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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
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
incorporation or organization) Identification No.)
100 Sea Horse Drive 60085
Waukegan, Illinois (Zip Code)
(Address of Principal Executive
Offices)
Registrant's telephone number, including area code: (847) 689-6200
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
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7% Convertible Subordinated Debentures Due 2002 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment of this Form 10-K. [X]
The aggregate market value of voting stock held by non-affiliates at
December 31, 1999 was $0.
Number of shares of Common Stock of $0.01 par value outstanding at December
31, 1999 was 20,439,531 shares.
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TABLE OF CONTENTS
Item
No. Page
---- ----
PART I
1 Business.......................................................... 3
2 Properties........................................................ 16
3 Legal Proceedings................................................. 17
4 Submission of Matters to a Vote of Security Holders............... 17
PART II
Market for Registrant's Common Equity and Related Shareholder
5 Matters........................................................... 18
6 Selected Financial Data........................................... 18
Management's Discussion and Analysis of Financial Condition and
7 Results of Operations............................................. 19
7A Quantitative and Qualitative Disclosures about Market Risk........ 30
8 Financial Statements and Supplementary Data....................... 32
Changes in and Disagreements on Accounting and Financial
9 Disclosure........................................................ 70
PART III
10 Directors and Executive Officers of the Registrant................ 70
11 Executive Compensation............................................ 72
12 Security Ownership................................................ 82
13 Certain Relationships and Related Transactions.................... 84
PART IV
14 Exhibits, Financial Statement Schedule, and Reports on Form 8-K... 86
Signatures........................................................ 90
2
PART I
Item 1. Business
Unless the context otherwise requires, all references herein to the
"Company" or "OMC" shall mean Outboard Marine Corporation, a Delaware
corporation, and its consolidated subsidiaries. Unless otherwise indicated, all
domestic industry statistics referenced herein are derived from data published
by the National Marine Manufacturers' Association ("NMMA"), which the Company
has not independently verified but believes to be reliable. All foreign
industry data referenced herein are estimates prepared internally by the
Company based in part on publicly-available sources, which the Company has not
independently verified but believes to be reliable. Prior to October 1, 1998,
the Company's fiscal year ended each September 30. However, effective October
1, 1998, the Company's fiscal year-end changed from September 30 to December
31. Therefore, for example, references herein to fiscal 1998 or fiscal year
1998 refer to the Company's fiscal year ended September 30, 1998 whereas
references to fiscal 1999 or fiscal year 1999 refer to the fiscal year ended
December 31, 1999.
General
Outboard Marine Corporation believes it is the world's largest dedicated
manufacturer of outboard marine engines and boats. As of December 31, 1999, the
Company had an approximate 32% share of the United States outboard engine
market and an estimated worldwide market share of 25%. Marketed under the
Johnson and Evinrude brand names, the Company offers one of the industry's
widest ranges of outboard engines, with models ranging from two to 250-
horsepower. The Company's boat brands are also among the most recognized in the
industry and represent the market leaders in several categories, including the
fishing, aluminum and recreational boat segments. OMC's primary boat brands
include Chris*Craft, Four Winns, Seaswirl, Stratos, Javelin, Hydra-Sports, Lowe
and Princecraft. The Company also generates a significant, recurring stream of
revenue in replacement parts and accessories. The Company believes that its
marine dealer network of approximately 5,100 independent authorized dealers
worldwide, approximately 3,600 of which are located in North America, is one of
the largest marine dealer networks in the world. The Company currently has
several important strategic alliances with respect to marine engines, including
for the development of the FICHT fuel-injection technology, a supply
arrangement with Suzuki Motor Corporation relating to certain four-stroke
outboard engines, and a supply arrangement with Volvo Penta of the Americas,
Inc. relating to gasoline stern drive and inboard marine power systems.
The Company was incorporated in 1936 by members of the Briggs and Evinrude
families. Prior to the late 1980s, the focus of the Company's strategy was to
be the industry leader in the two-cycle engine market by manufacturing engines
and a variety of products powered by small gasoline engines. In addition to
outboard engines, the Company's products included lawnmowers, chainsaws,
snowmobiles, light industrial vehicles and turf care equipment. In the late
1980s, a structural shift occurred in the marine industry as engine
manufacturers, including the Company, began to package their engines with boats
from boat manufacturers. Marine dealers found it more efficient and economical
to buy boats "packaged" with engines rather than buy engines and boats
separately. In line with this trend, the Company acquired 15 boat companies by
1990 and divested its non-marine product lines, thereby transforming itself
from an engine company to a marine company.
On September 12, 1997, Greenmarine Holdings LLC ("Greenmarine Holdings")
acquired control of approximately 90% of the then outstanding shares of common
stock ("Pre-Merger Company Shares") of Outboard Marine Corporation through an
$18.00 per share tender offer pursuant to Greenmarine Holdings' Offer to
Purchase dated August 8, 1997 (the "Tender Offer"). On September 30, 1997,
Greenmarine Holdings acquired the untendered Pre-Merger Company shares by
merging an acquisition subsidiary with and into the Company (the "Merger"). As
a result of the Merger, OMC became a wholly-owned subsidiary of Greenmarine
Holdings; each untendered Pre-Merger Company share outstanding immediately
prior to the Merger was converted into the right to receive a cash payment of
$18.00 per share; and 20.4 million shares of new common
3
stock of the Company were issued to Greenmarine Holdings. The Tender Offer and
the Merger are collectively referred to herein as the "Greenmarine
Acquisition."
Since the Greenmarine Acquisition, the Company has recruited a highly
experienced senior management team led by David D. Jones, Jr. as President and
Chief Executive Officer. Mr. Jones was previously President of the Mercury
Marine Division of Brunswick Corporation, where, under his direction, the
division gained substantial market share in several key marine segments. Mr.
Jones has more than twenty years of experience in the marine industry. The
management team also includes Andrew P. Hines who joined the Company as
Executive Vice President and Chief Financial Officer and is currently Executive
Vice President Strategic Planning and Business Development. Mr. Hines has
extensive experience in turnaround situations. In addition, the Company has
added a substantial number of new members to its management team to fill key
operational and administrative positions, including new heads of most of its
boat divisions, its engine manufacturing operations, its purchasing and supply
operations, and its sales, marketing and advertising operations. The senior
management team has developed several key initiatives to turn around and
substantially improve the Company's operations.
The Company owns a majority interest in FICHT GmbH & Co. KG, which has
developed a patented, highly innovative fuel-injection technology designed for
two-stroke engines. The FICHT fuel-injection technology utilizes advanced
electronic microprocessors to directly inject high-pressure fuel into a sealed
combustion chamber, eliminating the escape of any unburned fuel. The FICHT
fuel-injection system uses fewer mechanical parts, is smaller and, the Company
believes, more reliable than any other low-emission engine. The FICHT fuel-
injection technology possesses several advantages over standard two-stroke
engines, including smoother and quieter operation, 35% better fuel economy on
average, up to 80% reduction in hydrocarbon emissions and virtually no smoke on
start-up. In addition, two-stroke engines based on the FICHT fuel-injection
technology offer several benefits relative to four-stroke engines, including
increased low-end power, lighter weight and smaller size. Furthermore, the
FICHT fuel-injection technology meets emissions standards mandated by the
United States Environmental Protection Agency (the "EPA") set for the year
2006. The Company has already introduced outboard engines incorporating the
FICHT fuel-injection technology in seven separate horsepower categories.
Industry Overview
The recreational boating industry generated approximately $23 billion in
domestic retail sales in 1999, including approximately $12 billion in sales of
new boats, engines, trailers and accessories. According to statistics compiled
by the U.S. Department of Commerce, recreational products and services
represent one of the fastest growing segments of U.S. expenditures.
Recreational marine industry sales are impacted by the general state of the
economy, interest rates, consumer spending, technology, dealer effectiveness,
demographics, weather conditions, fuel cost and availability and government
regulations and other factors. See "Item 7--Management's Discussion and
Analysis of Financial Condition and Results of Operations--Cyclicality;
Seasonality; Weather Conditions." During the period from 1983 to 1992, the
recreational marine industry experienced both its largest growth (from 1983 to
1988) and its largest downturn (from 1988 to 1992) in over 30 years. The growth
was stimulated not only by increasing real disposable income, but also by the
emerging trend within the marine industry of packaging engines with boats,
which resulted in boat packages that were more affordable to consumers, and
easily obtainable marine loans that required no money down and could be
financed over a term of over ten years. The contraction in sales from 1988 to
1992 was due primarily to the recession during the early 1990s. In addition,
many boat owners had loan balances in the early 1990s that exceeded the value
of the boats, which made trade-up sales more difficult to obtain. Finally, the
U.S. government imposed a luxury tax in 1990 on boats sold at prices in excess
of $100,000. The Company believes that many consumers were under the impression
that this luxury tax applied to all boats and that this depressed sales of
boats in all price segments. The luxury tax was repealed in 1993.
4
Products
The Company manufactures a wide variety of outboard engines, including
marine parts and accessories, and boats and distributes these products
throughout the world.
The following table sets forth, for the periods indicated, information
concerning the Company's net sales by product category expressed in dollars in
millions and as a percentage of net sales.
Fiscal Year Ended Three Months Ended Fiscal Year Ended
December 31, 1999 December 31, 1998 September 30, 1998
------------------- ------------------- --------------------
Engines............ $ 649.8 58.5% $111.9 56.1% $ 636.5 62.1%
Boats.............. 461.1 41.5 87.5 43.9 389.2 37.9
---------- ------- --------- -------- ---------- -------
Total............ $1,110.9 100.0% $199.4 100.0% $1,025.7 100.0%
========== ======= ========= ======== ========== =======
The following table sets forth, for the periods indicated, information
concerning the Company's net sales by geographic region expressed in dollars in
millions and as a percentage of net sales (for additional information
concerning the Company's sales by geographic region and industry segment, see
Note 15 of the Notes to the Consolidated Financial Statements contained in Item
8 elsewhere herein).
Fiscal Year Ended Three Months Ended Fiscal Year Ended
December 31, 1999 December 31, 1998 September 30, 1998
------------------- ------------------- --------------------
United States...... $ 867.1 78.1% $152.0 76.2% $ 769.7 75.0%
Europe............. 93.4 8.4 15.6 7.8 91.9 9.0
Other.............. 150.4 13.5 31.8 16.0 164.1 16.0
---------- ------- --------- -------- ---------- -------
Total............ $1,110.9 100.0% $199.4 100.0% $1,025.7 100.0%
========== ======= ========= ======== ========== =======
Outboard Engines
The Company's Johnson and Evinrude brands are two of the most recognized
outboard engine brands worldwide. Johnson and Evinrude are competitively priced
with other premium priced outboard engines and include offerings in virtually
every segment of the outboard engine market. The Company's Evinrude brand
comprises two-stroke models incorporating the Company's FICHT Ram fuel-
injection technology and certain four-stroke engines. The Evinrude brand is
being marketed as the Company's "premium" outboard marine engine brand. In
addition, the Company has entered into a supply agreement with an affiliate of
Suzuki Motor Corporation under which Suzuki will manufacture certain other
four-stroke engines for sale by the Company under its Evinrude brand. The
Johnson brand comprises a full line of traditional carbureted two-stroke
models.
