SCHUEPPERT Executive Vice President
----------------- -------------------- and Chief Financial
George L. Schueppert Officer
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 12, 1996 By FRANK BORMAN Director
----------------- ------------
Frank Borman
Date December 12, 1996 By WILLIAM C. FRANCE Director
----------------- -----------------
William C. France
Date December 12, 1996 By ILENE S. GORDON Director
----------------- ----------------
Ilene S. Gordon
Date December 12, 1996 By RICHARD T. LINDGREN Director
----------------- -------------------
Richard T. Lindgren
Date December 12, 1996 By J. WILLARD MARRIOTT, JR. Director
----------------- -----------------------
J. Willard Marriott, Jr.
Date December 12, 1996 By DONALD L. RUNKLE Director
----------------- ----------------
Donald L. Runkle
Date December 12, 1996 By RICHARD J. STEGEMEIER Director
----------------- ---------------------
Richard J. Stegemeier
Date December 12, 1996 By RICHARD F. TEERLINK Director
----------------- -------------------
Richard F. Teerlink
-14-
<PAGE> 15
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
June 30, 1988, all of which are Incorporated herein by reference.
(B) With respect to the Registrant's By-Laws as amended September 20, 1995,
reference is made to Exhibit 3(B) to the Registrant's Annual Report on Form
10-K for the fiscal year ended September 30, 1995, which is incorporated
herein by reference.
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 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.
(C) 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.
(D) With respect to the Rights Agreement dated April 24, 1996, to be effective
June 23, 1996, reference is made to Exhibit 4(E) of the Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, which
is incorporated 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.
(D) With respect to the OMC 1994 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.
-15-
<PAGE> 16
(E) With respect to Severance Agreements for all elected officers of the
Registrant (except Harry W. 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, reference is made
to Exhibit 10(F) of the Registrant's Annual Report on Form 10-K for the
fiscal year ended September 30, 1995, which is incorporated herein by
reference.
(G) With respect to the Severance Agreement for Mr. Bowman, reference is made
to Exhibit 10(G) of the Registrant's Annual Report on Form 10-K for the
fiscal year ended September 30, 1995, which is incorporated herein by
reference.
(H) With respect to the Second Amended and Restated Revolving Credit Agreement
dated as of March 29, 1996, reference is made to Exhibit 10(H) of the
Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31,
1996, which is incorporated herein by reference. With respect to the
Amendment No. One to the Second Amended and Restated Revolving Credit
Agreement, reference is made to Exhibit 10(H) of the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1996, which is
incorporated herein by reference.
(I) With respect to the Registrant's Receivables Purchase Agreements dated as
of December 22, 1995, reference is made to Exhibit 10(I) of the
Registrant's Quarterly Report on Form 10-Q for the quarter ended December
31, 1995, which is incorporated herein by reference. With respect to the
Amendment No. 1 and Waiver and the Amendment No. 2 and Waiver to the
Registrant's Receivables Purchase Agreement dated as of December 22, 1996,
reference is made to Exhibit 10(I) of the Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1996, which is incorporated herein
by reference.
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.
-16-
<PAGE> 17
Exhibit 23: Consents of expert:
-----------
A copy of the consent of the Company's independent public
accounts is attached hereto as Exhibit 23.
Exhibit 27: Financial data schedules:
-----------
This information is filed only in the electronic filing.
-17-
<PAGE> 18
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, 1996, 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: MILES E. DEAN
-------------
Miles E. Dean
Vice President and Controller
-18-
<PAGE> 19
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
-------------------- --------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Primary Earnings Per Share:
Net Earnings (Loss) $ 7.6 $ 8.5 $ (7.3) $ 51.4
======== ======== ======== ========
Weighted Average Number of Shares 20.1 20.0 20.1 20.0
Common Stock Equivalents (Stock Options) 0.1 0.1 * 0.1
-------- -------- -------- --------
Average Shares Outstanding 20.2 20.1 20.1 20.1
======== ======== ======== ========
Primary Earnings (Loss) Per Share $ .38 $ .42 $ (.36) $ 2.56
======== ======== ======== ========
Fully Diluted Earnings per Share:
Net Earnings (Loss) $ 7.6 $ 8.5 $ (7.3) $ 51.4
Add: After-Tax Interest and
Related Expense Amortiza-
tion on 7% Convertible
Subordinated Debentures 0.8 0.8 3.3 3.4
-------- -------- -------- --------
Net Earnings (Loss) Adjusted $ 8.4 $ 9.3 $ (4.0) $ 54.8
======== ======== ======== ========
Weighted Average Number of Shares 20.1 20.0 20.1 20.0
Common Stock Equivalents (Stock Options) 0.1 0.1 0.1 0.1
Weighted Average Common
Shares Assuming
Conversion of 7% Convertible
Subordinated Debentures 3.4 3.4 3.4 3.4
-------- -------- -------- --------
Average Shares Outstanding 23.6 23.5 23.6 23.5
======== ======== ======== ========
Fully Diluted Earnings (Loss) Per Share $ .36 $ .40 $ ** $ 2.33
======== ======== ======== ========
* The computation of primary earnings per share of common stock is computed without common
stock equivalents because inclusion of common stock equivalents is antidilutive.
** The computation of fully diluted earnings per share of common stock is antidilutive;
therefore, the amount reported for primary and fully diluted earnings per share is
the same.
-19-
</TABLE>
<PAGE> 20
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
--------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Earnings (Loss):
Earnings (Loss) before provision for
income taxes and cumulative effect
of changes in accounting principles $ (10.4) $ 60.8 $ 53.4 $(159.9) $ 12.5
Interest expense 12.3 23.1 15.1 19.8 19.0
Interest portion of rent expense 1.2 1.3 1.3 1.0 1.0
-------- -------- -------- -------- --------
Earnings $ 3.1 $ 85.2 $ 69.8 $(139.1) $ 32.5
======== ======== ======== ======== ========
Fixed Charges:
Interest expense $ 12.3 $ 23.1 $ 15.1 $ 19.8 $ 19.0
Interest portion of rent expense 1.2 1.3 1.3 1.0 1.0
-------- -------- -------- -------- --------
Fixed Charges $ 13.5 $ 24.4 $ 16.4 $ 20.8 $ 20.0
======== ======== ======== ======== ========
Ratio of earnings to fixed charge .2 3.5 4.3 1.6
======== ======== ======== ========
Excess of fixed charges over earnings $ 159.9
========
-20-
</TABLE>
<PAGE> 21
EXHIBIT 13
OUTBOARD MARINE CORPORATION FISCAL YEAR 1996 ANNUAL REPORT
OPERATING GROUPS
OMC Marine Power Products Group
-------------------------------
Johnson Outboards : Evinrude Outboards : OMC TurboJet Drive Systems :
Johnson/Evinrude Parts & Accessories : Nautic Pro Parts & Accessories : Stacer
Boats : Haines Hunter Boats
The Marine Power Products Group manufactures one of the industry's widest
ranges of outboard engines, from 2 to 250 horsepower. It also markets unique
drive systems like the OMC TurboJet for the mini jet boat market, and a full
range of accessories, from water skis to engine care products. The Marine
Power Products Group markets products globally through the industry's largest
distribution network. The group manufactures outboard engines or engine
components in the United States, Mexico, Hong Kong, China and Brazil; and boats
in Australia. Additionally, OMC participates in a joint venture with
Volvo-Penta of the Americas, Inc. for the production of Volvo-Penta stern
drive products marketed under the SX Cobra and Volvo-Penta Duo Prop stern drive
brand names.
OMC Boat Group
--------------
Fishing Boat Group
Stratos Boats : Javelin Boats : Hydra-Sports Boats : Quest Boats
The Fishing Boat Group is a leading marketer of fresh and saltwater fiberglass
fishing boats for a wide range of sportfishing enthusiasts, from bass fishermen
to bluewater fishermen. Freshwater models range from 15 to 20 feet in length.
Saltwater models range from 16 to 33 feet. Most boats marketed by the group
are equipped with Johnson or Evinrude outboards and are sold in the United
States.
Aluminum Boat Group
Lowe Boats : Princecraft Boats : Grumman Boats : Sea Nymph Boats
The Aluminum Boat Group is the industry's largest maker of aluminum boats.
Products include jon boats, utilities, deep-vee models for larger bodies of
water, pontoon and deck boats for cruising and entertainment, and jet boats for
shallow waters. Most larger boats are factory equipped with Johnson or
Evinrude outboards and are sold primarily in North America.
Recreational Boat Group
Chris-Craft Boats : Four Winns Boats : Seaswirl Boats : Sunbird Boats
The Recreational Boat Group offers a wide range of fiberglass mini jet boats,
runabouts and cruisers, plus a limited line of fishing boats, which enables it
to compete in every key segment of the recreational marine marketplace. Boats
range in length from 14 to 38 feet. Most boats offered are equipped with
either Volvo-Penta stern drive marine engines or Johnson or Evinrude outboards.
The group markets its products worldwide.
Contents
------------------------------------------
Financial Highlights
Letter to Shareholders
Management's Discussion and Analysis
Eleven-Year Summary
Consolidated Financial Statements
Notes to Consolidated Financial Statements
Officers and Directors
Shareholder Information
-22-
<PAGE> 23
FINANCIAL HIGHLIGHTS
(Dollars in millions except per share data)
<TABLE>
<CAPTION>
Year Ended September 30 1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Operating Results
- -----------------
Net Sales
Engine Products $ 637.5 $ 690.8 $ 574.3
Boats and Packages 484.0 538.4 504.1
---------- ---------- ----------
Total $ 1,121.5 $ 1,229.2 $ 1,078.4
========== ========== ==========
Net Earnings (Loss) $ (7.3) $ 51.4 $ 48.5
========== ========== ==========
Primary Net Earnings (Loss) per Share $ (.36) $ 2.56 $ 2.42
========== ========== ==========
Fully Diluted Net Earnings (Loss)
per Share $ (.36) $ 2.33 $ 2.22
========== ========== ==========
Dividends Declared per Share $ .40 $ .40 $ .40
========== ========== ==========
Capital Structure
- -----------------
Long-Term Debt $ 177.6 $ 177.4 $ 178.2
Shareholders' Investment $ 237.6 $ 255.8 $ 209.0
Shareholders' Investment per
Share (Year-End) $ 11.79 $ 12.78 $ 10.49
Return on Shareholders'
Investment (3.0)% 22.8% 27.8%
Number of Shareholders 4,505 4,716 4,519
Average Number of Shares
Outstanding and
Common Stock Equivalents,
if applicable (Millions) 20.1 20.1 20.0
========== ========== =========
Other
- -----
Research and Development Expense $ 41.8 $ 41.6 $ 36.5
Capital and Tooling Expenditures $ 52.7 $ 66.5 $ 68.2
Employees at Year-End 8,283 8,905 8,472
========== ========== ==========
</TABLE>
-23-
<PAGE> 24
Outboard Marine Corporation (OM-NYSE) is a major global manufacturer and
marketer of marine engines, boats and accessories. It is the world's largest
manufacturer of outboard engines and the second largest boat builder in the
United States and a leading boat manufacturer, worldwide. Some of OMC's
brands, including Johnson and Evinrude outboards, and Chris-Craft, Grumman and
Four Winns boats, are among the most widely recognized brands in the world.