In 1997, the Company introduced a 150-horsepower outboard engine with FICHT
fuel-injection technology. Through its Evinrude brand line, the Company
currently offers engines incorporating its innovative FICHT fuel-injection
technology in the 90, 115, 150, 175, 200, 225 and 250-horsepower categories and
is reviewing expanding this technology across the remainder of the Evinrude
outboard engine product line. The FICHT fuel-injection system uses an
electronically driven fuel injector, controlled by a microprocessor-based
engine management system, to blast short bursts of highly pressurized fuel
directly into the combustion chamber at rates of up to 100 times per second.
This high-pressure fuel pulse atomizes and positions each burst of gasoline in
the cylinder for complete ignition once the exhaust port has been closed by the
rising piston resulting in no unburned fuel escaping prior to combustion. The
FICHT fuel-injection technology possesses several advantages over standard two-
stroke engines, including smoother and quieter operation, 35% better fuel
economy on average, up to 80% reduction in hydrocarbon emissions and virtually
no smoke on start-up. In addition, two-stroke engines based on the FICHT fuel-
injection technology offer several benefits relative to four-stroke engines,
including increased low-end power, lighter weight and smaller size. Engines
with FICHT fuel-injection technology meet the EPA emissions standards set for
the year 2006.
5
In fiscal 1997, the Company became aware of certain performance issues with
its FICHT engines. Since then the Company has developed and implemented
strategies to address the performance issues that had been identified. These
strategies included modifications to the 1999 model-year FICHT engines and
changes to the production processes for FICHT engines. In addition, upgrade
kits were provided for certain previously sold FICHT engines. Finally, on May
13, 1999, the Company announced an all-new line of Evinrude two-stroke direct
injection outboards with FICHT Ram injection technology for model year 2000.
These engines reflect certain further design refinements and improved methods
of production. See "Item 7--Management's Discussion and Analysis of Financial
Condition and Results of Operations--General--Introduction of FICHT Engines;
General"and "Item 7--Management's Discussion and Analysis of Financial
Condition and Results of Operations--Results of Operations--Three Months Ended
December 31, 1998 Compared to Three Months Ended December 31, 1997.
Since the Company originally acquired the FICHT technology, it has been
actively engaged in research and development efforts aimed at improving the
FICHT technology. See "Research and Development" below. The Company, directly
or through its FICHT GmbH & Co. KG subsidiary, has entered into arrangements to
sublicense the FICHT fuel-injection technology to manufacturers of snowmobiles,
personal watercraft, motorcycles and lawn equipment, including Polaris
Industries, Inc., Arctic Cat, Inc., Kawasaki Heavy Industries, Ltd., and two
lawn and garden-care equipment manufacturers. See "Strategic Alliances--FICHT
Joint Venture" and "Intellectual Property" below. The Company is currently
evaluating other opportunities to sublicense the FICHT fuel-injection
technology to manufacturers of non-automotive engines.
The following table sets forth the number of engine models and price range
by size of engine in terms of horsepower:
Number of Retail Price
Horsepower Range Models Range($)
---------------- --------- ------------
2-24 horsepower..................................... 71 719- 3,056
25-99 horsepower.................................... 81 2,681- 8,813
100-250 horsepower.................................. 72 7,844-17,269
---
Total............................................. 224
===
Parts and Accessories
The Company also offers a wide array of marine parts and accessories through
its Johnson and Evinrude dealers. Key products include engine parts, propellers
and engine oil. Most of the parts business consists of replacement parts for
outboard motors. The Company estimates that there are approximately seven
million Johnson and Evinrude outboard motors in use, which produce a steady
demand for high-margin replacement parts. In addition, in 1996 OMC launched a
new value-line of marine accessories under the Nautic Pro brand name. This
brand is marketed in part through a new distribution channel of marine and
discount retailers, and is priced to compete with other private label and
discount brands. Marine parts and accessories comprised approximately 19% and
18% of OMC's sales in fiscal year 1999 and fiscal year 1998, respectively.
In June 1998, the Company announced that it had entered into a long-term
strategic business agreement with Johnson Worldwide Associates, Inc. to supply
a range of private-label electric trolling motors designed to the Company's
specifications. This arrangement allows the Company to offer its dealers a full
line of industry leading electric trolling motors with state-of-the-art
technology.
Boats
The Company's boat brands are among the most recognized in the industry and
are one of the market leaders in several categories, including the fishing,
aluminum and recreational boat segments. OMC's boat brands are Chris*Craft,
Four Winns, Seaswirl, Stratos, Javelin, Hydra-Sports, Lowe and Princecraft. The
6
Company offers products that cover most segments in the recreational and
fishing boat market, from ten foot aluminum boats to 33-foot luxury cruisers,
and is one of the largest producers of boats in units and dollars.
In fiscal year 1998, the Company began rationalizing and realigning its boat
brands to lower its manufacturing costs and better focus each of its brands on
a particular niche in the boating industry, thereby reducing competition and
inefficient overlap amongst its brands. As part of this rationalization plan,
the Hydra-Sports brand became the Company's flagship saltwater fishing boat
line, the Stratos brand became the Company's top-of-the-line, tournament-style
freshwater fishing boat line and the Javelin brand became the Company's entry
to mid-level recreational fishing boat line. Production of the Company's
Sunbird brand runabout boats for the 1999 model year was suspended, and the
Sunbird Neptune series saltwater fishing boat products were incorporated into
the Hydra-Sports brand. Hydra-Sports brand freshwater fishing boats and Stratos
brand saltwater fishing boats have been discontinued. The Company has realigned
its aluminum boat brands by consolidating the most popular models from its
Grumman, Roughneck and Sea Nymph lines and incorporating them into the Lowe
brand. The Lowe brand is now positioned to offer a full line of aluminum boats.
The following table provides a brief description of the Company's 2000 model
year boat products by category, including product line and trade name, overall
length, retail price range, and a brief description of boats manufactured:
Product Line Overall Retail
& Trade Name Length(ft) Price Range($) Description
------------ ---------- -------------- -----------
RECREATIONAL:
Chris*Craft... 19-32 21,915-150,200 Chris*Craft is one of the world's
most recognized brands in the marine
industry, serving the "prestige"
market for boaters seeking a "top-of-
the-line" boat.
Four Winns.... 17-33 11,900-139,589 Four Winns is the nation's third most
popular boat brand. Four Winns offers
a premium line of family-oriented
recreational boats.
Seaswirl...... 17-26 12,500-65,000 Seaswirl is a mid-priced boat line,
and is one of the leading boat brands
in the Western United States.
FISHING:
Stratos....... 16-22 17,047-34,457 Stratos is a performance line of
freshwater fishing boats designed for
the discriminating angler. The line
includes bass and fish-'n-ski boats.
Javelin....... 17-20 12,533-27,823 Javelin is a value-priced freshwater
fishing boat line. Products include
bass and fish-'n-ski boats.
Hydra-Sports.. 17-30 14,300-101,500 Hydra-Sports is a full line of
saltwater fishing boats designed for
the fishing enthusiast.
ALUMINUM:
Lowe.......... 10-25 385-22,828 Lowe offers aluminum jon, fishing,
pontoon and deck boats.
Princecraft... 10-26 382-28,500 Princecraft is a premium line of
aluminum boats manufactured in Canada
and sold throughout North America.
Products include jon, fishing, fish-
'n-ski, pontoon and deck boats.
7
Strategic Alliances
FICHT Joint Venture
On April 30, 1992, the Company and FICHT GmbH of Kirchseeon, Germany entered
into a license agreement (the "1992 License Agreement") pursuant to which FICHT
granted to the Company an exclusive, worldwide right and license to
manufacture, use, sell and sublicense marine engines that utilize the FICHT
fuel-injection system. The 1992 License Agreement provides that the Company
shall pay royalties to FICHT GmbH on a per cylinder basis for each marine
engine that is sold by the Company which utilizes the FICHT fuel-injection
system. The term of the license is for the duration of each patent that relates
to the FICHT fuel-injection system existing at the time that the 1992 License
Agreement was executed or filed within one year thereafter.
On July 21, 1995, the Company acquired a majority ownership interest in
FICHT GmbH to promote the development and worldwide manufacturing and marketing
of the FICHT fuel-injection system. FICHT GmbH was subsequently converted to a
limited partnership known as FICHT GmbH & Co. KG (together with any predecessor
in interest, "FICHT GmbH"), in which the Company is the general partner and
holds a 51% interest and in which members of the Ficht family collectively
holds a 49% interest. The partnership agreement contains certain supermajority
provisions which provide that the partnership may not sell the business of
FICHT GmbH as a whole or in substantial parts, including licensing,
sublicensing or sale of patents and other intellectual property related to the
FICHT fuel-injection technology, without a unanimous vote of the partners and
may not effect certain other actions, including acquisitions of other
enterprises, without a majority of 75% of the votes of the partners. All
ordinary course of business matters requires only a simple majority vote. As
part of the Company's 1995 acquisition of a majority ownership in FICHT GmbH,
the 1992 License Agreement was assigned to FICHT GmbH & Co. KG.
On February 7, 1997, the Company and FICHT GmbH entered into a license
agreement (the "1997 License Agreement") pursuant to which FICHT GmbH granted
to the Company an exclusive, worldwide license to manufacture, use, sell and
sublicense the FICHT fuel-injection system for all non-marine, non-automotive
applications, including but not limited to, snowmobiles, all-terrain vehicles,
scooters, motorcycles, forest and garden equipment, lawn equipment and utility
equipment. The terms of the 1997 License Agreement provide that the Company
shall pay to FICHT GmbH a basic license fee in monthly installments through
February 2000. The term of the license is for the duration of each patent that
relates to the FICHT fuel-injection system existing at the time that the 1997
License Agreement was executed or filed within one year thereafter.
Since certain patents related to the FICHT technology have not been formally
issued to date by certain foreign jurisdictions, the ultimate term of the 1997
License Agreement cannot be determined until each such unissued patent is
issued. However, assuming that none of such unissued patents were to issue, the
1997 License Agreement would expire on December 10, 2017.
Prior to the execution of the 1997 License Agreement, FICHT GmbH entered
into non-exclusive sublicense agreements with two lawn and garden equipment
manufacturers, pursuant to which FICHT GmbH granted non-exclusive licenses for
the manufacture and sale of non-marine engines that utilize the FICHT fuel-
injection system in return for certain royalty payments, of which the Company
is entitled to a 51% interest. In addition, since entering into the 1997
License Agreement, the Company has executed separate sublicense agreements with
each of Kawasaki Heavy Industries, Ltd., Arctic Cat, Inc. and Polaris
Industries, Inc. Under these sublicense agreements, which, subject to certain
exceptions, may be terminated by each sublicensee after five years, the Company
has granted a non-exclusive license for the manufacture and sale of certain
non-automotive, marine and non-marine applications of the FICHT fuel-injection
system in return for certain license fees and/or royalty payments.
8
OMC/Volvo Stern Drive Joint Venture
On December 8, 1998 the Company sold its interest in the joint venture Volvo
Penta Marine Products L.P. (the "Volvo Penta Joint Venture") to Volvo Penta of
the Americas, Inc. ("Volvo"). The joint venture was formed by the Company, AB
Volvo Penta and Volvo Penta North America, Inc. in 1993 to manufacture
sterndrive engines for boats. Concurrently with the sale of the Company's
interest in the Volvo Penta Joint Venture, the Company and Volvo entered into
an agreement whereby Volvo will supply to the Company sterndrives through June
30, 2000 and component parts through June 30, 2011 and the Company will supply
component parts to Volvo through June 30, 2011.