The company also markets a full line of marine parts and accessories,
worldwide. OMC manufacturers products for world markets in facilities located
around the globe. Approximately 80 percent of OMC sales come from North
America, the world's largest market for marine Products.
VISION
------
OMC will grow to become the global leader in providing the highest quality
marine products and services, exceeding our customers' expectations, and
inspiring their loyalty to our brands.
WE TAKE THE WORLD BOATING
We will achieve our vision by developing an intense customer focus and
providing an exceptional product ownership experience. We will invest in our
people to enable them to reach their full potential in creating value and to
enhance their commitment to OMC. We will transform our operations so they
provide the best value marine products in the market. We will re-engineer our
businesses to reduce our costs and make them more variable in order to create
more attractive and consistent returns to our shareholders.
TO OUR SHAREHOLDERS
-------------------
1996 was a transition year for Outboard Marine Corporation. It was a year of
great challenge and change as we created a new vision and set a new course for
our company.
When I arrived at OMC in February of 1995, our industry was in the midst of
a strong recovery from one of its longest economic downturns in history. The
industry was projecting continued growth through 1996, with forecasts of a five
to seven percent growth rate for retail unit sales. Unfortunately, a growth
market didn't materialize. In fact, our markets actually declined.
The company began the 1996 fiscal year with strong demand for its marine
products - in line with initial industry forecasts. As we moved into the
strongest sales periods - the second and third quarters - domestic retail
markets were adversely affected by unseasonably cold and rainy weather. As a
result, sales of our marine products flattened out and demand for our products
declined. While fourth quarter retail sales recovered to anticipated levels,
our overall shipments for the year, both boats and engines, were down.
At year end, the company reported a net loss of $7.3 million, or $.36 per
share, compared with net earnings of $51.4 million, or $2.56 per share, in
1995. Our marine products sales fell nearly nine percent to $1.1 billion from
$1.2 billion in 1995. In the U.S. marketplace, our sales fell nearly 10
percent in 1996 from 1995, while our sales outside the U.S. were down five
percent for the year.
Our loss for the past year was primarily the result of restructuring
charges and other one-time charges from actions that helped us to improve our
cost structure. For the year, those changes totaled $25.6 million, before tax,
which resulted from direct cost reduction efforts. Specifically, these charges
were incurred for severance costs and for expenses to restructure our global
manufacturing, sales and marketing operations. These steps were taken to help
variabilize our cost structure, which will enable us to better respond to
changes in demand for our products in global markets and make OMC a more
efficient and consistently profitable competitor.
-24-
<PAGE> 25
CHARTING A COURSE FOR THE FUTURE
--------------------------------
Along with the decline of our market this year came awareness that OMC faced
challenges more profound than I originally anticipated. To address these
challenges, we undertook a program to evaluate every aspect of our business.
We recognized from the outset that change would be necessary. Our preliminary
analysis unearthed critical issues in our marketing, manufacturing and
information systems that needed to be addressed as part of implementing change.
Historically, the company has been too internally focused in its behavior. To
be a strong global competitor, we must change our thinking.
This year, we began the task of re-engineering our company from a "cost
plus" and engineering driven company to a market driven company. Our goal is
to create a more nimble and proactive organization that is more sensitive and
responsive to our customers around the world.
While the task of re-engineering an organization can be simple to state, it
is often complicated to execute. We need to change the culture of our company
from one that believes in cost plus pricing; engineering driven product
development; vertical integration; and single product, single channel
distribution; to a culture that is customer driven. This new culture will
enable us to be more flexible and versatile, making our company a stronger
global competitor. It also will allow us to concentrate our efforts and
resources on the development of a variety of new products for a range of
customers and distribution channels in key worldwide markets.
To be an effective marketer of marine products, we will be more intimate
with our markets and knowledgeable about our customers. Our customers, in
every market segment, will tell us what products they need and what they are
willing to pay for them. We will set-up our distribution channels to capture
that information so it can be communicated to our engineering and manufacturing
operations, who in turn will create high-quality, high-value consumer products.
As a result, the market will drive our products, designs, costs and our
business overall.
To implement change, it was obvious that we needed different approaches,
but we also needed some different people with different mind-sets to change the
culture of our company. Our more than 8,000 dedicated employees have
enthusiastically taken on the task of changing our internally-focused and
entrenched culture into a more responsive, customer driven and market-based
culture.
This year, we increased our efforts to recruit leadership and management
talent of like-mind to form a new management team. We also installed a new
executive team to fortify our ability to manage our new company.
In January of this year, our board of directors elected George Schueppert
executive vice president and chief financial officer of the company. In this
position, George is responsible for the financial operations of the company and
has initiated a program to upgrade information systems on a world-wide basis to
create a global information network, which will enable us to manage our
business in a more fact-based manner. George brings a very strong background
in banking and international finance to this position. At its fiscal 1995
year-end meeting, the board elected David Lumley senior vice president, with
worldwide responsibility for the Marine Power Products Group (MPPG) sales and
marketing efforts. In this position, Dave will coordinate engine sales and
marketing efforts on a global basis.
At its June meeting, the board elected Clark Vitulli a senior vice
president of the company and president of the Boat Group. Clark brings a
wealth of sales, marketing and general management experience from the auto
industry to his new position. Clark will manage the integration of our boat
operations, positioning of our boat brands in the marketplace, and coordinate
the group's product development strategies.
-25-
<PAGE> 26
In September, the board elected Carlisle Davis senior vice president, with
worldwide responsibility for MPPG operations. Cardy was vice president of
quality assurance. In his new position, Cardy will manage our MPPG
manufacturing and engineering operations, worldwide, and will provide a higher
level of corporate-wide coordination of our product quality and manufacturing
efforts. His contributions have been key to strengthening the overall quality
of our products. The board also elected Richard Medland senior vice president
and chief administrative officer. Dick was vice president of human resources.
In his new position, Dick will manage all of the company's administrative
functions and also will provide direction for employee education and
development, and integrated employee communications program.
We also have added several new senior level managers throughout our
organization to help chart our course and guide us into the future. As I look
at the management team today compared to one year ago, 20 of the top 36
positions are now occupied by new managers, ten of whom are new to the company
this year. We have recruited people with a range of backgrounds and talent,
which will increase the competencies of our entire organization and elevate our
company to improved levels of performance.
To ensure the growth and development of our management team, we have
initiated an executive succession planning program designed to identify and
develop talented leaders from within our organization. We also have increased
our commitment to providing training for all employees, which will raise the
skill and experience at all levels within our organization.
STRENGTHENING OUR POSITION IN THE MARKET
----------------------------------------
To be a market driven company meant we needed to develop a new vision for our
company - a vision that would foster creativeness, ingenuity and growth for
OMC. With our management team in place, we have developed a vision for the
future that will enable our employees to focus on the task of re-engineering
our company, achieving greater efficiencies in our operations, improving the
profitability of the company and strengthening the company's leadership
position in worldwide markets.
Our vision is to be a global leader in providing the highest level of
quality marine products and services, exceeding our customers' expectations,
and inspiring their loyalty to our brands. Achieving this vision requires a
commitment from our entire organization. We will focus more on our customers,
invest more in our valued employees, transform our operations and improve the
efficiencies of our business overall, which will create more value for our
customers and shareholders.
To accomplish this, we will concentrate on the development of products and
services designed to leverage our marine distribution capabilities. Our
strategy will be to anticipate the evolution of the marketplace and to ensure
our products are available where the marine customer chooses to purchase them.
In concert with this strategy, we will continually analyze our
profitability in each marine channel, strategically managing our product and
services mix and profit margins for each distribution channel in which we
participate. This will help to ensure continuing good value for our
customers, and better margins for our channel partners and OMC.
We also will continue to build on the strengths of our highly recognized
brands, especially the Johnson and Evinrude outboard brands. As we move toward
the 21st century, with advanced technologies like our FICHT fuel injection
system, our customers' demands for good value will only increase. In fact,
advanced technologies like the FFI system will push consumers' expectations
even higher as they set benchmark standards for future marine products. We are
working hard to ensure our brands not only set the standard, but deliver the
best value, quality and performance our customers demand.
To ensure we meet our customer's expectations of "good value," we are
working to drive out costs that do not add value, and investing the savings in
those things that do. Our goal is to manufacture products that provide value
and result in an exceptional product ownership experience for our customer. We
also will continue to use every tool at our disposal - new products, marketing
-26-
<PAGE> 27
and promotion, effective pricing, and productivity savings - to grow our
business and achieve consistent levels of growth and profitability in the years
ahead.
This year, we also initiated the first of many steps to be taken in the
transformation process to move our company forward and to enable the company to
operate more efficiently. During the year, we consolidated our Canadian
operations into an integrated North American unit. We also reduced the
complexity of our organizational structure in Europe. These measures will make
us a lower cost, more efficient global competitor.
Additionally, we initiated the integration of our boat operations to
capitalize on efficiencies we gain with integration of distribution,
procurement, product creation, logistics and administrative support systems.
This effort will result in the development of innovative, quality built
products; increase our effectiveness in the market; strengthen our ability to
better manage our brands; and reduce overall operating expenses. It also
enables us to better position our brands to meet customers' product and price
choices, making us more competitive in key market segments.
As we continue to rebuild the infrastructure of our entire organization, we
are at the same time building on our core strengths to achieve our vision for
the company in the future.
COMMITMENT TO QUALITY
---------------------
This year, OMC implemented a major program that underscores our commitment to
maintaining a high level of product quality. We expanded our ongoing quality
programs with the introduction of our People Driven Quality initiative. PDQ is
a company-wide, total quality management system focused on achieving customer-
driven, world-class quality levels in all facets of our business. With this
initiative, we are achieving reductions in overall warranty costs, increasing
the effectiveness and productivity of our manufacturing operations, and
increasing the value and quality of our products.
Our PDQ work teams have made great progress in developing a range of
quality metrics that our products must meet or exceed. The overall success of
PDQ is attributable to the total support and commitment of every one of our
dedicated employees. This commitment has served to create a renewed focus on
quality that is conveyed throughout our entire organization. PDQ has created a
culture of quality that will provide the basis for bringing our full range of
products up to world class standards.
Our new Johnson and Evinrude V-6 outboards with the FICHT fuel injection
system are a great example of the success that can be achieved with the
implementation of a total quality management process. We have increased this
engine's performance quality by more than 30 percent compared to a conventional
carbureted outboard. With the new PDQ initiative, we are just starting to see
benefits like this across the remainder of our outboard engine line.
OMC MARINE POWER PRODUCTS GROUP
-------------------------------
New products and advanced technologies were key to the Marine Power Products
Group's strategy for 1996. Last summer, the group debuted its new Johnson and
Evinrude outboards equipped with OMC's exclusive FICHT fuel injection system.
These 150-horsepower engines are designed to win sales and market share in the
freshwater, bass fishing market.
With the FFI system, these outboards offer 35 percent better fuel economy;
turn-key starting; smooth, quiet operation; instantaneous throttle response;
virtually no smoke; a 50 percent reduction in oil usage; and a 75 percent
reduction in hydrocarbon emissions.
As marine engines are transformed to meet U.S. Environmental Protection
Agency emission standards over the next ten years, these engines will provide
the benchmark for marine engine performance, simplicity of design and engine
reliability. These state-of-the-art engines already have gained wide
acceptance in the marine marketplace.
-27-
<PAGE> 28
The Johnson and Evinrude 150 FFI outboards also were recognized by experts
in the marine industry as the most innovative products available, winning two
awards - the Popular Mechanics Design and Engineering Award for 1996 and the
1996 International Marine Trades & Exhibit Convention Award for marine engines.
This year, we also launched a new value brand of marine parts and
accessories under the brand name Nautic Pro. This brand will be marketed in
part through a new distribution channel marine and discount retailers and
will be priced to compete with other private label and discount brands
available in the marketplace. While this new line will enable us to expand
the distribution of our products into alternative channels, we will continue to
market OMC Genuine Parts & Accessories through our existing channels.
Another key element of our marketplace strategy has been to rationalize our
product lines to increase the efficiencies of our facilities and reduce costs.
During the year, we consolidated our engine and parts and accessories product
lines, achieving double digit reductions in the number of engine models
produced and the number of part numbers offered, while taking market needs into
consideration. This rationalization process has lowered our manufacturing
costs and allows us to focus our marketing and promotions resources on our
most important core products.
OMC BOAT GROUP
--------------
This year, a major component of the OMC Boat Group's strategy was to work
toward refinement of its product lines and focus more on offering high-quality,
exceptional value products to marine consumers. As part of an effective team
effort, we have integrated our engineering and manufacturing functions to form
a new development team and better leverage our cost structure. With this team
in place, we are well positioned to strengthen our ability to bring innovative
technologies and products to market. This team will develop consistent,
customer-focused engineering specifications, which will enable us to use more
common parts and state-of-the-art manufacturing techniques, like resin transfer
molding (RTM) technologies, throughout our boat lines. We also will achieve
model optimization within our boat lines to enable us to target key segments of
the power boat market in a more powerful and coordinated fashion.
Additionally, we are benchmarking our best business practices to improve
efficiencies , product quality and create more value in our products for our
dealers and customers.
Our Seaswirl boat brand also is making waves in the industry this year with
the new Seaswirl 180 bowrider model. This model is an 18-foot, stern drive
powered family runabout offering innovative styling, versatile interior seating
and crisp handling in all maneuvers - at an affordable entry level price. The
boat was recognized by Powerboat Magazine as the best value family boat in the
market, winning the magazine's 1996 Outstanding Entry Level Value Award.
Seaswirl boats also received the Award of Excellence from Sea Magazine for
their 2100 Walk-Around model.
LOOKING AHEAD
-------------
OMC is at a pivotal point in its history. As we said one year ago, OMC is a
work in progress, a company being remade. This year, we have taken the first
of many major steps to transform our company from a cost and engineering driven
company to a market driven company. We have identified our strengths and our
weaknesses; defined a new vision; and developed a clear strategy, which will
enable us to achieve that vision. Although we have made significant progress
in re-engineering our company, there is much more to accomplish.
While 1996 was very challenging, OMC's long-term strategic purpose remains
constant. We will remain a leader in the marine marketplace, providing the
highest quality marine products and services our customers demand.
-28-
<PAGE> 29
As we begin our 1997 fiscal year, we are projecting retail unit sales for
outboards to grow at a three to five percent rate in 1997. Although retail
outboard unit sales are expected to grow slightly, year over year, we believe
our dealer inventories need to be reduced during 1997. Our boat dealers also
are at higher than normal inventory levels. We anticipate our retail
pull-through promotions combined with the projected stronger retail demand will
help our dealers sell down their inventories, and improve their turns and cash
flows. We also expect demand for our marine products in other regions of the
world to be stronger in 1997, especially in Asia and Latin America. Longer
term, we will continue to become more competitive and aggressive in the world
marketplace. Our new vision will help guide us to growth and prosperity in
the future.
Our team of talented, energetic people will continue to work diligently to
position the company to deliver the quality, high value products our customers'
demand. With the power of some of the most highly recognized brands in the
market, and products featuring some of the industry's most innovative
technologies, OMC is uniquely positioned to capitalize on that demand.
With the strongest distribution system worldwide, we will continue to
capitalize on this strength to re-establish our volume and market share growth.
We will become more proactive with our dealers to emphasize retail
sell-through. To achieve this, our sales and marketing groups will work more
closely with our dealers providing additional support to help them win more
customers and build stronger consumer demand for our products.
We also will continue our intense focus on improving the quality of our
products and increasing the efficiencies of our organization, overall. This
will be accomplished by achieving significant productivity improvements in all
facets of our business and eliminating inefficiencies wherever possible. As
operations continue to be streamlined, the company will be better positioned
for more stable profitability throughout the marine business cycles.
Our new organizational structure will better prepare our company to meet
the challenges that lie ahead in the worldwide marketplace. This new
organization will create value for our shareholders; great products for our
dealers and customers; and on-going career opportunities for our employees.
OMC is truly a global company, with a sound vision and a bright future.
We are determined to stay our course and be the company that "takes the world
boating."
HARRY W. BOWMAN
---------------
November 22, 1996
Harry W. Bowman
Chairman, President and Chief Executive Officer
-30-
<PAGE> 31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
Results of Operations 1996
--------------------------
The Company had a net loss of $7.3 million or $.36 per share in 1996 compared
to net earnings of $51.4 million or $2.56 per share in 1995. The pretax loss
was $10.4 million in 1996 compared with $60.8 million of pretax earnings in
1995.
Net sales were $1,121.5 million in 1996 compared to $1,229.2 million in
1995, a decrease of $107.7 million or 8.8 percent. U.S. revenues, which
accounted for 74 percent of net sales revenues, declined 9.9 percent in 1996
while international sales decreased 5.3 percent. Sales of Company's outboard
engines and boats declined due to weak market conditions. The marine industry
experienced unexpected declines in winter and spring retail demand in 1996 in
the segments in which the Company is strongest.
While sales declined 8.8 percent, cost of goods sold only declined 4.2
percent. This resulted from the inability to adjust operations to reflect
lower sales. This problem is being addressed by restructuring operations,
considering our core competencies and adjusting the business to react to these
market realities. Operating decisions were made in the 3rd and 4th quarters of
1996 which resulted in restructuring charges of $25.6 million. Included in
these charges was $20.1 million for closings of distribution operations and
write-down of manufacturing facilities outside the United States. The North
American and European sales, marketing and manufacturing operations are being
re-aligned to more effectively meet market needs.
Selling, general and administrative expenditures decreased to $210.3
million in 1996 from $230.2 million in 1995, an 8.6 percent decrease, due
primarily to efforts to reduce these expenses because of decreased sales. As a
percent to sales, selling, general and administrative costs remained at 19
percent of revenues.
Interest expense decreased to $12.3 million in 1996 compared to $23.1
million in 1995. Significant causes for the reduction included $5.0 million as
a result of a favorable adjustment of interest on past tax liabilities, lower
levels of working capital required in 1996 and accounts receivable sales that
lowered interest expense (see Note 7 to the Consolidated Financial Statements).
Other non-operating income was $8.5 million in 1996 and $16.7 million in
1995. The decrease of $8.2 million is primarily the result of the absence of
$2.9 million recognized on the sale of the Company's investment in I.J.
Holdings, Inc. in 1995, a reduction in realization from fixed assets sales of
$2.7 million and discount charges on accounts receivable sales of $1.7 million
in 1996.
The resolution of open tax issues from prior years resulted in a tax credit
in 1996. Provision (credit) for income taxes was $(3.1) million in 1996 and
$9.4 million in 1995, and is explained in Note 14 to the Consolidated Financial
Statements.
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 percent 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.
-32-
<PAGE> 33
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 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.
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 $22.5 million in
1994. After adjusting for income from a real estate transaction of $10.5
million, adjusted other non-operating income in 1994 was $12.0 million. The
increase of $4.7 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.
Financial Condition
-------------------
The Company's ratio of current assets to current liabilities was 1.8 at
September 30, 1996, compared to 2.0 at September 30, 1995. Current assets
decreased $34.7 million. Cash and cash equivalents increased $37.2 million due
to tight management of inventory and accounts receivable. Receivables
decreased $33.3 million due primarily to lower sales in the fourth quarter of
fiscal 1996 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 decreased $29.0 million due primarily to reduced
production in engine plants to bring inventories more in line with sales.
Deferred income tax benefits decreased $8.2 million as explained in Note 14 to
the Consolidated Financial Statements.
Expenditures for capital and tooling were $52.7 million in 1996, down $13.8
million from the 1995 level of $66.5 million due to higher 1995 levels of
expenditures for the investment required to bring low emission outboards into
production. Other assets increased $4.7 million due primarily to increased
deferred tax benefits.
Accounts payable decreased $9.6 million due primarily to decreased
manufacturing activity. Accrued liabilities increased $9.1 million due
primarily to a higher restructuring accrual balance and a reclassification of
interest expense relating to tax settlements, offset by lower employee
incentive compensation accruals. Other non-current liabilities decreased $17.9
million due primarily to a decrease in tax liabilities.
-33-
<PAGE> 34
The Company has a revolving credit agreement with its banks which expires
December 31, 1998. This agreement provides for borrowings of up to $200
million. The Company's non-U.S. subsidiaries had additional uncommitted
lines of credit of approximately $3.5 million as of September 30, 1996. The
total available unused credit facilities was $184.6 million (net of outstanding
letters of credit of $18.9 million) as of September 30, 1996. The Company also
has receivable sales agreements under which it may receive up to $55 million
of receivable sales proceeds on a revolving basis.
Long-term debt increased to $177.6 million in 1996 from $177.4 million in
1995. Debt as a percent to total capitalization increased to 43 percent in
1996 from 41 percent in 1995. Total shareholders' investment decreased $18.2
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 $5.7 million and $55.3 million in 1996 and 1995,
respectively, with month-end peak borrowings of $15.0 million and $100.0
million in February 1996 and May 1995, respectively. Lower peak borrowings in
fiscal 1996 were due primarily to receiving proceeds under receivable sales
agreements in fiscal 1996. Net outstanding proceeds in 1996 from the
receivable sales agreements averaged $23.3 million in fiscal 1996 with
month-end peak proceeds of $55 million in April 1996.
Cash provided by operations was $91.1 million in 1996 compared with $51.4
million in 1995 and $57.3 million in 1994. Expenditures for plant and
equipment and tooling were $52.7 million in 1996, $66.5 million in 1995 and
$68.2 million in 1994.
Based on the Company's current expectations of financial performance, the
flexibility which comes with an improved balance sheet, a $200 million
revolving credit agreement, the receivable sales agreements and other available
sources of capital, the Company believes 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 through the next few
years.