Suzuki Agreement
On June 13, 1997, the Company entered into a five-year Original Equipment
Manufacturer Supply/Purchase Agreement with an affiliate of Suzuki Motor
Corporation for the purchase of certain four-stroke outboard engines and
related parts and accessories. The products are manufactured by Suzuki and
marketed and sold under the Evinrude brand.
Sales and Distribution
The Company believes that it has one of the world's largest marine dealer
networks with approximately 5,100 dealers worldwide, approximately 3,600 of the
dealers are in North America, and many of them sell both the Company's boats
and its engines. The Company's outboard engines and parts and accessories are
distributed in the United States and Canada through a dealer network. The
majority of those dealers purchase the Company's products directly from the
Company. The Company's boats are sold, for the most part, directly to
dealerships. Distribution of the Company's products outside the United States
and Canada are handled by various divisions and subsidiaries of the Company,
which sell to dealers and wholesale distributors throughout the world. The
Company's dealership agreements are typically nonexclusive and are executed on
an annual basis.
The Company sponsors various programs to provide its dealers with marketing
and financial assistance and to encourage them to offer more of the Company's
products. Such programs include "cooperative" advertising, boat-show
promotions, dealer rebate programs and "floor plan" financing assistance and
various other credit arrangements. In a typical "floor plan" financing
arrangement, an institutional lender agrees to provide a dealer with a line of
credit in a specified amount for the purchase of inventory, which secures such
credit. For certain lenders, the Company agrees to repurchase products up to a
specified amount in the event of repossession by the lender upon a dealer's
default. The Company's "floor plan" financing arrangements contain provisions,
which limit the Company's obligations to a total aggregate of approximately $33
million for a period not to exceed 18 months from the date of invoice. For the
fiscal years 1999 and 1998, the Company repurchased approximately $5.7 million
and $4.1 million of products, respectively, all of which were resold at a
discounted price. The Company accrues for losses that are anticipated in
connection with expected repurchases. The Company does not expect these
repurchases to materially affect its results of operations, financial position,
and cash flows.
The Company augments its dealers' marketing efforts by, among other methods,
advertising in boating and other recreational magazines, by furnishing displays
at regional, national or international boat shows and by sponsoring various
fishing tournaments and fishing professionals.
As part of its sales efforts, the Company actively pursues original
equipment manufacturer ("OEM") and pre-rig arrangements relating to its
outboard engines. Among the Company's OEM arrangements are those with Mako
Marine International, Inc., Smoker Craft, Inc., Alumacraft Boat Company, Triton
Boats and Godfrey Conveyer Company. The Company also has pre-rig arrangements
with certain boat manufacturers, including Genmar Holdings, Inc., Grady White
and Pursuit. Each of these manufacturers has agreed to pre-rig certain of its
products for outboard engines sold by OMC to such manufacturer's dealers. In
return, OMC pays a fee to the boat manufacturer based on the number of pre-
rigged boats sold by the manufacturer.
9
Manufacturing Operations
The Company's principal outboard engine manufacturing and assembly
facilities are located in Illinois, Wisconsin, Georgia, North Carolina, Mexico,
China, Brazil and Hong Kong. In September 1998, the Company announced that it
would close its Illinois and Wisconsin facilities by the end of 2000 as more
fully discussed below. Its principal boat manufacturing facilities are located
in Michigan, Florida, Tennessee, South Carolina, Oregon, Indiana, Missouri,
Australia and Canada. See "Item 2--Properties."
The Company has taken significant steps to improve the efficiency of its
manufacturing operations. In February 1998, the Company closed its Old Hickory,
Tennessee plant and moved its production to the Company's Murfreesboro,
Tennessee plant. In connection with this closure, the Company accrued $1.3
million in severance costs in its allocation of purchase price in connection
with the Greenmarine Acquisition. The Murfreesboro plant now focuses on the
production of fiberglass, freshwater fishing boats. Concurrently, production of
certain of the Company's saltwater fishing boats was moved to the Company's
Columbia, South Carolina manufacturing facility. This move focused the Columbia
facility exclusively on saltwater fishing boats (Hydrasports) and located
production closer to the retail market for these boats.
In September 1998, the Company announced that, over the next two years, it
would be closing its engine manufacturing facilities located in Milwaukee,
Wisconsin and Waukegan, Illinois. In connection with these closures, the
Company recorded a restructuring charge of $98.5 million in fiscal year 1998.
See "Item 7--Management's Discussion and Analysis of Financial Condition and
Results of Operation--General" and Note 4 of the Notes to the Consolidated
Financial Statements contained in Item 8 elsewhere herein. As part of the
Company's plan to close these facilities, substantially all of the production
operations currently conducted at these facilities will be outsourced to third-
party vendors. These plant closures will be effected in phases, and the
production transfers associated therewith already have begun and are expected
to be completed by December 2000.
The Company has begun several important initiatives aimed at reducing costs
in its engine manufacturing facilities. These initiatives include: (i) measures
aimed at reducing purchasing costs through consolidation of vendors; (ii)
redesign for commonality of components; (iii) improved factory layouts and work
flows; (iv) outsourcing of non-core capabilities; and (v) improvements in key
quality metrics. The Company has begun implementation of its lean manufacturing
strategy at its main outboard engine assembly facility in Calhoun, Georgia. The
second phase of this initiative will include implementation at additional
manufacturing locations. The Company has also identified vendors for
outsourcing of targeted engine components as the move towards "focused"
factories continues.
Most recently, the Company has begun implementation of demand flow
technology at its final assembly facility in Calhoun, Georgia. This technology
will enable the Company to be more responsive to customer needs and should
result in lower work-in- process inventory and required manufacturing floor
space.
Foreign Operations
For the fiscal years 1999 and 1998, approximately 22%, and 25%,
respectively, of the Company's net sales were derived from operations conducted
outside the United States. As of December 31, 1999 and December 31, 1998,
approximately 4% of the Company's long-lived assets (primarily property, plant
and equipment) were located outside the United States. Foreign operations are
subject to unique risks that can materially affect sales of the Company and the
value of the Company's foreign assets, including currency exchange rate
fluctuations, the impact of inflation, government expropriation, exchange
controls and other restrictions on the repatriation of earnings, political
instability, civil insurrection and other risks. Changes in certain exchange
rates could have an adverse effect on the relative prices at which the Company
and foreign competitors sell their products in the same market and on the
Company's ability to meet interest and principal obligations with respect to
its U.S. dollar-denominated debt (see "Item 7A--Quantitative and Qualitative
Disclosures About Market Risk"). Similarly, the cost of certain items required
in the Company's operations may be affected by changes in the
10
value of the relevant currencies. While the Company hedges certain exposures to
foreign currency exchange rate changes arising in the ordinary course of
business, there can be no assurance that the Company will be successful and
that shifts in currency exchange rates will not have a material adverse effect
on the Company. See Note 10 of the Notes to the Consolidated Financial
Statements contained in Item 8 elsewhere herein.
Quality Assurance
The Company maintains rigid quality controls and extensively tests its
products and components in each of its manufacturing and assembly facilities.
In addition to on-site testing, the Company maintains year-round, on-water
testing facilities in Illinois and Florida. The Company continuously monitors
and endeavors to improve its quality assurance programs and further intends to
expand these programs and motivate its workforce towards achieving increasing
quality standards.
Competition
The Company faces competition on international, national, regional and local
levels. Each of the markets in which the Company participates is highly
competitive. In addition, the Company faces competition generally from other
forms of recreational products and activities such as golf, camping and
recreational vehicles. Management believes that the Company is the world's
second largest manufacturer of outboard engines, with an approximate 32% share
of the United States outboard marine engine market and an estimated 25% share
of the worldwide market. Management also believes that the Company is the
world's largest manufacturer of aluminum boats and freshwater fiberglass
fishing boats, and the third largest manufacturer of recreational boats.
The marine engine market has high barriers to entry due to the capital
investment and technological expertise required in manufacturing marine
engines. As a result, the marine engine market is concentrated with two main
U.S.-based competitors, OMC and Brunswick Corporation, and three main Japan-
based manufacturers, Yamaha Motor Co., Ltd., American Honda Motor Co., Inc. and
Suzuki Motor Corporation. There are hundreds of manufacturers of boats, which
compete with the Company, the largest of which in the United States are
Brunswick, Genmar Industries, Inc. and Tracker Marine, L.P. Many of the
Company's competitors in the boat manufacturing industry are smaller, regional
builders who may possess cost advantages over the Company's boat manufacturing
operations. Although the recreational boat market is fragmented, the top four
boat builders (including the Company) accounted for approximately 46% of the
U.S. market in 1999 in terms of unit sales.
Many of the Company's competitors, including Brunswick, Yamaha, and Honda
are large, vertically integrated companies that may have greater resources,
including financial resources, than the Company. However, the Company believes
it is well positioned within the recreational boating industry, as it is one of
only two integrated domestic manufacturers of both marine engines and boats.
The Company believes that this integration is a competitive advantage as the
industry continues to trend towards sales of boat and engine packages.
Intellectual Property
The Company's engine manufacturing business relies heavily on patented and
other proprietary technology. The Company employs a combination of patent,
trademark and trade secret laws, together with licenses, confidentiality
agreements and other contractual covenants to establish and protect its
technology and other intellectual property rights. Wherever legally permissible
and appropriate, the Company files applications to acquire its patents and
register its trademarks and service marks in the United States and many foreign
countries where the Company currently sells its products or could reasonably be
expected to sell products in future years. There can be no assurance that the
patent applications submitted by the Company or its licensors will result in
patents being issued or that, if issued, such patents or pre-existing patents
will afford adequate protection against competitors with similar technology.
There can also be no assurance that any patents issued to or licensed by the
Company will not be infringed upon or designed around by others, that others
will not
11
obtain patents that the Company will need to license or design around, that the
Company's products will not inadvertently infringe upon the valid patents of
others or that others will not manufacture and distribute the Company's
patented products upon expiration of such patents. In addition, there can be no
assurance that key patents of the Company will not be invalidated or that the
Company or its licensors will have adequate funds to finance the high cost of
prosecuting or defending patent validity or infringement issues.
In March 1998, the Company received correspondence from Orbital Engine
Corporation Limited ("Orbital") alleging that the Company's FICHT fuel-injected
150-horsepower engines infringed two Australian Orbital patents, which
correspond to three U.S. patents and to a number of foreign patents. In May
1999, the Company entered into a non-assert agreement with Orbital relative to
engines sold by OMC and its licensees, which use FICHT fuel injection. Under
the terms of the agreement, the Company will make certain payments to Orbital
for the use of the patents and all foreign counterparts, as well as certain
other patents, identified in the agreement. Under the terms of the agreement,
the Company is not precluded from developing FICHT fuel injection for any
application.
The Company also uses a number of trade names and trademarks in its
business, including Chris*Craft, Evinrude, FFI, FICHT, FICHT Ram Injection,
Four Winns, Grumman, Hydra-Sports, Javelin, Johnson, Lowe, OMC, Princecraft,
Roughneck, Sea Horse, Sea Nymph, Seaswirl and Stratos. Wherever legally
permissible and appropriate, the Company files applications to register its
trademarks and service marks in the United States and many foreign countries
where the Company currently sells its products or could reasonably be expected
to sell products in future years.
The Company has license agreements with FICHT GmbH & Co. KG (a majority-
owned subsidiary of the Company), Chris Craft Industries, Inc. and Northrop
Grumman Corporation. The Company has an exclusive, worldwide license with its
majority-owned subsidiary FICHT GmbH for the marine industry for the FICHT
fuel-injection system. This license is royalty bearing and is active for the
duration of each patent existing at the time that the license agreement was
executed in April 1992 or filed within one year thereafter. The Company also
has an exclusive, worldwide license with its majority-owned subsidiary FICHT
GmbH for all non-automotive applications of the FICHT fuel-injection
technology. This license is royalty bearing and is active for the duration of
each patent existing at the time that the license agreement was executed in
February 1997 or filed within one year thereafter. The Company's license with
Chris Craft Industries, Inc. is an exclusive, perpetual, royalty bearing
license to the Chris*Craft trade name and trademark for boats and certain boat
products worldwide. This license continues in perpetuity as the terms of the
license are complied with. The Company's Grumman license is an exclusive,
royalty-free license to use the Grumman trade name and trademark for
recreational aluminum boats and canoes in territories, which include the United
States and Europe. This license expires on December 31, 2009, however it is
subject to unlimited ten-year renewal terms at the Company's option.
Research and Development
In the fiscal years 1999 and 1998, OMC spent $42.2 million and $36.8
million, respectively, on research and development, and related engineering
activities, for the development of new products and improvement of existing
products, including the FICHT fuel-injection technology. All of these
activities were financed by OMC.
The EPA has adopted regulations governing emissions from marine engines. The
regulations relating to outboard engines phase in over nine years, beginning in
model year 1998 and concluding in model year 2006. With respect to personal
watercraft, the regulations phase in over eight years, beginning in model year
1999 and concluding in model year 2006. Marine engine manufacturers are
required to reduce hydrocarbon emissions from outboard engines, on average, by
8.3% per year beginning with the 1998 model year, and emissions from personal
watercraft by 9.4% per year beginning in model year 1999. In 1994, the Company
announced Project LEAP, a project to develop new low-emission technologies and
to convert its entire outboard
12
product line to low-emission products within the next decade. To date, the
Company estimates that it has spent approximately $65 million on Project LEAP,
including the introduction of its new FICHT fuel-injection technology and four-
stroke outboard engines. By the year 2006, the Company is expected to have
expended an aggregate of approximately $90.0 million to meet the EPA's new
emission standards. Compliance with these standards adds cost to the Company's
engine products in the short-term. However, this situation is not seen as a
major deterrent to sales since value will be added to its products at the same
time that 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.
Environmental and Regulatory Matters
The Company is subject to regulation under various Federal, state and local
laws relating to the environment and to employee safety and health. These laws
include those relating to the generation, storage, transportation, disposal and
emission into the environment of various substances, those relating to drinking
water quality initiatives, and those which allow regulatory authorities to
compel (or seek reimbursement for) clean-up of environmental contamination at
its owned or operated sites and at facilities where its waste is or has been
disposed. Permits are required for operation of the Company's business
(particularly air emission permits), and these permits are subject to renewal,
modification and, in certain circumstances, revocation. The Company believes
that it is in substantial compliance with such laws and permit requirements,
except where such non-compliance is not expected to have a material adverse
effect.
The Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA" or "Superfund") and earlier state laws impose joint, strict, and
several liability on (i) owners or operators of facilities at, from, or to
which a release of hazardous substances has occurred, (ii) parties who
generated hazardous substances that were released at such facilities and (iii)
parties who transported or arranged for the transportation of hazardous
substances to such facilities. A majority of states have adopted Superfund
statutes comparable to, and in some cases more stringent than, CERCLA. 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, 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 accrues for normal operating
and maintenance costs for site monitoring and compliance requirements. The
Company also accrues for environmental closedown costs associated with
discontinued operations or facilities, including the environmental costs of
operation and maintenance until disposition. At December 31, 1999, the Company
has an accrual of approximately $23 million for costs relating to remediation
at contaminated sites including operation and maintenance for continuing and
closed-down operations. It is reasonably possible that a change in this
estimate could occur in the near term. In addition, the Company has estimated
that reasonably possible environmental loss contingencies may exceed amounts
accrued by as much as $16.0 million at December 31, 1999. The possible recovery
of insurance proceeds has not been considered in estimating contingent
environmental liabilities. Each
13
site, whether or not remediation studies have commenced, is reviewed on a
quarterly basis and the aggregate environmental contingent liability accrual is
adjusted accordingly. Therefore, the Company believes the accruals accurately
reflect the Company's liability based upon current information.
On December 10, 1998 the California Air Resources Board ("CARB") adopted
emissions standards for outboard engines and personal watercraft sold in the
State of California that would require compliance with the EPA's year 2006
emissions standards in 2001, and significantly more stringent standards in 2004
and 2008. All manufacturers of outboard engines and personal watercraft will be
affected by the regulations. While the Company has not been able to fully
assess the impact that such standards will have on its business, the Company
has begun to assess possible responses to these standards, including a possible
legal challenge. The Company's FICHT fuel-injection and four-stroke outboard
engines currently comply with CARB's 2001 standards. In addition, based on
current technology, CARB's year 2008 standards would require the Company to
turn to untested technologies in an attempt to achieve compliance. The
California market represents only an approximate 3% of the Company's North
American sales of outboard engines.
Additionally, certain states have required or are considering requiring a
license to operate a recreational boat. While such licensing requirements are
not expected to be unduly restrictive, regulations may discourage potential
first-time buyers, which could affect the Company's business, financial
condition and results of operations. In addition, certain state and local
government authorities are contemplating regulatory efforts to restrict boating
activities, including the use of engines, on certain inland bodies of water. In
one instance, the East Bay Municipal Utility District, located near Oakland,
California, has adopted regulations that, on one of the three water bodies
under its jurisdiction, will limit certain gasoline engine use effective
January 1, 2002. While the Company cannot assess the impact that any such
contemplated regulations would have on its business until such regulations are
formally enacted, depending upon the scope of any such regulations, they may
have a material adverse effect on the Company's business. The Company, however,
does not believe that the regulations adopted by the East Bay Municipal Utility
District will have a material adverse effect on the Company's business.
The Company cannot predict the environmental legislation or regulations that
may be enacted in the future or how existing or future laws or regulations will
be administered or interpreted. Compliance with more stringent laws or
regulations, as well as more vigorous enforcement policies of the regulatory
agencies or stricter interpretation of existing laws, may require additional
expenditures by the Company, some or all of which may be material.
In October 1996, the American Institute of Certified Public Accountants
issued Statement of Position 96-1 ("SOP 96-1"), "Environmental Remediation
Liabilities", which provides authoritative guidance on the recognition,
measurement, display and disclosure of environmental remediation liabilities.
The Company adopted SOP 96-1 in the quarter ended September 30, 1997. The
adoption required the Company to accrue for future normal operating and
maintenance costs for site monitoring and compliance requirements at particular
sites. The initial expense for implementation of SOP 96-1 was $7.0 million,
charged to selling, general and administrative expense in the quarter ended
September 30, 1997. See Note 17 of the Notes to the Consolidated Financial
Statements contained in Item 8 elsewhere herein.
Raw Materials
The principal raw materials required in the Company's manufacturing
operations are aluminum, resin and fiberglass, all of which are purchased at
competitive or prevailing market prices. The Company has supply arrangements
for the purchase of resin and aluminum. From time to time, the Company has also
purchased commodity options to hedge anticipated price fluctuations with
respect to purchases of aluminum. See "Item 7A--Quantitative and Qualitative
Disclosures About Market Risk" and Note 10 of the Notes to the Consolidated
Financial Statements contained in Item 8 elsewhere herein. The Company believes
that adequate sources of supply exist and will continue to exist, at
competitive prices, for all of the Company's raw material requirements.
14
Employees
As of December 31, 1999, approximately 6,335 people were employed worldwide
(5,713 domestic) by OMC and its subsidiaries, consisting of 1,209 salaried and
5,126 hourly employees. Approximately 16% of the Company's employees are
represented by one of three unions. The Laborers International Union of North
America ("LIUNA") represents approximately 457 employees at the Calhoun,
Georgia facility; the Independent Marine Machinists Association ("IMMA")
represents approximately 334 employees at the Waukegan, Illinois facility; and
the United Steel Workers of America ("USWA") represents approximately 244
employees at the Milwaukee, Wisconsin facility. The Company's agreements with
the LIUNA, IMMA and USWA are effective through September 30, 2000, December 31,
2000 or the closing of the facility, and March 31, 2000 or the closing of the
facility, respectively. The Company believes that its labor relations are
satisfactory.
In connection with the Company's planned closure of its manufacturing
facilities in Milwaukee, Wisconsin and in Waukegan, Illinois, the Company's
workforce will be reduced by approximately 950 salaried and hourly employees by
the end of such closure period. See Note 4 of the Notes to the Consolidated
Financial Statements contained in Item 8 elsewhere herein.
15
Item 2. Properties
The following table sets forth the Company's material facilities as of
December 31, 1999.
Owned or Leased Square
Location Facility Type/Use (lease expiration) Footage
-------- ----------------- ------------------ -------
Waukegan, IL............ Worldwide headquarters; outboard
engine component manufacturing Owned 1,519,000
Delavan, WI............. Outboard engine component
manufacturing Leased (Aug. 2006) 40,000
Milwaukee, WI........... Outboard engine component
manufacturing Owned 375,000
Burnsville, NC.......... Outboard engine component
manufacturing Owned 290,000
Spruce Pine, NC......... Outboard engine component
manufacturing Owned 100,000
Andrews, NC............. Outboard engine component
manufacturing Owned 150,000
Calhoun, GA............. Outboard engine assembly Owned 356,000
Beloit, WI.............. Worldwide parts and accessories
distribution center Owned 483,000
Waukegan, IL............ Distribution center Leased (Jan. 2003) 30,000
Morrow, GA.............. Distribution center Owned 86,000
Parsippany, NJ.......... Distribution center Owned 88,000
Dallas, TX.............. Distribution center Owned 86,000
Kent, WA................ Distribution center Leased (Dec. 2000) 56,000
Cadillac, MI............ Boat manufacturing Owned 368,000
Lebanon, MO............. Boat manufacturing Owned 227,000
Murfreesboro, TN........ Boat manufacturing Owned 275,000
Columbia, SC............ Boat manufacturing Owned 223,000
Culver, OR.............. Boat manufacturing Owned 235,000
Syracuse, IN............ Boat manufacturing Owned 271,000
Sarasota, FL............ Boat manufacturing Owned 153,000
Princeville, Quebec, Boat manufacturing
Canada................. Owned 417,000
Juarez, Chihuahua, Outboard engine component
Mexico................. manufacturing Owned 200,000
Dongguan, China......... Outboard engine component
manufacturing Leased (Apr. 2002) 65,000
Hong Kong............... Outboard engine and component
manufacturing and distribution
center Owned 361,000
Manaus, Brazil.......... Outboard engine and component
assembly and fabrication Leased (Aug. 2001) 46,000
Campinas, Brazil........ Office; distribution center Leased (Aug. 2000) 15,000
Yatala, Australia....... Boat manufacturing and assembly Owned 37,000
Bankstown, Australia.... Office; distribution center Leased (Dec. 2004) 54,000
Gent, Belgium........... Office; warehouse Leased (Apr. 2003) 122,000
Bankstown, Australia.... Office; warehouse Leased (Apr. 2001) 54,000
Stuart, FL.............. Engineering test center Owned 53,000
16
Item 3. Legal Proceedings
The Company is engaged in a number of legal proceedings arising in the
ordinary course of business. While the result of these proceedings cannot be
predicted with any certainty, based upon the information presently available,
the Company is of the opinion that the final outcome of all such proceedings
should not have a material adverse effect on the financial condition or the
results of operations of the Company. See also "Item 1--Business--
Environmental Matters."