Trends and Forward-Looking Factors
----------------------------------
The Company believes 1997 offers a moderately growing economy in the U.S., and
some stronger growth outlooks in the developing markets outside the U.S. Marine
industry retail volume of outboards in the U.S. fell some 20,000 units short
of forecast in 1996 . Assuming a healthy U.S. economy, the Company would
expect the marine industry to bounce back somewhat and realize a three to five
percent improvement in retail sales. Modest recovery was evident in the
Company's fourth quarter, and it is expecting better product sell-through in
1997. However, dealer engine inventories remain relatively high. The
Company's boat dealers are also at higher than normal inventory levels. As a
result, the Company is not forecasting domestic growth in its shipments at the
wholesale level but is expecting retail pull-through promotions and improved
retail demand will help its dealers sell down their inventories, and improve
their turns and cash flows. International markets, particularly in Asia and
Latin America, appear to be stronger in 1997, and improvements are expected in
overseas markets.
-34-
<PAGE> 35
The Company looks for better price realization, particularly in engines,
this coming year as it moves away from some of the heavy discounting programs
of past years. The parts and accessories business has also shown good growth
in the past six months and the Company is optimistic about increased sales in
that area. The Company is expecting its boat companies to improve market
position, particularly from the variety of new models being introduced. Its
gross profit should improve at a better rate than revenues, as it will benefit
from the continuing efforts in its re-engineering program and from more
consistent production flows tied closer to actual market demand. Substantial
focus has been directed into improving internal operations through continuing
restructuring. The Company expects current and additional restructuring to
allow it to show an improvement in its operating income as measured before the
1996 restructuring charges. It is planning to increase marketing and sales
efforts in 1997, but also expects to realize increased savings in other
administrative and operating areas.
The U.S. Environmental Protection Agency (EPA) has adopted regulations
governing emissions from marine engines. As adopted, the rule will phase in
over nine years, beginning in model year 1998 and concluding in model year
2006. Marine engine manufacturers will be required to reduce hydrocarbon
emissions from outboard engines, on average, by 8.3 percent per year beginning
with the 1998 model year. In 1994, the Company announced Project LEAP, a $100
million project to develop new low emission technologies and to convert its
entire outboard product line to low emission products within the next decade.
These technologies will add cost to the product in the short-term. 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 believes
this situation will not have a material impact on future results of operations
or the financial condition of the Company.
In 1996, the Company introduced the new Johnson and Evinrude 150-horsepower
engines with FICHT fuel injection technology. With the FFI system, these
engines meet the EPA emissions standards set for 2006. These engines offer
boaters smooth, quiet operation , 35 percent better fuel economy, reduced
hydrocarbon emissions by up to 80 percent, and virtually no smoke on start-up,
without sacrificing the performance, lighter weight and smaller size of a
two-stroke engine.
Under Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" (SFAS 109), the Company has not recognized a tax benefit for its
deferred tax assets but has instead provided a valuation allowance. Several
factors would generally enable the Company to realize the deferred tax assets
which have not otherwise been recognized. Historical profitability, forecasted
earnings, and management's determination "it is more likely than not" the
deferred tax assets will be benefitted against forecasted earnings, all affect
whether the unrecognized U.S. deferred tax assets may be realized through a
reversal of the valuation allowance. Because the deferred tax asset
realization factors of SFAS No. 109 were adversely affected by the 1996 fiscal
year results, it is unlikely this reversal of the valuation allowance will
occur in 1997.
Effective October 1, 1996, the Company will adopt the Financial Accounting
Standards Boards' Statement of Accounting Standards No. 121 (SFAS 121),
"Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed of." SFAS 121 requires that long-lived assets and certain
identifiable intangibles held and used by a company be reviewed for possible
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. SFAS 121 also requires
that long-lived assets and certain identifiable intangibles held for sale,
other than those related to discontinued operations, be reported at the lower
-35-
<PAGE> 36
of carrying amount or fair value less cost to sell. The Company will continue
to evaluate long-lived assets. Further restructuring decisions may result in
future impairment write-downs. At September 30, 1996, there were no known
assets whose value may be impaired.
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.
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.
Some of the foregoing statements are forward-looking in nature and made in
reliance upon the Safe Harbor provisions of the Private Securities Litigation
Reform Act of 1995. These statements involve risks and uncertainties,
including but not limited to the impact of competitive products and pricing,
product demand and market acceptance, new product development, availability of
raw materials, general economic conditions including interest rates and
consumer confidence. Investors are also directed to other risks discussed in
documents filed by the Company with the Securities and Exchange Commission.
The Company assumes no obligation to update the information included in this
statement.
-36-
<PAGE> 37
ELEVEN-YEAR SUMMARY OF SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years ended September 30 1996 1995 1994 1993 1992 1991
- --------------------------
Operations ($ in millions)
<S> <C> <C> <C> <C> <C> <C>
Net Sales $1,121.5 $1,229.2 $1,078.4 $1,034.6 $1,064.6 $983.6
Gross Earnings 229.3 297.4 252.0 218.0 247.6 191.9
Selling, General and Administrative 210.3 230.2 206.0 226.1 216.6 224.1
Research and Development Expense 41.8 41.6 36.5 36.0 36.1 40.8
Earnings (Loss) from Operations (6.6) 67.2 46.0 (152.9) 31.0 (73.5)
Interest Expense 12.3 23.1 15.1 19.8 19.0 31.1
Earnings (Loss) from Continuing
Operations before Provision
(Credit) for Income Tax (10.4) 60.8 53.4 (159.9) 12.5 (105.9)
Net Earnings (Loss)
Continuing Operations (7.3) 51.4 48.5 (165.0) 1.9 (85.9)
Discontinued Operations -- -- -- -- -- --
Extraordinary Income and
Accounting Change -- -- -- (117.5) -- 1.6
---------------------------------------------------------------------
Total Net Earnings (Loss) $ (7.3) $ 51.4 $ 48.5 $ (282.5) $ 1.9 $(84.3)
=====================================================================
- ----------------------------------
Financial Position ($ in millions)
Cash and Cash Equivalents $ 95.5 $ 58.3 $ 80.3 $ 104.4 $ 142.6 $ 79.6
Receivables, net 167.6 200.9 150.5 136.3 157.9 163.4
Inventories 165.1 194.1 163.7 154.1 181.5 181.1
Current Liabilities 253.3 248.8 233.6 251.4 231.8 252.1
Working Capital 214.2 253.4 196.2 173.9 323.4 248.4
Product Tooling and Plant and Equipment, net 270.5 276.3 265.4 246.5 275.1 290.2
Total Assets 873.7 907.0 817.1 791.8 997.1 957.0
Long-Term Debt 177.6 177.4 178.2 183.0 198.1 133.1
Total Shareholders' Investment 237.6 255.8 209.0 160.9 454.5 463.3
- --------------------------
Per Common Share (Dollars)
Average Number of Common Shares
Outstanding and Common Stock
Equivalents, if applicable (Millions) 20.1 20.1 20.0 19.6 19.8 19.4
Net Earnings (Loss)
Primary $ (.36) $ 2.56 $ 2.42 $ (14.42) $ .10 $(4.34)
Fully Diluted (.36) 2.33 2.22 (14.42) .10 (4.34)
Primary Net Earnings (Loss) From
Continuing Operations (.36) 2.56 2.42 (8.42) .10 (4.42)
Dividends Declared .40 .40 .40 .40 .40 .50
Market Price - High 22.38 24.88 25.88 25.25 26.63 19.38
Market Price - Low 14.38 17.50 17.38 15.13 14.00 9.00
Shareholders' Investment, year-end 11.79 12.78 10.49 8.14 23.32 23.85
- ----------------
Other Statistics
Operating Earnings as a Percent of Net Sales (.6)% 5.5% 4.3% (14.8)% 2.9% (7.5)
Return on Average Shareholders' Investment (3.0)% 22.8% 27.8% (59.8)% .4% (16.6)
Return on Average Total Capitalization (1.7)% 11.3% 13.0% (29.2)% .3% (11.9)
Current Ratio 1.8 2.0 1.8 1.7 2.4 2.0
Debt/Total Capitalization 42.8% 41.0% 46.1% 54.6% 31.4% 29.2%
Capital & Tooling Expenditures (Millions) $ 52.7 $ 66.5 $ 68.2 $ 50.0 $ 40.6 $ 36.1
-37-
</TABLE>
<PAGE> 38
ELEVEN-YEAR SUMMARY OF SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years ended September 30 1990 1989 1988 1987 1986
- --------------------------
Operations ($ in millions)
<S> <C> <C> <C> <C> <C>
Net Sales $1,145.6 $1,464.2 $1,360.0 $1,095.4 $803.9
Gross Earnings 176.4 320.2 341.5 248.2 149.0
Selling, General and Administrative 251.1 241.9 214.2 160.9 129.2
Research and Development Expense 43.3 41.9 37.6 35.1 36.8
Earnings (Loss) from Operations (101.4) 70.2 127.3 87.3 19.8
Interest Expense 29.8 36.1 24.6 21.8 12.6
Earnings (Loss) from Continuing
Operations before Provision
(Credit) for Income Tax (123.0) 38.5 106.4 77.8 (2.6)
Net Earnings (Loss)
Continuing Operations (77.3) 21.0 61.5 38.4 3.4
Discontinued Operations -- 49.3 10.3 8.4 7.6
Extraordinary Income and
Accounting Change 1.8 -- 5.8 15.0 3.3
-----------------------------------------------------------
Total Net Earnings (Loss) $ (75.5) $ 70.3 $ 77.6 $ 61.8 $ 14.3
===========================================================
- ----------------------------------
Financial Position ($ in millions)
Cash and Cash Equivalents $ 15.3 $ 19.8 $ 23.1 $ 48.6 $ 9.7
Receivables, net 219.2 297.0 364.9 318.2 286.5
Inventories 239.6 297.4 278.3 186.2 187.7
Current Liabilities 287.9 281.5 304.1 241.0 212.4
Working Capital 301.0 471.4 395.3 335.3 302.7
Product Tooling and Plant and Equipment, net 329.6 320.5 307.5 277.8 233.7
Total Assets 1,104.7 1,254.4 1,141.1 966.4 775.0
Long-Term Debt 157.5 233.1 178.2 131.9 85.8
Total Shareholders' Investment 558.3 642.7 579.5 517.6 392.5
- --------------------------
Per Common Share (Dollars)
Average Number of Common Shares
Outstanding and Common Stock
Equivalents, if applicable (Millions) 19.4 19.3 19.2 18.3 17.0
Net Earnings (Loss)
Primary $ (3.89) $ 3.64 $ 4.04 $ 3.38 $ .85
Fully Diluted (3.89) 3.64 4.04 3.38 .85
Primary Net Earnings (Loss) From
Continuing Operations (3.98) 1.09 3.20 2.10 .39
Dividends Paid .80 .80 .70 .64 .64
Market Price - High 31.75 46.00 37.12 38.00 38.50
Market Price - Low 10.87 28.00 16.25 23.87 21.37
Shareholders' Investment, year-end 28.73 33.08 30.09 26.67 23.06
- ----------------
Other Statistics
Operating Earnings as a Percent of Net Sales (8.9)% 4.8% 9.4% 8.0% 2.5%
Return on Average Shareholders' Investment (12.4)% 12.0% 14.2% 13.9% 3.8%
Return on Average Total Capitalization (9.1)% 8.3% 10.7% 10.6% 2.9%
Current Ratio 2.0 2.7 2.3 2.4 2.4
Debt/Total Capitalization 27.0% 28.3% 28.1% 20.5% 24.6%
Capital & Tooling Expenditures (Millions) $ 61.1 $ 110.3 $ 88.8 $ 57.9 $ 56.5
</TABLE>
-38-
<PAGE> 39
STATEMENTS OF CONSOLIDATED EARNINGS
- -----------------------------------
<TABLE>
<CAPTION>
Years ended September 30 (Dollars in millions except amounts per share)
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Net Sales $1,121.5 $1,229.2 $1,078.4
Cost of Goods Sold 892.2 931.8 826.4
--------- --------- ---------
Gross earnings 229.3 297.4 252.0
Selling, General and Administrative
Expense 210.3 230.2 206.0
Restructuring Charges 25.6 -- --
--------- --------- ---------
Earnings (Loss) from operations (6.6) 67.2 46.0
--------- --------- ---------
Non-Operating Expense (Income)
Interest expense 12.3 23.1 15.1
Other, net (8.5) (16.7) (21.0)
--------- --------- ---------
3.8 6.4 (7.4)
--------- --------- ---------
Earnings (Loss) before provision
for income taxes (10.4) 60.8 53.4
Provision (Credit) for Income Taxes (3.1) 9.4 4.9
--------- --------- ---------
Net earnings (loss) $ (7.3) $ 51.4 $ 48.5
========= ========= =========
Net Earnings (Loss) Per Share of
Common Stock
Primary $ (.36) $ 2.56 $ 2.42
========= ========= =========
Fully diluted $ (.36) $ 2.33 $ 2.22
========= ========= =========
The accompanying notes are an integral part of these statements.