Products sold or serviced by the Company may expose it to potential
liability for personal injury or property damage claims relating to the use of
those products. Historically, the resolution of product liability claims has
not materially affected the Company. The Company maintains a Domestic Products
Liability/Protection and Indemnity Self-Insured Retention Program. Currently,
the Company has a Self-Insured Retention for any one accident or occurrence of
$1,250,000 (indemnity only) with an $8,000,000 per year aggregate. Product
liability claims occurring outside the United States are covered by insurance
with a limit of $1,000,000 per occurrence, $2,000,000 aggregate. In the event
that the underlying product liability insurance or retentions are exhausted,
there is excess coverage up to $100,000,000 per occurrence and in the
aggregate.
See Note 17 of the Notes to the Consolidated Financial Statements contained
in Item 8 elsewhere herein.
Item 4. Submission of Matters to a Vote of Security Holders
During the fiscal year ended December 31, 1999, there were no matters
submitted to a vote of security holders.
17
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters
There were two record holders of common stock of OMC at December 31, 1999.
There is no established public trading market for the Company's common stock.
During fiscal year 1999, the Company granted an aggregate of 596,000 options to
143 employees.
Item 6. Selected Financial Data
The following summary represents certain financial information for the
twelve months ended December 31, 1999, and December 31, 1998, the three months
ended December 31, 1998 and December 31, 1997, and the three fiscal years ended
September 30, 1998, 1997, and 1996.
Post-Merger Company Pre-Merger Company
---------------------------------------------------------- --------------------
At or for the
At or for the At or for the three months At or for the At or for the
fiscal year twelve months ended fiscal year fiscal years ended
ended ended December 31, ended September 30,
December 31, December 31, ---------------- September 30, --------------------
1999 1998 (1) 1998 1997 (1) 1998 1997 (3) 1996
------------- ------------- ------ -------- ------------- --------------------
(Dollars in millions, except per share amounts and ratios)
Net sales............... $1,110.9 $1,015.6 $199.4 $209.5 $1,025.7 $ 979.5 $ 1,121.5
Net earnings (loss)..... 8.2 (180.5) (47.1) (17.1) (150.5) (79.1) (7.3)
Average number of shares
of common stock
outstanding and common
stock equivalents, if
applicable............. 20.4 20.4 20.4 20.4 20.4 20.2 20.1
Per average share of
common stock:
Net earnings (loss)
Basic.................. 0.40 (8.85) (2.31) (0.84) (7.38) (3.91) (0.36)
Diluted................ 0.40 (8.85) (2.31) (0.84) (7.38) (3.91) (0.36)
Dividends declared per
share................. -- -- -- -- -- 0.20 0.40
Total assets (2)(4)..... 848.4 874.2 874.2 938.9 907.2 1,011.6 836.8
Long-term debt,
excluding current
maturities............. 241.4 247.0 247.0 102.8 247.9 103.8 177.6
Other data:
Net cash provided by
(used for) operating
activities............ 40.6 44.3 (53.0) (36.6) (60.7) (9.2) 91.1
Net cash provided by
(used for) investing
activities............ (42.5) (28.2) (9.6) (5.4) (24.0) (26.1) (50.5)
Net cash provided by
(used for) financing
activities............ 12.1 (26.6) 30.9 12.0 (45.5) (3.7) (2.9)
Depreciation and
amortization (including
amortization of debt
discount).............. 52.1 50.0 12.4 12.5 50.1 57.0 54.7
Amortization of debt
discount............... 1.5 0.6 0.1 0.3 0.8 2.7 0.8
Capital expenditures.... 48.5 43.2 15.1 6.3 34.4 36.3 52.7
- --------
(1) Unaudited financial data for the twelve months ended December 31, 1998 and
the three months ended December 31, 1997 have been included for comparative
purposes.
(2) Total assets at December 31, 1999, December 31, 1998, December 31, 1997,
September 30, 1998 and September 30, 1997 are not comparable with 1996 due
to the application of purchase accounting. See "Item 7--Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(3) September 30, 1997 data includes Post-Merger Company data for total assets
and long-term debt.
(4) Certain historical amounts have been reclassed to conform with the 1999
presentation.
18
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the more
detailed information and Consolidated Financial Statements of the Company,
together with the notes thereto, included in Item 8 elsewhere herein.
General
Effective October 1, 1998, the Company's fiscal year-end changed from
September 30 to December 31. Therefore, for example, references herein to
fiscal 1998 or fiscal year 1998 refer to the Company's fiscal year ended
September 30, 1998 whereas references to fiscal 1999 or fiscal year 1999 refer
to the Company's fiscal year ended December 31, 1999.
Industry Overview. According to data published by the NMMA, the recreational
boating industry generated approximately $23 billion in domestic retail sales
in 1999, including approximately $12 billion in sales of boats, engines,
trailers and accessories. In addition, according to statistics compiled by the
U.S. Department of Commerce, recreational products and services represent one
of the fastest growing segments of U.S. expenditures.
Cyclicality; Seasonality; Weather Conditions. The recreational marine
industry is highly cyclical. Industry sales, including sales of the Company's
products, are closely linked to the conditions of the overall economy and are
influenced by local, national and international economic conditions, as well as
interest rates, consumer spending, technology, dealer effectiveness,
demographics, fuel cost and availability and government regulations. In an
economic downturn, consumer discretionary spending levels are reduced, often
resulting in disproportionately large declines in the sale of relatively
expensive items such as recreational boats. Similarly, rising interest rates
could have a negative impact on consumers' ability, or willingness to obtain
financing from lenders, which could also adversely affect the ability of the
Company to sell its products. Even if prevailing economic conditions are
positive, consumer spending on non-essential goods such as recreational boats
can be adversely affected due to declines in consumer confidence levels.
According to data published by the NMMA, total unit sales of outboard boats in
the United States fell from a high of 355,000 units in 1988 to 192,000 units in
1992, while total unit sales of outboard engines in the United States fell from
a high of 460,000 units to 272,000 units during the same time period. The sales
decline in the marine industry during this period was the worst such decline in
the last 30 years. According to data published by the NMMA, 1998 annual U.S.
purchases of boats and engines were 305,000 and 314,000, respectively. In 1999,
U.S. unit sales of boats and engines increased to 345,000 and 331,900,
respectively.
The recreational marine industry, in general, and the business of the
Company are seasonal due to the impact of the buying patterns of dealers and
consumers. The Company's peak revenue periods historically have been its fiscal
quarters ended June 30 and September 30, respectively. Accordingly, the
Company's receivables, inventory and accompanying short-term borrowing to
satisfy working capital requirements are usually at their highest levels in the
Company's fiscal quarter ended March 31 and decline thereafter as the Company's
products enter the peak consumer selling seasons. Short-term borrowings
averaged $56.8 million in fiscal year 1999, with month-end peak borrowings of
$80.0 million in March 1999. Because of the seasonality of the Company's
business, the results of operations for any fiscal quarter are not necessarily
indicative of the results for the full year. Additionally, an event which
adversely affects the Company's business during any of these peak periods could
have a material adverse effect on the Company's financial condition or results
of operations for the full year.
The Company's business is also affected by weather patterns, which may
adversely impact the Company's operating results. For example, excessive rain
during the Spring and Summer, the peak retail sales periods, or unseasonably
cool weather and prolonged winter conditions, may curtail customer demand for
the Company's products. Although the geographic diversity of the Company's
dealer network may reduce the overall impact on
19
the Company of adverse weather conditions in any one market area, such
conditions may continue to represent potential adverse risks to the Company's
financial performance.
Acquisition by Greenmarine Holdings LLC. On September 12, 1997, Greenmarine
Holdings acquired control of approximately 90% of the then outstanding shares
of common stock (the "Pre-Merger Company Shares") of the Company through an
$18.00 per share tender offer pursuant to Greenmarine Holdings' Offer to
Purchase dated August 8, 1997 (the "Tender Offer"). On September 30, 1997,
Greenmarine Holdings acquired the untendered Pre-Merger Company Shares by
merging its acquisition subsidiary (i.e., Greenmarine Acquisition Corp.) with
and into the Company (the "Merger", and together with the Tender Offer, the
"Greenmarine Acquisition"). As a result of the Merger, the Company became a
wholly-owned subsidiary of Greenmarine Holdings; each untendered Pre-Merger
Company Share outstanding immediately prior to the Merger was converted into
the right to receive a cash payment of $18.00 per share; and 20.4 million
shares of new common stock of the Company were issued to Greenmarine Holdings.
The Greenmarine Acquisition was completed for aggregate consideration of
approximately $373.0 million and has been accounted for under the purchase
method of accounting. Accordingly, the purchase price has been allocated to
assets acquired and liabilities assumed based on fair market values at the date
of acquisition (i.e., September 30, 1997). In the opinion of management,
accounting for the purchase as of September 30, 1997 instead of September 12,
1997 did not materially affect the Company's results of operations for fiscal
1997. The fair values of tangible assets acquired and liabilities assumed were
$883.6 million and $817.8 million, at September 30, 1997, respectively. In
addition, $83.9 million of the purchase price was allocated to intangible
assets for trademarks, patents and dealer network. The final excess purchase
price over fair value of the net assets acquired was approximately $120 million
and has been classified as goodwill in the Statement of Consolidated Financial
Position at September 30, 1998.
Market Share. Since 1997, the Company has seen a slight decrease in its
twelve month rolling domestic outboard engine market share from 33% as of
December 31, 1997 to 32% as of December 31, 1999, and a decline in its domestic
boat market share from 20% to 9% for the same period. The primary causes have
been the loss of key customers to competitors and the rationalization of boat
brands. In addition, competitors have offered products in certain categories
for which the Company does not have a competitive product. Although there can
be no assurance that the Company will be able to reverse the decline in market
share the Company is confident that its strategies for future products,
combined with those products currently being offered, such as FICHT, will
improve its market share.
Introduction of FICHT Engines; General. In fiscal year 1997, the Company
became aware of certain performance issues associated with its FICHT engines.
In April 1998, the Company began to identify the causes of these performance
issues and an upgrade kit was prepared and distributed. This upgrade kit
included certain performance enhancements to the FICHT engines, including,
among other things, improvements to the mapping contained in the software of
the engine-management module. The Company established a reserve for the costs
associated with the correction of the identified problems in fiscal year 1998,
which resulted in an approximate $7.0 million increase in the Company's
warranty reserve for fiscal year 1998. In January 1999, the Company completed
its analysis and determined that certain further technological improvements
were needed to improve the overall performance of the FICHT engines. As part of
this strategy, an upgrade kit for previously sold models, that contained
additional performance enhancements to the FICHT engines, was provided to
dealers in April 1999. The Company recorded costs for upgrade kits of $4.3
million and $1.2 million for the quarters ended December 31, 1998 and March 31,
1999, respectively. The Company believes these upgrade kits will significantly
improve the overall performance of 1998 and 1999 model year FICHT fuel injected
engines. To demonstrate the Company's confidence in the FICHT fuel injected
engines as improved by the upgrade kits, the Company provided a limited
warranty extension on certain components from two to three years on all 1999
model FICHT fuel injected engines purchased between January 1, 1999 and March
31, 1999 and also on those purchased by June 30, 1999 and registered by July
15, 1999. In addition, the Company implemented engine modifications and changes
in production for the affected FICHT models. These engine modifications and
production changes were implemented during a planned two-week suspension of the
20
Company's operations at certain of its engine-manufacturing facilities in March
1999. Finally, on May 13, 1999, the Company announced an all-new line of
Evinrude two-stroke direct injection outboards with FICHT Ram injection
technology for model year 2000. These engines reflect certain further design
refinements and improved methods of production.
In March 1998, the Company received correspondence from Orbital Engine
Corporation Limited ("Orbital") alleging that the Company's FICHT fuel-injected
150 horsepower engines infringed two Australian Orbital patents, which
correspond to three U.S. patents and to a number of foreign patents. In May
1999, the Company entered into a non-assert agreement with Orbital relative to
engines sold by OMC and its licensees which used FICHT fuel injection. Under
the terms of the agreement, the Company will make certain payments to Orbital
for use of the patents and all foreign counterparts, as well as certain other
patents, identified in the agreement. Under the terms of the agreement, the
Company is not precluded from developing FICHT fuel injection for any
application.
Results of Operation
The following table sets forth, for the periods indicated, selected
financial information expressed in dollars (millions) and as a percentage of
net sales:
Twelve Months ended Three Months ended Fiscal years ended
December 31, December 31, September 30,
-------------------------------- ----------------------------- -------------------------------
1998 1997
1999 (unaudited) 1998 (unaudited) 1998 1997
--------------- --------------- ------------- ------------- --------------- -------------
Net sales......... $1,110.9 100.0% $1,015.6 100.0% $199.4 100.0% $209.5 100.0% $1,025.7 100.0% $979.5 100.0%
Cost of goods
sold............. 881.0 79.3 802.6 79.0 180.7 90.6 171.7 82.0 793.6 77.4 822.0 83.9
-------- ----- -------- ----- ------ ----- ------ ----- -------- ----- ------ -----
Gross earnings.... 229.9 20.7 213.0 21.0 18.7 9.4 37.8 18.0 232.1 22.6 157.5 16.1
Selling, general
and
administrative
expense.......... 207.2 18.7 279.7 27.5 62.3 31.2 48.8 23.3 266.2 26.0 219.9 22.5
Restructuring
charge (income).. (14.1) (1.3) 98.5 9.7 -- -- -- -- 98.5 9.6 -- --
Change in control
expenses-compensation.. -- -- -- -- -- -- -- -- -- -- 11.8 1.2
-------- ----- -------- ----- ------ ----- ------ ----- -------- ----- ------ -----
Earnings (loss)
from operations.. 36.8 3.3 (165.2) (16.2) (43.6) (21.8) (11.0) (5.3) (132.6) (13.0) (74.2) (7.6)
Non-operating
expense, net..... 18.0 1.6 12.7 1.3 3.5 1.8 5.3 2.5 14.5 1.4 2.1 0.2
Provision for
income taxes..... 10.6 1.0 2.6 0.3 -- -- 0.8 0.4 3.4 0.3 2.8 0.3
-------- ----- -------- ----- ------ ----- ------ ----- -------- ----- ------ -----
Net earnings
(loss)........... $ 8.2 0.7% $ (180.5) (17.8)% $(47.1) (23.6)% $(17.1) (8.2)% $ (150.5) (14.7)% $(79.1) (8.1)%
======== ===== ======== ===== ====== ===== ====== ===== ======== ===== ====== =====
Twelve Months Ended December 31, 1999 Compared to the Twelve Months Ended
December 31, 1998.
Net Sales. Net sales were $1,110.9 million in 1999 as compared to $1,015.6
million in 1998, representing an increase of $95.3 million or 9.4%. During this
time period, the Company's worldwide engine sales, including parts and
accessories increased 4.7% while boat sales increased 16.8%. The increase in
engine sales was due primarily to increased domestic unit sales of both low-
emission and traditional carburated engines offset partially by lower
international sales due primarily to continued softness in Latin America. The
increase in boat sales was due to increased consumer demand for the Company's
fishing, recreational and aluminum boats, particularly, larger boat models.
Cost of Goods Sold. Cost of goods sold for 1999 was $881.0 million as
compared to $802.6 million in 1998, an increase of $78.4 million or 9.8%. Gross
earnings for 1999 were 20.7% of net sales while gross earnings for 1998 were
21.0% of net sales. The reduction in the gross earnings percentage for the year
was due to i) higher price allowances offered to dealers due to competitive
pricing pressures and ii) operational inefficiencies at the engine plants that
resulted in lower overhead absorption. These factors were partially offset by
lower warranty and product liability expense in the current year resulting from
improved claims experience.
21
Selling, General and Administrative ("SG&A"). SG&A expense for 1999 was
$207.2 million versus $279.7 million in 1998 representing a decrease of $72.5
million or 25.9%. The decrease in SG&A expense was due primarily to the
following: i) a curtailment gain of $15.0 million recorded in the second and
third quarters of 1999 to reflect the impact of the changes made to the pension
and postretirement medical plans as discussed in Note 12, ii) $17.6 million in
expenses associated with implementing the Company's boat group reorganization
plan which were recorded in 1998, and iii) environmental and other contingency
costs recorded in 1998. Finally, the reduction in SG&A expense is also due to
the continued focus on reducing discretionary expenditures across the Company.
Restructuring Charge. On September 24, 1998, the Company announced that it
would be closing its Milwaukee, Wisconsin and Waukegan, Illinois facilities by
the end of the year 2000. A restructuring charge of $98.5 million was
recognized in the fourth quarter of fiscal 1998 that included charges for the
costs associated with closing the two facilities, and the related employee
termination benefits for approximately 950 employees. In 1999, the Company
completed its negotiations of the closing agreements with the unions
representing the Milwaukee and Waukegan workers, respectively. These changes
resulted in changes to the post-retirement medical and pension plans for union
employees. The changes required a decrease in the previously recorded
restructuring charge of $14.1 million. See Note 4 of the Notes to the
Consolidated Financial Statements contained in Item 8 elsewhere herein. The
Company plans to outsource substantially all of the manufacturing of parts
currently produced by these two facilities to third party vendors or transfer
such production to other facilities of the Company. The Company has already
transferred the manufacture of substantially all of the manufactured products
from the Milwaukee facility and certain components, accessories and service
parts from the Waukegan facility and continues to obtain and review proposals
from vendors in anticipation of outsourcing the remainder of production. The
Company anticipates substantial completion of the restructuring plan by the end
of year 2000. As of December 31, 1999, the Company has incurred $1.0 million
against the restructuring charge established in the prior fiscal year. The
remaining balance will be spent in 2000 and 2001 as the plants are closed in
2000 and facilities are subsequently sold, accordingly. As part of its
outsourcing efforts, the Company is negotiating with a potential vendor for the
lease of space in one of its facilities in connection with this vendor possibly
assuming the production of the facility. Although there can be no assurance, if
the Company is successful in its negotiations, there would be a reduction of
the employee severance and other costs previously recorded as part of the
restructuring charge for the closure of this facility. The Company anticipates
having more information regarding the negotiations early in the second quarter
of 2000.
Earnings/(Loss) from Operations. Earnings from operations for 1999 was $36.8
million or 3.3% of net sales versus a loss in 1998 of $165.2 million
representing an increase of $202.0 million. This increase is due to the reasons
discussed above including the increase in sales volume, the decrease in SG&A
expense, and the restructuring charge recorded in 1998.
Non-Operating Expense (Income). Interest expense decreased to $23.1 million
in 1999 from $29.2 million in the twelve months ended December 31, 1998, a
decrease of $6.1 million. The decrease in interest expense was due primarily to
a tax-related interest accrual adjustment of $8.2 million in 1999 as a result
of a favorable IRS tax audit. Other non-operating income was $5.1 million in
1999 versus $16.5 million in 1998. This decrease in non-operating income was
due primarily to the Company selling its interest in the joint venture Volvo
Penta Marine Products L.P. to Volvo Penta of the Americas, Inc. ("Volvo") on
December 8, 1998 and the Company no longer participating in the earnings of the
joint venture following the sale. In addition, the decrease in other income was
due to higher foreign exchange losses as a result of certain foreign currencies
appreciation against the dollar from 1998 to 1999.
Provision for Income Taxes. The provision for income taxes was $10.6 million
in 1999 as compared to $2.6 million in 1998. The provision for income taxes for
fiscal 1999 resulted from expected taxes payable less tax benefits relating to
certain international subsidiaries. No tax benefit is allowed for domestic
losses because
22
they are not expected to be realizable, at this time, under Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes."
Three Months Ended December 31, 1998 Compared to Three Months Ended December
31, 1997
Net Sales. Net sales were $199.4 million in the three months ended December
31, 1998; a decrease of $10.1 million or 4.8% from $209.5 million in the three
months ended December 31, 1997. Worldwide engine sales in the December 31, 1998
quarter were lower than in the comparable quarter in 1997 due primarily to
lower demand for certain of the Company's outboard engines, loss of business
with certain dealers and increased promotional pricing offered by competitors.
International engine sales were also lower than the prior year period due to
increased competition in Australia and deteriorating economic conditions in
Latin America and Asia. In addition, boat sales were slightly lower than last
year primarily as a result of the Company discontinuing certain product lines
in the second and third quarters of fiscal year 1998.
Cost of Goods Sold. Cost of goods sold increased to $180.7 million in the
three months ended December 31, 1998 from $171.7 million in the three months
ended December 31, 1997, an increase of $9.0 million or 5.2%. Cost of goods
sold was 90.6% of net sales during the three months ended December 31, 1998 as
compared with 82.0% of net sales during the comparable period in 1997. The
increase in cost of goods sold as a percent of net sales was primarily due to a
$8.6 million increase in warranty expense in the period related primarily to
actions taken by the Company to address certain performance issues identified
with the Company's FICHT engines, including a reserve for upgrade kits that are
being provided in April 1999 for previously sold FICHT engines and a limited
warranty extension, from two to three years, on FICHT engines sold by dealers
to customers between January 1, 1999 and March 31, 1999. See "--General--
Introduction of FICHT Engines; General" above.
Selling, General and Administrative ("SG&A"). SG&A expense increased to
$62.3 million in the three months ended December 31, 1998 from $48.8 million in
the three months ended December 31, 1997, an increase of $13.5 million or
27.7%. The increase is due primarily to higher selling expense of approximately
$6.0 million during the three months ended December 31, 1998 related to new
sales promotions and increased advertising expenses for the Company's new model
year engines and boats. The SG&A expenses increase was also due in part to
costs related to a number of actions incurred during the December 31, 1998
quarter, including charges resulting from the Company's efforts to eliminate
old and discontinued boat models in dealer channels and to reduce field engine
inventories held by dealers. The aggregate amount of theses charges was $4.1
million. Finally, the Company incurred approximately $2.9 million in costs
associated with its Year 2000 compliance initiatives in the period ended
December 31, 1998. The Company did not incur this type of Year 2000 compliance
costs in the comparable period during 1997.
Loss from Operations. Loss from operations was $43.6 million in the three
months ended December 31, 1998 compared with a loss of $11.0 million in the
three months ended December 31, 1997, an increase of $32.6 million. The
increase in the loss from operations was primarily attributable to the decrease
in sales as well as increases in certain components of costs of goods sold and
SG&A expense as described above.