</TABLE>
-39-
<PAGE> 40
STATEMENTS OF CONSOLIDATED FINANCIAL POSITION
- ---------------------------------------------
Years ended September 30 (Dollars in millions)
1996 1995
Assets -------- --------
Current Assets
Cash and cash equivalents $ 95.5 $ 58.3
Receivables (less reserve for doubtful
receivables of $11.6 million in 1996 and $14.9
million in 1995) 167.6 200.9
Inventories 165.1 194.1
Deferred income tax benefits 15.6 23.8
Other current assets 23.7 25.1
-------- --------
Total Current Assets 467.5 502.2
Product Tooling, net 51.6 52.0
Plant and Equipment, net 218.9 224.3
Intangibles 38.3 40.6
Pension Asset 50.1 45.3
Other Assets 47.3 42.6
-------- --------
Total Assets $ 873.7 $ 907.0
======== ========
Liabilities and Shareholders' Investment
Current Liabilities
Accounts payable $ 90.0 $ 99.6
Accrued liabilities 151.9 142.8
Accrued income taxes 11.2 6.2
Current maturities and sinking fund requirements
of long-term debt .2 .2
-------- --------
Total Current Liabilities 253.3 248.8
Long-Term Debt 177.6 177.4
Postretirement Benefits Other than Pensions 100.7 102.6
Other Non-Current Liabilities 104.5 122.4
Shareholders' Investment
Common stock-- 90 million shares authorized at
15 cents par value each with 20.1 million shares
outstanding in 1996 and 20.0 million shares in
1995 3.0 3.0
Capital in excess of par value of common stock 114.1 112.2
Accumulated earnings employed in the business 134.4 149.7
Minimum pension liability adjustment (3.1) --
Cumulative translation adjustments (8.5) ( 5.5)
Treasury stock at cost, 0.1 million shares in
1996 and 0.2 million shares in 1995 (2.3) (3.6)
-------- --------
Total Shareholders' Investment 237.6 255.8
-------- --------
Total Liabilities and Shareholders'
investment $ 873.7 $ 907.0
======== ========
The accompanying notes are an integral part of these statements.
-40-
<PAGE> 41
STATEMENTS OF CONSOLIDATED CASH FLOWS
- -------------------------------------
<TABLE>
<CAPTION>
Years ended September 30 (Dollars in millions)
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net earnings (loss) $ (7.3) $ 51.4 $ 48.5
Adjustments to reconcile net earnings (loss) to net cash provided
by operations:
Depreciation and amortization 54.7 47.6 44.0
Restructuring charges 21.6 -- --
Changes in current accounts excluding the effects of
acquisitions and noncash transactions:
Decrease (increase) in receivables 32.4 (32.4) (10.4)
Decrease (increase) in inventories 27.3 (29.5) (8.5)
Decrease (increase) in other current assets (3.6) (13.2) (12.2)
Increase (decrease) in accounts payable, accrued
liabilities and income taxes (15.1) 14.1 (3.7)
Increase (decrease) in deferred items (20.6) 13.7 .2
Other, net 1.7 (.3) (.6)
-------- ------- --------
Net cash provided by operating activities 91.1 51.4 57.3
Cash Flows from Investing Activities
Investments -- (9.9) --
Expenditures for plant and equipment, and tooling (52.7) (66.5) (68.2)
Proceeds from sale of plant and equipment 2.7 11.8 6.8
Other, net (.5) (1.2) (1.6)
-------- ------- --------
Net cash used for investing activities (50.5) (65.8) (63.0)
Cash Flows from Financing Activities
Payments of long-term debt, including current maturities (.2) (1.1) (15.1)
Cash dividends paid (6.1) (8.0) (7.9)
Other, net 3.4 1.0 3.3
-------- ------- --------
Net cash used for financing activities (2.9) (8.1) (19.7)
Exchange rate effect on cash (.5) .5 1.3
-------- ------- --------
Net increase (decrease) in cash and cash equivalents 37.2 (22.0) (24.1)
Cash and cash equivalents at beginning of year 58.3 80.3 104.4
-------- ------- --------
Cash and cash equivalents at end of year $ 95.5 $ 58.3 $ 80.3
======== ======= ========
Supplemental Cash Flow Disclosures
Interest paid $ 15.4 $ 19.7 $ 17.1
Income taxes paid $ 3.5 $ 3.4 $ 7.4
======== ======= ========
<FN>
The accompanying notes are an integral part of these statements
-41-
</TABLE>
<PAGE> 42
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 Minimum Trans-
Common Stock Value of Employed Pension lation
----------------- Common in the Liability Adjust- Treasury
Shares* Amount Stock Business Adjustment ment Stock
------ ------ -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance--September 30, 1993 20.0 $ 3.0 $ 107.4 $ 65.7 $ -- $(10.8) $(4.4)
Net earnings -- -- -- 48.5 -- -- --
Dividends declared-$.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) $(4.4)
Net earnings -- -- -- 51.4 -- -- --
Dividends declared-$.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) $(3.6)
Net loss -- -- -- (7.3) -- -- --
Dividends declared--$.40 per share -- -- -- (8.0) -- -- --
Minimum pension liability adjustment -- -- -- -- (3.1) -- --
Shares issued under stock
plans -- -- 1.9 -- -- -- 1.3
Translation adjustments -- -- -- -- -- (3.0) --
----- ----- ------- -------- -------- ------- ------
Balance--September 30, 1996 20.2 $ 3.0 $ 114.1 $ 134.4 $ (3.1) $ (8.5) $(2.3)
===== ===== ======= ======== ======== ======= ======
<FN>
* Includes shares of treasury stock.
The accompanying notes are an integral part of these statements.
</TABLE>
-42-
[FN]
<PAGE> 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Nature of Business and Significant Accounting Policies
-------------------------------------------------------------
Nature of Business
------------------
Outboard Marine Corporation, and its subsidiaries, (the "Company") is a
multinational company which operates in the marine recreation business. The
Company manufactures and markets marine engines, boats and marine parts and
accessories.
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, 1996, all subsidiaries
were wholly owned except those referred to in Note 2 to the Consolidated
Financial Statements.
Accounting Estimates
--------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
which affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Cash Equivalents
-------------------------
For purposes of the Statements of Consolidated Cash Flows, marketable
securities 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 $21.1 million and $26.4 million which had
not yet been paid by the banks at September 30, 1996 and 1995, respectively,
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 (23% in 1996 and 26% in 1995) is carried at the lower of first-in,
first-out (FIFO) cost or market.
During 1996, the liquidation of LIFO inventory quantities acquired in prior
years at costs lower than 1996 purchases increased earnings before tax by $1.3
million. There were no material liquidations of LIFO inventory quantities in
1995 or 1994.
Product Tooling, Plant and Equipment and Depreciation
-----------------------------------------------------
Product tooling costs are amortized over a period not exceeding five years,
beginning the first year the related product is sold. 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.
Amortization of tooling and depreciation of plant and equipment was $52.1
million, $45.4 million and $42.0 million for the years ended September 30,
1996, 1995 and 1994, respectively. When plant and equipment is retired or
-43-
<PAGE> 44
sold, its cost 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 $29.4 million, $32.4 million and $28.7 million for 1996, 1995 and
1994, respectively. Major rebuilding costs which substantially extend the
useful life of an asset are capitalized and depreciated.
Intangibles
-----------
The Statements of Consolidated Financial Position included net amounts for
intangibles, including goodwill, of $38.3 million on September 30, 1996, as
compared with net intangibles of $40.6 million on September 30, 1995.
Intangibles are amortized over 15 to 40 years. The carrying value of the
intangible assets is periodically reviewed by the Company based on the expected
future operating earnings of the related units.
Amortization of intangibles was $1.8 million, $1.2 million and $1.3 million
for 1996, 1995 and 1994, respectively.
Revenue Recognition
-------------------
Upon shipment of products to unaffiliated customers, the Company recognizes
sales and related expenses including estimated warranty costs.
Advertising Costs
-----------------
Advertising costs are charged to expense as incurred and were $31.8 million,
$35.9 million and $30.8 million for 1996, 1995 and 1994, 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
------------------------------
Expenditures relating to the development of new products and processes,
including significant improvements and refinements to existing products, are
expensed as incurred. Such expenditures were $41.8 million, $41.6 million and
$36.5 million for 1996, 1995 and 1994, 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 and
1994 include foreign exchange losses (gains) of $(0.6) million and $2.6
million, respectively, which resulted primarily from commercial transactions
and forward exchange contracts. In 1996, there was no net foreign exchange
gain or loss.
Impairment of Long-Lived Assets
-------------------------------
Effective October 1, 1996, the Company will adopt the Financial Accounting
Standards Board's Statement of Accounting Standards No. 121 (SFAS 121),
"Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets t o
Be Disposed of." SFAS 121 requires that long-lived assets and certain
identifiable intangibles held and used by a company be reviewed for possible
impairment whenever events or changes in circumstances indicate that the
-44-
<PAGE> 45
carrying amount of an asset may not be recoverable. SFAS 121 also requires
that long-lived assets and certain identifiable intangibles held for sale,
other than those related to discontinued operations, be reported at the lower
of carrying amount or fair value less cost to sell. The Company will continue
to evaluate long-lived assets. Further restructuring decisions may result in
future impairment write-downs. As of September 30, l996, there were no known
assets whose value may be impaired.