Non-Operating Expense (Income). Interest expense decreased to $6.8 million
in the three months ended December 31, 1998 from $7.7 million in the three
months ended December 31, 1997, a decrease of $0.9 million. Other non-operating
income was $3.3 million in the three months ended December 31, 1998 compared to
$2.4 million in the three months ended December 31, 1997. This increase in non-
operating income was due primarily to certain product development expenses
related to the sterndrive joint venture not being incurred in the December 31,
1998 quarter as a result of the Company's sale of its joint-venture interest in
the sterndrive joint venture with AB Volvo Penta and Volvo Penta of the
Americas, Inc.
Provision for Income Taxes. No provision for income taxes was made in the
three months ended December 31, 1998 as compared to a $0.8 million provision in
the three months ended December 31, 1997. The provision for income taxes for
the three months ended December 31, 1997 resulted from the net of
23
expected taxes payable and benefits relating to certain international
subsidiaries. No tax benefit is allowed for domestic losses because they are
not realizable, at this time, under Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes."
Fiscal Year Ended September 30, 1998 Compared to Fiscal Year Ended September
30, 1997
Net Sales. Net sales increased to $1,025.7 million in fiscal year 1998 from
$979.5 million in the fiscal year 1997, an increase of 4.7%. The Company's
sales increase was attributable primarily to higher volume sales in the United
States of marine engines in fiscal year 1998, resulting in a 25% increase in
net sales as compared to fiscal year 1997. The increase in U.S. marine engine
sales in 1998 was partially offset by reductions in international sales due to
the poor economic conditions in Asia and due to tighter credit controls in
Russia. Engine sales were lower in the first half of fiscal 1997 as a result of
the Company's program to reduce engine production in order to assist dealers in
lowering inventory levels. In the first quarter of fiscal 1997, the Company
suspended production of many of its larger engines for nearly a month in order
to make changes to equipment and processes necessary in order to significantly
improve the quality of those engines. Finally, boat sales declined, as planned,
by approximately 5% due to certain model and brand eliminations.
Cost of Goods Sold. Cost of goods sold decreased to $793.6 million in fiscal
year 1998 from $822.0 million in fiscal year 1997, a decrease of $28.4 million
or 3.5%. Cost of goods sold was 77.4% of net sales in fiscal year 1998 as
compared with 83.9% of net sales in fiscal year 1997. The improvements in the
Company's gross margin in fiscal year 1998 reflected increased manufacturing
efficiencies at engine and boat plants and a better absorption of fixed costs,
due primarily to higher engine sales volume. In addition, in fiscal 1997, the
Company's cost of goods sold was impacted negatively by the production
suspension discussed above.
Selling, General and Administrative ("SG&A") Expense. SG&A expense increased
to $266.2 million in fiscal year 1998 from $219.9 million in fiscal year 1997,
an increase of $46.3 million or 21.1%. SG&A expense as a percentage of net
sales increased to 26.0% in fiscal year 1998 from 22.5% in fiscal year 1997.
SG&A expense increased in fiscal year 1998 due primarily to: (i) $10.9 million
for estimated legal expenses, (ii) $2.8 million in compensation expense
primarily related to forfeitures resulting from the termination of an
executive's employment agreement with a former employer in connection with the
Company's hiring the executive concurrently with the acquisition of the Company
by Greenmarine Holdings, and (iii) $17.6 million of expenses associated with
implementing the Company's boat group reorganization plan. Additionally, the
SG&A expense in the current fiscal year reflected higher amortization of
goodwill and intangibles due to purchase accounting. Finally, the Company
recognized approximately $7.0 million in additional expenses in fiscal year
1998 associated with its marketing and advertising of model year 1999 boats and
engines.
Restructuring Charge. During the fourth quarter of fiscal year 1998,
management finalized a restructuring plan for the closure/consolidation of its
Milwaukee and Waukegan engine facilities. The Company announced the closure of
the Milwaukee and Waukegan facilities on September 24, 1998. The Company
recorded a $98.5 million restructuring charge which included: (i) costs to
recognize severance and benefits for approximately 950 employees to be
terminated ($14.0 million); (ii) curtailment losses associated with the
acceleration of pension and postretirement benefits for employees at the two
facilities ($72.1 million); (iii) costs to clean and close the facilities ($6.5
million); (iv) costs to ready machinery and equipment for disposal and costs to
dispose of machinery and equipment at the facilities ($3.9 million); and (v)
costs to write-down certain replacement parts for machinery and equipment at
the facilities to net realizable value ($2.0 million). The Company's plan
includes outsourcing substantially all of its sub-assembly production currently
performed in its Milwaukee and Waukegan facilities to third-party vendors. See
Note 4 of the Notes to the Consolidated Financial Statements contained in Item
8 elsewhere herein.
Change in Control Expenses. In fiscal year 1997, the Company recorded $11.8
million in compensation expenses associated with certain officer agreements and
the executive incentive plan, which required settlement payments to certain
current and former management team members at the time of the Greenmarine
Acquisition.
24
Loss from Operations. Loss from operations was $132.6 million in fiscal year
1998 compared with a loss of $74.2 million in fiscal year 1997, an increase of
$58.4 million. Excluding the restructuring charge and change in control
expenses recorded in 1998 and 1997, the loss from operations was $34.1 million
in fiscal year 1998, an improvement of $28.3 million compared to the loss of
$62.4 million in fiscal year 1997.
Non-Operating Expense, Net. Interest expense increased to $30.1 million in
fiscal year 1998 from $16.2 million in fiscal year 1997, an increase of $13.9
million. The increase resulted from the new debt structure in place after the
Greenmarine Acquisition (see "--Financial Condition; Liquidity and Capital
Resources" below). Other non-operating income was $15.6 million in fiscal year
1998 compared to $14.1 million in fiscal year 1997. The non-operating income in
fiscal year 1998 included interest income of $4.3 million, gains from
disposition of certain fixed assets of $2.9 million, income from the Company's
interest in the Volvo joint venture of $4.8 million, and favorable foreign
exchange transactions of $0.7 million. The non-operating income in fiscal year
1997 included an insurance recovery and a lawsuit settlement ($10.7 million),
income from the Company's interest in the Volvo joint venture of $7.2 million,
as well as gains on disposition of fixed assets ($5.8 million), which was
offset by $15.1 million in expenses associated with the Greenmarine
Acquisition. These expenses included $7.5 million in payments to a potential
buyer of the Company for "breakage fees" as a result of the Company being
acquired by Greenmarine Holdings. See Note 14 of the Notes to the Consolidated
Financial Statements contained in Item 8 elsewhere herein.
Provision for Income Taxes. The provision for income taxes was $3.4 million
in fiscal year 1998 and $2.8 million in fiscal year 1997. The provision for
income taxes for fiscal year 1998 and 1997 resulted from expected taxes payable
less tax benefits relating to certain international subsidiaries. No tax
benefit is allowed for domestic losses because they are not deemed realizable,
at this time, under Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes."
Financial Condition; Liquidity and Capital Resources
The Company's business is seasonal in nature with inventory levels normally
increasing in the Company's fiscal quarter ending December 31 and peaking in
the Company's fiscal quarter ending March 31. Current assets at December 31,
1999 decreased $27.9 million from December 31, 1998. Receivables at December
31, 1999 decreased $25.6 million from December 31, 1998 primarily due to the
ongoing effort to shorten the collection cycle of receivables and due to the
growth in OMC sponsored dealer financing programs from which payment is made to
OMC by financing companies in five to ten days from the date of invoice. In
addition, receivables were lower versus the prior year due to the collection of
receivables in the current year which were owed to the Company in December 1998
from Volvo as a result of the sale of the Company's interest in the joint
venture Volvo Penta Marine Products L.P. Inventories at December 31, 1999
decreased $8.6 million from December 31, 1998, primarily in finished goods
inventory as a result of increased sales and shipments in 1999 versus 1998.
Accounts payable increased $9.2 million from December 31, 1998 due primarily to
increased production material purchases to support higher sales levels in 1999.
In addition, the Company had $30.6 million in "Restricted Cash" at December 31,
1999, which cash is held in interest reserve accounts for the benefit of the
Company's senior lenders (as discussed below). Cash provided by operations was
$40.6 million for the twelve months ended December 31, 1999 compared with $44.3
million for the twelve months ended December 31, 1998.
On January 28, 2000, the Company sold an aggregate of 650,000 shares of
Series A Convertible Preferred Stock, par value $.01 per share (the "Series A
Preferred Stock"), and warrants (the "Warrants") to purchase an aggregate of
5,750,000 shares of its Common Stock, par value $.01 per share (the "Common
Stock"), for an aggregate consideration of $65.0 million in a private placement
transaction to Greenlake Holdings II, LLC and Quantum Industrial Partners, LDC.
The Series A Preferred Stock has an initial liquidation preference of $100 per
share and an initial conversion price of $14 per share (in each case, subject
to adjustment upon occurrence of certain events). The Series A Preferred Stock
is convertible into Common Stock at any time. The Series A
25
Preferred Stock has an annual dividend rate of 15% of the then current
liquidation preference, and is entitled to share ratably in any dividends paid
on the Common Stock. Dividends will accrue if not paid in cash, and the
liquidation preference will be increased by the amount of any accrued but
unpaid dividends. The Series A Preferred Stock may be redeemed at any time
after October 1, 2008, upon written request of the holders of at least 75% of
the then outstanding shares. The Company may redeem all outstanding shares of
the Series A Preferred Stock if, at any time, less than 10% of the total Series
A Preferred Stock originally sold on January 28, 2000 remains outstanding. The
Warrants are exercisable at any time until January 28, 2010, at an exercise
price of $.01 per share of Common Stock, payable in cash or in shares of Common
Stock. The Company intends to use the proceeds from the sale of the Series A
Preferred Stock and Warrants for general corporate purposes, including funding
its working capital and making capital expenditures.
The Pro Forma impact of the above transaction, had it occurred on January 1,
1999, would have resulted in an approximate $65 million in proceeds, which
would have been used to paydown the existing revolving credit facility. The
transaction would have been recorded as a $29.1 million increase in preferred
stock and a $35.9 million increase in shareholders' investment (the fair market
value of the attached warrants).
Expenditures for plant, equipment, and tooling were $48.5 million during the
twelve months ended December 31, 1999, representing an increase of $5.3 million
from $43.2 million for the twelve month period ended December 31, 1998. The
higher level of expenditures is primarily related to increased spending for new
machinery and equipment at the Company's engine manufacturing facilities for
product improvements and due to increased spending for the Company's computer
hardware and software.
Loan payable was $58.0 million at December 31, 1999 comprising borrowings
under the Company's Revolving Credit Facility (as discussed below). These
borrowings were used to pay $10.0 million of the Company's Medium Term Notes
Series A, which came due March 1999, and to fund capital expenditures. Current
maturities of long-term debt decreased $2.8 million from December 1998 due to
the payment of the Company's Medium-Term Notes Series A offset by the
reclassification of certain long-term debt to current maturities for debt that
is payable within the next 12 months.