-45-
<PAGE> 46
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
outstanding of 20.1 million, 20.1 million and 20.0 million for the years ended
September 30, 1996, 1995 and 1994, 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 the fully diluted earnings per share computations for 1996,
1995 and 1994, shares were computed to be 23.6 million, 23.5 million and 23.4
million, respectively. For 1996, the computation of fully diluted earnings
(loss) per share was antidilutive; therefore, the amounts reported for primary
and fully diluted earnings (loss) per share are identical.
Note 2 Joint Venture and Investments
------------------------------------
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
continues to operate the business. FICHT GmbH and Co. KG (FICHT) is the name
of the resulting business. The Company has an exclusive license for the marine
industry for the FICHT fuel injection system. Royalty income, if any,
resulting from other licensing of the technology will be distributed through
FICHT.
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, 1996 and 1995, the Company's investment including current net
accounts receivable was $13.6 and $18.8 million, respectively. The joint
venture is a manufacturing and aftermarket joint venture. The Company
recognizes gross profit relating to certain parts sales and incurs expenses for
product development that are part of the joint venture. The Company's share of
the joint venture's earnings were $4.4 million, $4.9 million and $ 4.1 million
in 1996, 1995 and 1994, respectively, which were included in other expense
(income) in the Statements of Consolidated Earnings.
Note 3 Restructuring Charges
----------------------------
During fiscal year 1996, the Company recorded $25.6 million in restructuring
charges. Included was $20.1 million for closings of distribution operations
and write-down of manufacturing facilities outside the United States. The
North American and European sales and marketing operations are being realigned
to more effectively meet market needs.
Accrued liabilities included restructuring charges of $18.5 million and
$11.4 million at September 30, 1996 and 1995, respectively. The remaining
accrual at September 30, 1996, represents amounts primarily for severance
payments and other closure costs of overseas manufacturing companies. The bulk
of the charges are expected to be paid during the 1997 fiscal year.
The Company continually evaluates its cost structure and facilities in
light of current market conditions and market demand. Further restructuring
action may be deemed appropriate in the future.
-46-
<PAGE> 47
Note 4 Inventories
------------------
The various components of inventory were as follows:
(Dollars in millions)
September 30 1996 1995
----------------------------- ------- -------
Finished product $ 75.6 $ 78.1
Raw material, work in process
and service parts 131.2 156.4
------- -------
Inventory at current cost
which is less than market 206.8 234.5
Excess of current cost over
LIFO cost 41.7 40.4
------- -------
Net inventory $165.1 $194.1
======= =======
Note 5 Plant and Equipment
--------------------------
Plant and equipment components were as follows:
(Dollars in millions)
September 30 1996 1995
------------------------ ------- -------
Land and improvements $ 21.0 $ 21.4
Buildings 149.5 144.0
Machinery and equipment 379.7 367.9
Construction in progress 14.9 25.6
------- -------
565.1 558.9
Accumulated depreciation 346.2 334.6
------- -------
Plant and equipment, net $218.9 $224.3
======= =======
Note 6 Accrued Liabilities
--------------------------
Accrued liabilities were as follows:
(Dollars in millions)
September 30 1995 1994
--------------------------------- ------- -------
Compensation and pension programs
and postretirement medical $ 25.1 $ 30.2
Warranty 23.3 25.4
Marketing program 35.3 35.9
Restructuring 18.5 11.4
Other 49.7 39.9
------- -------
Accrued liabilities $151.9 $142.8
======= =======
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<PAGE> 48
Note 7 Short-Term Borrowings and Accounts Receivable Sales Agreements
---------------------------------------------------------------------
A summary of short-term borrowing activity follows:
(Dollars in millions)
1996 1995 1994
------ ------- ------
Outstanding at September 30-
Bank borrowing $ -- $ -- $ --
Average interest rate -- -- --
Average for the year-
Borrowing $ 5.7 $ 55.3 $ 7.6
Interest rate 6.6% 7.2% 6.4%
Maximum month end borrowing $15.0 $100.0 $40.0
====== ====== ======
The Company has a revolving credit agreement which provides for loans of up
to $200 million. The agreement expires not later than December 31, 1998. A
facility fee is payable under the revolving credit agreement. The Company's
non-U.S. subsidiaries had additional uncommitted lines of credit of
approximately $3.5 million on September 30, 1996. As of September 30, 1996,
the Company and non-U.S. subsidiaries together had unused facilities credit of
$184.6 million (net of outstanding letters of credit of $18.9 million).
In December 1995, the Company entered into receivables sales agreements, as
amended, expiring June 30, 1997, whereby the Company agreed to sell an
ownership interest in a designated pool of domestic trade accounts receivable
("Receivables"). In order to maintain the balance in the designated pool of
Receivables sold, the Company is obligated to sell undivided percentage
interests in new Receivables as existing Receivables are collected. The
Company retains a residual interest in the Receivables sold, thus receivables
are only reduced by the net outstanding proceeds from the sales. During the
course of fiscal year 1996, sales of receivables averaged $23.3 million with
maximum sales of $55.0 million in April 1996. At September 30, 1996, the
Company had no net outstanding proceeds and may receive up to $55 million of
additional proceeds on a revolving basis. The Company has retained
substantially the same credit risk as if the Receivables had not been sold.
The costs associated with the receivables sales agreements are included in
non-operating expense - other, net in the Statements of Consolidated Earnings
for the year ended September 30, 1996.
Under both the revolving credit agreement, as amended, and the receivables
sales agreements, as amended, the Company is required to meet certain financial
covenants throughout the year. The Company is in compliance with these
financial covenants.
-48-
<PAGE> 49
Note 8 Long-Term Debt
---------------------
Long-term debt on September 30, 1996 and 1995, net of current maturities and
sinking fund requirements included in current liabilities, consisted of the
following:
(Dollars in millions)
1996 1995
------ ------
7% convertible subordinated debentures due 2002 $ 74.8 $ 74.8
9-1/8% sinking fund debentures due through 2017 64.8 64.8
Medium-term notes due 1998 through 2001 with rates
ranging from 8.16% to 8.625% 24.8 24.5
Industrial revenue bonds with rates ranging from
6.0% to 12.037% and other debt 13.2 13.3
------ ------
$177.6 $177.4
====== ======
On September 30, 1996, 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 debt instruments contain,
among other things, a dividend and other restricted payments test, interest
coverage ratios and capitalization ratios which limit the redemption or
retirement of shares of common stock. At September 30, 1996, 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)
---------------------
1997 $ .2
-----
1998 $ 5.2
-----
1999 $11.2
-----
2000 $ 7.0
-----
2001 $ 6.3
-----
See Note 14 concerning the 1996 reversal of $5.0 million of previously
provided interest.
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.
-49-
<PAGE> 50
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 $171.7 million and $180.9 million
at September 30, 1996 and 1995, respectively, versus carrying amounts of $177.6
million and $177.4 million at September 30, 1996 and 1995, 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.
The Company has entered into several interest rate swap agreements as a
means of managing its proportion of fixed to variable interest rate exposure.
The differential to be paid or received is accrued consistent with the terms of
the agreements and market interest rates. At September 30, 1996 and 1995, 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, 1996 and 1995 was an estimated
termination liability of $0.5 and $1.8 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.
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, 1996, the Company had Belgium franc put options for $32 million
with a market value of $1.1 million and a French franc put option for $10
million with a market value of $0.2 million, both of which settle September 30,
1997. This potential income had not yet been reflected in net earnings at
September 30, 1996, as it represents hedging of fiscal 1997 activities. The
fair values were obtained from major financial institutions based upon the
market values as of September 30, 1996.
The Company purchases commodity options to hedge anticipated purchases of
aluminum. The Company amortizes the cost of the options over the term of the
instruments. At September 30, 1996, the Company had options covering
approximately 25% of annual forecasted aluminum purchases. The fair market
value of these options was $0.2 million at September 30, 1996. The fair market
value was obtained from a major financial institution based upon the market
value of those options at September 30, 1996.
Note 10 Preferred Stock and Shareholder 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 April 24, 1996, the Company adopted a shareholder rights plan to replace
the one which expired on June 23, 1996. The rights associated with the new
plan will expire on June 23, 2006. All shareholders have one right per share
of the Company's common stock held.
The plan is intended to promote continuity and stability, deter coercive or
partial offers which will not provide fair value to all shareholders, and
enhance the board of directors' ability to represent all shareholders and
thereby maximize shareholder value.
-50-
<PAGE> 51
Each right will entitle its holder to buy 1/1,000 of a newly-issued share
of the Company's preferred stock at an exercise price of $115. The rights will
be exercisable only if a person or group acquires beneficial ownership of 15%
or more of the Company's common stock, 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, or the board of directors determines
that any person owning beneficially 10% or more of the Company's common stock
is an adverse person.
If a 15%-or-more shareholder or adverse person (an "Acquiring Person")
engages in certain transactions in which the Company survives, each right not
owned by the Acquiring Person 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 an Acquiring Person, 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 $.01 per
right at any time until 10 days (subject to extension) following a public
announcement that a 15% position has been acquired or that an adverse person
has acquired 10%.
Under the new shareholder rights plan, there have been reserved for
issuance 90,000 shares of the Company's preferred stock.
Note 11 Common Stock
--------------------
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) at a conversion
price of $22.25 per share.
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.
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. In
addition, the 1994 OMC Long-Term Incentive Plan provides for the use of any
shares which are or become available under the OMC Executive Equity Incentive
Plan. Non-incentive stock options and stock appreciation rights are
exercisable not later than 15 years after the date of grant.
Of the 126,100 shares of restricted stock granted under the OMC Executive
Equity Incentive Plan, there remain outstanding 65,700 shares. In addition,
255,000 shares of restricted stock were granted during fiscal 1996 under the
1994 OMC Long-Term Incentive Plan. These shares also have a five year vesting
schedule, are forfeited upon termination, except as a result of retirement,
death or permanent disability, and fully vest upon a change-in-control of the
Company. During the restricted period, the recipients of the recent grant
will receive dividends in the form of additional shares of Restricted Stock and
shall not have the right to vote the stock.
-51-
<PAGE> 52
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, 1993 924,300 $ 10.00- $ 23.00
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 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
Options granted 233,500 $ 16.00 - $ 20.00
Options exercised (36,730) $ 10.00- $ 19.375
Options cancelled (102,415) $ 10.00- $ 24.625
----------- ------------------
Options outstanding and unexercised
at September 30, 1996 1,277,600 $ 10.00- $ 29.225
=========== ==================
Exercisable at September 30, 1996 787,150 $ 10.00- $ 29.225
=========== ==================
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation." This standard establishes
financial accounting and reporting standards for stock-based employee
compensation. The Company plans to adopt the pro forma disclosure requirements
of the statement, and will continue to apply the accounting provisions of
Accounting Principles Board Opinion No. 25, as allowed by the standards. This
disclosure will be effective for the fiscal 1997 financial statements.
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 expense
(income) of $0.3 million, $(0.5) million and $(0.3) million in 1996, 1995 and
1994, respectively.
The following schedule of pension expense (income) presents amounts
relating to the Company's material pension plans (United States and Canada):
(Dollars in millions)
Years ended September 30 1996 1995 1994
---------------------------------- ------- ------- -------
Benefits earned during the period $ 6.2 $ 5.4 $ 6.2
Interest cost on projected benefit
obligation 25.4 24.2 23.3
Return on pension assets (46.5) (66.0) 2.6
Net amortization and deferral 15.7 34.3 (34.0)
------- ------- -------
Net periodic pension expense
(income) $ .8 $ (2.1) $ (1.9)
======= ======= =======
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<PAGE> 53
Actuarial assumptions used for the Company's principal defined benefit plans:
September 30 1996 1995 1994
--------------------------------------- ------ ------ ------
Discount rates 8% 7 3/4% 8 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%
The funded status and pension liability were as follows:
(Dollars in millions)
------------------------------------------
Plans Whose Plans Whose Accumu-
Assets Exceed lated Benefits
Accumulated Benefits Exceed Assets
September 30 1996 1995 1996 1995
-------------------------- -------- -------- ------- -------
Actuarial present value
of benefit obligation
Vested $ 298.5 $ 269.7 $ 14.0 $ 11.6
Nonvested 32.8 28.0 1.2 1.1
-------- -------- ------- -------
Accumulated benefit
obligation 331.3 297.7 15.2 12.7
Effect of projected future
compensation increases 21.3 19.7 1.3 1.0
-------- -------- ------- -------
Projected benefit
obligation 352.6 317.4 16.5 13.7
Plan assets at fair market
value 387.2 360.9 -- --
-------- -------- ------ -------
Plan assets (in excess of) less
than projected benefit
obligation (34.6) (43.5) 16.5 13.7
Unrecognized net (loss) (16.8) (13.2) (4.4) (2.7)
Prior service cost not yet
recognized in net
periodic pension expense (15.7) (9.5) (.7) (.7)
Remaining unrecognized net
asset (obligation)
arising from the initial
application of SFAS No. 87 17.0 20.9 (.5) (.7)
Adjustment required to
recognize minimum liability -- -- 4.3 3.1
-------- -------- ------- -------
Pension liability (asset)
recognized in the
Statements of Consolidated
Financial Position $ (50.1) $ (45.3) $ 15.2 $ 12.7
======== ======== ======= =======
The provisions of SFAS No. 87, "Employers' Accounting for Pensions",
require the recognition of an additional minimum liability for each defined
benefit plan for which the accumulated benefit obligation exceeds plan assets.
This amount has been recorded as a long-term liability with an offsetting
intangible asset. Because the asset recognized may not exceed the amount of
unrecognized prior service cost and transition obligation on an individual
plan basis, the balance of $3.1 million is reported as a separate reduction of
shareholders' investment at September 30, 1996.
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<PAGE> 54
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.
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 Marine
Power Products and 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.
On January 1, 1994 and to be effective in 1998, the Company introduced a
cap for the employer-paid portion of medical costs for non-union active
employees. The cap is tied to the Consumer Price Index.
The net cost of providing postretirement healthcare and life insurance
benefits included the following components:
(Dollars in millions)
Years ended September 30 1996 1995 1994
-------------------------------- ------- ------- -------
Service cost-benefits attributed
to service during the period $ 1.0 $ 1.0 $ 1.3
Interest cost on accumulated
postretirement benefit
obligation 6.4 6.9 7.0
Amortization of prior service
cost and actuarial gain (1.9) (1.8) (1.8)
------- ------- -------
Net periodic postretirement
benefit cost $ 5.5 $ 6.1 $ 6.5
======= ======= =======
The amounts recognized in the Company's Statements of Consolidated
Financial Position included:
(Dollars in millions)
September 30 1996 1995
------------------------------ ------- -------
Accumulated postretirement
benefit obligation
Retirees $ 64.5 $ 64.5
Fully eligible active plan
participants 11.5 8.2
Other active plan
participants 19.3 20.3
Prior service credit 10.7 12.5
Unrecognized net gain .7 4.3
------- -------
Net obligation $106.7 $109.8
======= =======
The accumulated postretirement benefit obligation was determined using an
8% and 7 3/4% weighted average discount rate at September 30, 1996 and 1995,
respectively. The health care cost trend rate was assumed to be 9% in fiscal
year 1996, gradually declining to 7% over two years and remaining constant
thereafter. In fiscal year 1995, the health care cost trend rate was assumed
to be 10%, gradually declining to 7% over three years and remaining constant
thereafter. A one percentage point increase of this annual trend rate would
increase the accumulated postretirement benefit obligation at September 30,
1996 by approximately $7.3 million and the net periodic cost by $0.5 million
for the year.
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<PAGE> 55
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 1996, 1995 and 1994, $0.8 million, $5.1 million and $3.9 million,
respectively, was charged to earnings under this plan.
The 1994 OMC Long-Term Incentive Plan and its predecessor plan authorize
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 1996,
1995 and 1994, respectively, $(0.4) million, $1.1 million and $1.4 million were
charged (credited) to earnings for the estimated cost of performance units
earned under the 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 1996 1995 1994
----------------------------- ------- ------- -------
Expense (Income)--
Interest earned $ (4.1) $ (7.0) $ (3.6)
Foreign exchange losses (gains) -- (.6) 2.6
(Gain) loss on disposition
of plant and equipment .9 (1.8) (.6)
Transfer of Hong Kong
land rights -- -- (10.5)
Joint venture earnings (4.4) (4.9) (4.1)
Discount charges--
Accounts Receivable Sales 1.7 -- --
Miscellaneous, net (2.6) (2.4) (6.3)
------- ------- -------
$ (8.5) $(16.7) $(22.5)
======= ======= =======
Note 14 Income Taxes
--------------------
The provision for income taxes consisted of the following components:
(Dollars in millions)
Years ended September 30 1996 1995 1994
------------------------------------ ------ ------- -------
Provision for current income taxes
Federal $(5.6) $19.8 $ 12.5
State -- 3.7 2.4
Non-U.S. 2.5 10.6 5.7
------ ------- -------
Total current (3.1) 34.1 20.6
Changes to valuation allowance -- (24.7) (15.7)
------ ------- -------
Total provision $(3.1) $ 9.4 $ 4.9
====== ======= =======
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<PAGE> 56
The significant short-term and long-term deferred tax assets and liabilities
were as follows:
(Dollars in millions)
September 30 1996 1995
----------------------------------- -------- --------
Deferred tax assets
Litigation and claims $ 16.9 $ 14.8
Product warranty 10.7 10.3
Marketing programs 15.3 15.2
Postretirement medical benefits 42.7 43.5
Restructuring 7.6 8.2
Loss carryforwards 29.6 22.0
Other 46.5 46.0
Valuation allowance (92.8) (92.8)
-------- --------
Total deferred tax assets $ 76.5 $ 67.2
======== ========
Deferred tax liabilities
Depreciation and amortization $ (12.4) $ ( 7.5)
Employee benefits (14.0) (12.3)
Other (12.3) (12.0)
-------- --------
Total deferred tax liabilities (38.7) (31.8)
-------- --------
Net deferred tax assets $ 37.8 $ 35.4
======== ========
The Company believes the recorded net deferred tax assets of $37.8 million,
of which $22.2 million is reflected as a net long-term asset, will be realized.
A valuation allowance of $92.8 million has been recorded at September 30, 1996,
to reduce the deferred tax assets to their estimated net realizable value. Of
this valuation allowance, $22.2 million relates to deferred tax assets
established for foreign and state loss carryforwards.
As of September 30, 1996, certain non-U.S. subsidiaries of the Company had
net operating loss carryforwards for income tax purposes of $44.8 million. Of
this amount, $8.0 million will expire by 2001, with the remaining balance being
unlimited. In addition , the Company has $26.4 million of Federal net
operating loss carryforwards expiring in 2011 and $81.4 million of state net
operating loss carryforwards expiring between 1997 and 2011. These
carryforwards are entirely offset by the valuation allowance. No benefit has
been recognized in the Consolidated Financial Statements.
Several factors would generally enable the Company to recognize the
deferred tax assets that have been offset by the valuation allowance.
Historical profitability, forecasted earnings, and management's determination
"it is more likely than not" the deferred tax assets will be realized against
forecasted earnings, all affect whether the remaining U.S. deferred tax assets
may be recognized, through a reversal of the valuation allowance. Because the
deferred tax asset realization factors were adversely affected by the 1996
fiscal year results, it is unlikely the reversal of the valuation allowance
will occur in 1997.
-56-
<PAGE> 57
The following summarizes the major differences between the actual provision
for income taxes on earnings (losses) and the provision (credit) based on the
statutory United States Federal income tax rate:
% to pretax earnings
Years ended September 30 1996 1995 1994
---------------------------------- ------- ------- -------
At statutory rate (35.0)% 35.0% 35.0%
State income taxes, net of
Federal tax deduction (.2) 4.0 3.0
Tax effect of non-U.S.
subsidiary earnings (loss) taxed
at other than the U.S. rate 11.4 9.6 (6.2)
Tax benefit not provided on
foreign operating losses 20.6 1.2 --
Tax effect of goodwill
amortization and write-offs 3.3 8.7 5.4
Reversal of valuation allowance -- (44.8) (29.2)
Federal tax effect prior year's
state income taxes paid 13.6 -- .6
Tax effects of audit settlements (50.5) -- --
Other 7.0 1.7 .6
------- ------- -------
Actual provision (29.8)% 15.4% 9.2%
======= ======= =======
Domestic and non-U.S. earnings before provision (credit) for income
taxes consisted of the following:
(Dollars in millions)
Years ended September 30 1996 1995 1994
---------------------------------- ------- ------- -------
Earnings (Loss) before provision
for income taxes
United States $ (8.1) $ 46.8 $ 33.2
Non-U.S. (2.3) 14.0 20.2
------- ------- -------
Total $(10.4) $ 60.8 $ 53.4
======= ======= =======
The above non-U.S. loss of $(2.3) 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 $45.5 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.
During the fiscal year 1996, the Company settled with the Internal Revenue
Service the audits for the fiscal years 1989 through 1991. In addition, the
Company settled various tax years with the State of Illinois. As a result of
these settlements, previously provided income taxes of $5.3 million and
interest of $5.0 million (before applicable taxes of $1.8 million) were
reversed. The reversal of the $5.0 million of previously provided interest
reduced the Company's total interest expense for the 1996 year.
-57-
<PAGE> 58
Note 15 Geographic Business Data
--------------------------------
The Company, which operates in a single business segment, manufactures
marine engines, boats, parts and accessories. 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 1996 1995 1994
-------------------------- ---------- ---------- ----------
Net sales
United States $ 826.3 $ 917.4 $ 805.5
Europe 101.8 106.5 86.7
Other 193.4 205.3 186.2
---------- ---------- ----------
Total $ 1,121.5 $ 1,229.2 $ 1,078.4
========== ========== ==========
Sales between geographic
areas from
United States $ 140.5 $ 178.1 $ 145.5
Europe 7.4 7.9 18.2
Other 45.6 58.0 47.6
---------- ---------- ----------
Total $ 193.5 $ 244.0 $ 211.3
========== ========== ==========
Total revenue
United States $ 966.8 $ 1,095.5 $ 951.0
Europe 109.2 114.4 104.9
Other 239.0 263.3 233.8
Eliminations (193.5) (244.0) (211.3)
---------- ---------- ----------
Total $ 1,121.5 $ 1,229.2 $ 1,078.4
========== ========== ==========
Earnings (Loss)
from operations
United States $ 5.0 $ 54.7 $ 43.6
Europe (8.1) (2.8) (6.3)
Other 6.0 30.1 22.9
Corporate expenses (9.5) (14.8) (14.2)
---------- ---------- ----------
Total $ (6.6) $ 67.2 $ 46.0
========== ========== ==========
Total assets at September 30
United States $ 597.9 $ 615.7 $ 547.8
Europe 72.5 99.4 76.4
Other 134.8 145.6 135.6
Corporate assets 68.5 46.3 57.3
---------- ---------- ----------
Total $ 873.7 $ 907.0 $ 817.1
========== ========== ==========
Corporate expenses have been restated for prior years to distinguish
between services provided for and billed to operating units and those related
to the corporate governance activities.
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.
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<PAGE> 59
Note 16 Quarterly Information (Unaudited)
-----------------------------------------
A summary of pertinent quarterly data for the 1996 and 1995 fiscal years
follows:
(Dollars in millions except amounts per share)
Quarter ended Dec. 31 Mar. 31 June 30 Sept. 30
------------------------ -------- -------- -------- --------
Fiscal 1996*
Net sales $ 232.1 $ 285.5 $ 291.0 $ 312.9
Gross earnings 39.4 61.3 59.6 69.0
Net earnings (loss) (12.4) 1.1 (3.6) 7.6
======== ======== ======== ========
Net earnings (loss) per share:
Primary $ (.62) $ .05 $ (.18) $ .38
======== ======== ======== ========
Fully diluted $ (.62) $ .05 $ (.18) $ .36
======== ======== ======== ========
Quarter ended Dec. 31 Mar. 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
======== ======== ======== ========
*Includes restructuring charges of $11.9 million in the 3rd quarter and $13.7
million in the 4th quarter.
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 declared per share during the last eight
fiscal quarters were as follows:
Market Price Dividend
Quarter ended High Low Close Declared
------------------ ----- ------- ------- --------
September 30, 1996 $ 18.50 $ 14.38 $ 15.38 $ .10
June 30, 1996 20.25 18.13 18.13 .10
March 31, 1996 21.88 18.88 19.13 .10
December 31, 1995 22.38 19.75 20.38 .10
September 30, 1995 22.63 18.00 21.50 .10
June 30, 1995 22.88 18.88 19.63 .10
March 31, 1995 22.00 19.50 21.00 .10
December 31, 1994 24.88 17.50 19.63 .10
-59-
<PAGE> 60
Note 17 Commitments and Contingent Liabilities
----------------------------------------------
As a normal business practice, the Company has made arrangements with
financial institutions 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 repurchase obligation
to $40 million per model year for a period not to exceed 30 months from the
date of invoice. The Company resells any repurchased products . Losses
incurred under this program have not been material. The Company accrues for
losses which are anticipated in connection with expected repurchases.
Minimum commitments under operating leases having initial or remaining
terms greater than one year are $4.6 million, $3.8 million, $2.1 million, $1.4
million, $0.7 million and $0.3 million for the years ending September 30, 1997,
1998, 1999, 2000, 2001 an d after 2001, 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, as
well as those discussed below, 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.
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 and other
agencies. The Company has been notified that it is named a potentially
responsible party ("PRP") at various sites for study and clean-up costs. 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 which vary from site to site. Costs
are typically allocated based upon the volume and nature of the materials sent
to the site. 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.
Once the Company becomes aware of its potential liability at a particular
site, it uses its 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 environmental 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 upon 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 and the Company's knowledge of their
ability to pay.
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, 1996, the
Company has accrued approximately $14 million for costs related to remediation
at contaminated sites including continuing and closed-down operations. The
possible recovery of insurance proceeds has not been considered in estimating
contingent environmental liabilities.
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<PAGE> 61
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 the accrual accurately
reflects the Company's liability based upon the information available at the
time.
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<PAGE> 62
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 are properly
recorded, and that accounting records may be relied upon for the preparation
of Consolidated Financial Statements and other financial information.
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
---------------
Harry W. Bowman
Chairman, President and Chief Executive Officer
GEORGE L. SCHUEPPERT
--------------------
George L. Schueppert
Executive Vice President and Chief Financial Officer
MILES E. DEAN
-------------
Miles E. Dean
Vice President and Controller
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<PAGE> 63
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, 1996 and 1995, 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, 1996. 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, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period
ended September 30, 1996, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
-------------------
Arthur Andersen LLP
Chicago, Illinois
October 25, 1996
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<PAGE> 64
OFFICERS DIRECTORS
-------- ---------
Harry W. Bowman Harry W. Bowman
Chairman of the Board, Chairman of the Board,
President and Chief Executive Officer President and Chief Executive Officer
George L. Schueppert
Executive Vice President and Frank Borman
and Chief Financial Officer Chairman of the Board
and Chief Executive Officer
Carlisle R. Davis Patlex Corporation
Senior Vice President, Operations
for the Marine Power Products
Group William C. France
Chairman of the Board,
David R. Lumley President and Chief Executive Officer
Senior Vice President, Sales & International Speedway Company
Marketing for the Marine Power
Products Group
Ilene S. Gordon
Richard H. Medland Vice President, Operations
Senior Vice President & Chief Tenneco, Inc.
Administrative Officer
Clark J. Vitulli Richard T. Lindgren
Senior Vice President, OMC Boat President
Group The Lorr Corporation
D. Jeffrey Baddeley
Vice President and General Counsel J. Willard Marriott, Jr.
Chairman of the Board,
Miles E. Dean President and Chief Executive Officer
Vice President and Controller Marriott International, Inc.
John D. Flaig
Vice President, Product Integrity Donald L. Runkle
General Motors Vice President &
Edgar M. Frandle General Manager Delphi Automotive
Vice President, Information Systems Energy & Engine Management
Systems & Technology and Chief Systems
Information Officer
Thomas G. Goodman Richard J. Stegemeier
Treasurer Chairman Emeritus of the Board
Unocal Corporation
Robert J. Moerchen
Assistant Treasurer
Richard F. Teerlink
Robert S. Romano Chairman President and Chief
Assistant Secretary and Assistant Executive Officer, Harley-
General Counsel Davidson, Inc.
-64-
<PAGE> 65
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 16, 1997, at the Palmer House Hilton, 17
East Monroe Street, Chicago, Illinois 60603-5605
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
847.689.5438
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
Telephone 847.689.5246
Facsimile 847.689.6082
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<PAGE> 66
Independent Public Accountants
------------------------------
Arthur Andersen LLP
33 West Monroe Street
Chicago, Il 60603
10-K Report
-----------
A copy (without exhibits) of Form 10-K filed with the Securities and Exchange
Commission for the year ended September 30, 1996, is available without charge
from:
Investor Relations
Outboard Marine Corporation
100 Sea Horse Drive
Waukegan, IL 60085
Interim Financial Reports
-------------------------
Copies (without exhibits) of interim financial reports are available without
charge. To request a copy of a report for the quarter ended December 31, 1996;
March 31, 1997 or June 30, 1997; call: 1-888-OMCFACT.
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<PAGE> 67
EXHIBIT 21
Domestic Subsidiaries
---------------------
(As of December 4, 1996)
Jurisdiction of
Subsidiary and Address Incorporation Ownership
---------------------- -------------- ---------
DONZI, Inc. Florida 100%
OMC Aluminum Boat Group, Inc. Delaware 100%
Syracuse Transportation, Inc. Indiana 100%
OMC Dealer Development Inc. Delaware 100%
OMC Development Inc. Delaware 100%
OMC Distributors, Inc.-Fort Wayne Delaware 100%
OMC Distributors, Inc.-Minneapolis Delaware 100%
OMC Distributors, Inc.-San Francisco California 100%
OMC Europe, Inc. Delaware 100%
OMC & Co. Delaware 100%
OMCEMA, Inc. Delaware 100%
OMC Fishing Boat Group, Inc. Delaware 100%
OMC Holdings, Inc. Delaware 100%
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<PAGE> 68
Jurisdiction of
Subsidiary and Address Incorporation Ownership
---------------------- -------------- ---------
OMC Latin America/Caribbean, Inc. Delaware 100%
OMC Partners, Inc. Delaware 100%
OMC Venture, Inc. (formerly Lawn-Boy Delaware 100%
OMC Receivables Corp. Delaware 100%
OMC Recreational Boat Group, Inc. Delaware 100%
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
Corporation Delaware 100%
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. (Unaffiliated
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.
-68-
<PAGE> 69
International Subsidiaries
--------------------------
Jurisdiction of
Subsidiary and Address Incorporation Ownership
---------------------- -------------- ---------
Outboard Marine Corporation
Asia Limited Hong Kong 100%
Outboard Marine Corporation
(Australia), PTY, Ltd. Australia 100%
OMC Europe, V.O.F. Belgium 100%
OMC Holdings France, S.N.C. France 100%
OMC Power Boats S.A.R.L. France France 100%
OMC France, S.N.C. France 100%
Kelt, S.A France 100%
Outboard Marine International S.A. Switzerland 100%
OMC (Deutschland) G.M.B.H. Germany 100%
4
FICHT GmbH & Co. KG Germany 51%
Outboard Marine Foreign Inter-
national Sales Corporation Hong Kong 100%
Outboard Marine Nederland B.V. Netherlands 100%
4 51% owned by OMC (Deutschland) G.M.B.H. & 49% owned by members of the Ficht
family.
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<PAGE> 70
Jurisdiction of
Subsidiary and Address Incorporation Ownership
---------------------- -------------- ---------
OMC Norge AS Norway 100%
OMC Outboard Marine (Switzerland) AG Switzerland 100%
OMC Sverige Aktiebolag Sweden 100%
Outboard Marine Corporation
of Canada, Ltd. Ontario 100%
Altra Marine Products, Inc. Quebec 100%
Outboard Marine Foreign Sales
Corporation U.S. Virgin Islands 100%
Outboard Marine de Mexico,
S.A. de C.V. Mexico 100%
Outboard Marine Motors Amazonia LTDA Brazil 100%
Outboard Marine (UK) Ltd. United Kingdom 100%
OMC Finland Oy Finland 100%
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<PAGE> 71
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
Chicago, Illinois
December 12, 1996
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