The Company entered into an Amended and Restated Loan and Security
Agreement, effective as of January 6, 1998 (as amended, the "Credit
Agreement"), with a syndicate of lenders for which Bank of America, N.A. is
administrative and collateral agent (the "Agent"). The Credit Agreement
provides a revolving credit facility (the "Revolving Credit Facility") of up to
$150.0 million, subject to borrowing base limitations, to finance working
capital with a $50.0 million sublimit for letters of credit. The Revolving
Credit Facility is secured by a first and only security interest in all of the
Company's existing and hereafter acquired accounts receivable, inventory,
chattel paper, documents, instruments, deposit accounts, contract rights,
patents, trademarks and general intangibles and is guaranteed by the Company's
four principal domestic operating subsidiaries. The Company entered into the
Fifth Amendment to Amended and Restated Loan and Security Agreement, effective
as of February 25, 1999, which among other things, amended the Company's
consolidated tangible net worth, consolidated leverage and consolidated
interest coverage ratios for future periods in order to bring the covenants in
line with anticipated results of operations. The Company entered into a Sixth
Amendment to the Amended and Restated Loan and Security Agreement effective
July 30, 1999, which among other things (i) extended the termination of the
Revolving Credit Facility from December 31, 2000 to December 31, 2001, (ii)
included work-in-process inventory in the borrowing base calculation until
September 30, 1999, and (iii) extended the duration of the borrowing base
capacity for intellectual property through October 31, 1999. On October 27,
1999, the Company entered into a Seventh Amendment to the Amended and Restated
Loan and Security Agreement which among other things extended the duration of
the borrowing base capacity for intellectual property through December 31,
1999. On February 1, 2000 the Company entered into an Eighth Amendment to the
Amended and Restated Loan and Security Agreement which among other things (i)
increased the borrowing capacity by increasing intellectual property
availability by $10.0 million to $20.0 million and increasing the advance rate
for finished goods inventory from 60% to 65%, (ii) eliminated tangible
26
net worth, interest coverage, and leverage ratio covenants, and (iii)
established minimum availability requirements, maximum capital and tooling
expenditures, and a minimum earnings before interest, taxes, depreciation and
amortization covenant tests to reflect expected operating results.
On May 27, 1998, the Company issued $160.0 million of 10 3/4% Senior Notes
Series A ("Series A Notes") due 2008, with interest payable semiannually on
June 1 and December 1 of each year. The net proceeds from the issuance of the
Series A Notes totaled $155.2 million, of which $150.0 million was used to
repay the Acquisition Debt. The Series A Notes will be redeemable at the option
of the Company, in whole or in part, at any time on or after June 1, 2003 in
cash at prescribed redemption prices set forth in the indenture governing the
Series A Notes. In addition, at any time prior to June 1, 2001, the Company may
on any one or more occasions redeem up to an aggregate of 35% of the original
principal amount of the Series A Notes at a redemption price of 110.750% of the
principal amount thereof, plus accrued and unpaid interest, with the net
proceeds of one or more equity public offerings, provided that at least 65% of
the aggregate principal amount of Series A Notes originally issued remains
outstanding immediately after the occurrence of any such redemption. The Series
A Notes are guaranteed on a joint and several basis by each of the Company's
principal domestic operating subsidiaries. The Indenture governing the Series A
Notes contains certain covenants that limit, among other things, the ability of
the Company and its restricted subsidiaries to (i) pay dividends, redeem
capital stock or make certain other restricted payments or investments; (ii)
incur additional indebtedness or issue certain preferred equity interests;
(iii) merge or consolidate with any other person or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of its assets;
(iv) create liens on assets; and (v) enter into certain transactions with
affiliates or related persons.
Concurrently with the issuance of the Series A Notes, the Company entered
into a depositary agreement which provided for the establishment and
maintenance of an interest reserve account for the benefit of the holders of
the Series A Notes and an interest reserve account for the benefit of the other
senior creditors of the Company. An aggregate amount of cash equal to one
year's interest due to these lenders was deposited into these interest reserve
accounts. At December 31, 1999, the "Restricted Cash" held in these interest
reserve accounts totaled $30.6 million. The "Restricted Cash" must remain in
such accounts until at least May 27, 2001. These accounts may be accessed by
the Company for the payment of the respective interest only, provided certain
criteria are met by the Company.
On April 14, 1999, the Company completed an exchange offer of all the Senior
Notes Series A for the Senior Notes Series B ("Series B Notes") which are
registered under the Securities Act of 1933, pursuant to a Registration
Statement on Form S-4 and an accompanying Prospectus. The form and terms of the
Series B Notes are the same form and terms of the Series A Notes except (i) the
Series B designation, (ii) the Series B notes have been registered under the
Securities Act and, therefore, will not bear legends restricting the transfer
thereof, and (iii) holders of the Series B notes are not entitled to
registration rights as the exchange offer was intended to satisfy such exchange
and registration rights.
At December 31, 1999, $62.9 million principal amount of the Company's 9 1/8%
Debentures due 2017 (the "9 1/8% Debentures") was outstanding. The 9 1/8%
Debentures mature on April 15, 2017, and interest thereon is payable semi-
annually on April 15 and October 15 of each year. The 9 1/8% Debentures are
redeemable through the operation of a sinking fund beginning on April 15, 1998,
and each year thereafter to and including April 15, 2016 at a sinking fund
redemption price equal to 100% of the principal amount thereof plus accrued
interest to the redemption date. On or prior to April 15 in each of the years
1999 to 2016 inclusive, the Company is required to make a mandatory sinking
fund payment in cash in an amount sufficient to redeem 9 1/8% Debentures in the
aggregate principal amount of $5,000,000 plus accrued interest thereon.
However, 9 1/8% Debentures acquired or redeemed by the Company may be used as
the principal amount thereof to reduce the amount of any one or more mandatory
Sinking Fund payments. As of December 31, 1999, the Company had repurchased and
deposited with the trustee for the 9 1/8% Debentures $34.8 million principal
amount of 9 1/8% Debentures, which will be used to satisfy its mandatory
sinking fund obligations through April 15, 2004. The Company at its option may
make an optional sinking fund payment in cash in each year from 1999 to 2016
inclusive in an amount sufficient to redeem up to an additional $10,000,000
principal amount of 9 1/8% Debentures.
27
At December 31, 1999, an aggregate of approximately $10.8 million principal
amount of the Company's Medium-Term Notes Series A (the "Medium-Term Notes")
was outstanding in two tranches. $5.8 million of the Medium-Term Notes bear
interest at a rate of 8.55% while the remaining $5.0 million bear interest at
8.625%. The maturity dates of the Medium-Term Notes are March 15, 2000 and
March 15, 2001. Interest on each of the outstanding Medium-Term Notes is
payable semi-annually each March 30 and September 30 and at maturity.
At December 31, 1999, $7.1 million principal amount of the Company's 7%
Convertible Subordinated Debentures due 2002 (the "Convertible Debentures") was
outstanding. Following the Merger, the Company was required to offer to
purchase for cash any and all of the then outstanding Convertible Debentures at
a purchase price equal to 100% of the outstanding principal amount of each
Convertible Debenture plus any accrued and unpaid interest thereon. On November
12, 1997, the Company consummated such offer to purchase and, as a result
thereof, purchased $67.7 million principal amount of Convertible Debentures.
Immediately prior to the Merger, the Convertible Debentures were convertible
into shares of common stock of the Company at the conversion price of $22.25
per share. As a result of the Merger, the remaining $7.1 million principal
amount of outstanding Convertible Debentures are no longer convertible into
shares of common stock of the Company. Each holder of the remaining outstanding
Convertible Debentures now has the right to convert (at $22.25 per share) such
holder's Convertible Debentures and receive cash in an amount equal to what
each holder would have received had they converted the Convertible Debentures
into common stock immediately prior to the Merger ($18.00 per share).
Accordingly, the remaining outstanding Convertible Debentures are convertible
into the right to receive a cash payment equal to $809 for each $1,000
principal amount of Convertible Debentures so converted (i.e., ($18.00/$22.25)
x $1,000). The outstanding Convertible Debentures are convertible at any time
prior to their maturity on July 1, 2002.
The Company has various Industrial Revenue Bonds outstanding in an aggregate
principal amount of approximately $10.7 million as of December 31, 1999. The
Industrial Revenue Bonds have various maturity dates between 2002 and 2007.
Interest rates on the Industrial Revenue Bonds range from 6% to 12.037%.
In fiscal year 2000, the Company will be required to pay approximately $5.8
million in cash to satisfy obligations that will become due on the Medium Term
Notes. In addition, the Company will be required to pay approximately $1.2
million in cash to satisfy obligations that will become due at various times in
fiscal year 2000 under certain of its Industrial Revenue Bonds.
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 products in
the event of repossession upon a retail dealer's default. These arrangements
contain provisions which limit the Company's repurchase obligation to a total
aggregate of approximately $33 million for a period not to exceed 18 months
from the date of invoice. The Company resells any repurchased products at a
discount. Losses incurred under this program have not been material. For the
fiscal years 1999 and 1998, the Company repurchased approximately $5.7 million
and $4.1 million of products, respectively, all of which were resold at a
discounted price. The Company accrues for losses that are anticipated in
connection with expected repurchases. The Company does not expect these
repurchases to materially affect its results of operations, financial position,
or cash flows.
Based upon the current level of operations and anticipated cost savings, the
Company believes that its cash flow from operations together with the sale of
the Series A Preferred Stock and Warrants, the available borrowing capacity
under the Credit Agreement, and the interest reserve accounts and its other
sources of liquidity, will be adequate to meet its presently anticipated
requirements for working capital and accrued liabilities, capital expenditures,
interest payments, and scheduled principal payments over the next several
years. There can be no assurance, however, that the Company's business will
continue to generate cash flow at or above current levels or that anticipated
costs savings can be fully achieved. If the Company is unable to generate
sufficient cash flow from operations in the future to service its debt and
accrued liabilities and make
28
necessary capital expenditures, or if its future earnings growth is
insufficient to meet all required principal payments out of internally
generated funds, the Company may be required to refinance all or a portion of
its existing debt, sell assets or obtain additional financing. There can be no
assurance that any such refinancing or asset sales would be possible or that
any additional financing could be obtained on attractive terms, particularly in
view of the Company's high level of debt.
Year 2000 Matters
The Company completed and tested all year 2000 remedies prior to December
31, 1999 and did not experience any significant malfunctions or errors in its
operating or business systems when the date changed from 1999 to 2000. Based on
its operations since January 1, 2000, the Company does not expect any
significant impact to its ongoing business as a result of Year 2000. However,
it is possible that the full impact of the date change which was of concern due
to computer programs that used 2 digits instead of 4 digits to define years,
has not been fully recognized. For example, it is possible that Year 2000 or
similar issues such as leap year-related problems may occur with billing,
payroll or financial closings at month, quarter or year-end. In addition, the
Company could still be negatively affected if its vendors are adversely
affected by Year 2000. The Company currently is not aware of any significant
Year 2000 problems that have arisen for its vendors.
The Company expended approximately $12.5 million ($4.6 million capital), to
remedy all of the issues associated with ensuring that its hardware and
software worldwide, and the systems associated therewith, were able to operate
into the year 2000.
Euro Currency Conversion
On January 1, 1999, eleven of the fifteen member countries of the European
Union adopted the euro as their common legal currency. The euro trades on
currency exchanges and is available for non-cash transactions. From January 1,
1999 through January 1, 2002, each of the participating countries are scheduled
to maintain their national ("legacy") currencies as legal tender for goods and
services. Beginning January 1, 2002, new euro-denominated bills and coins will
be issued, and legacy currencies will be withdrawn from circulation no later
than July 1, 2002. The Company's foreign operating subsidiaries that will be
affected by the euro conversion have established plans to address any business
issues raised, including the competitive impact of cross-border price
transparency. It is not anticipated that there will be any near term business
ramifications; however, the long-term implications, including any changes or
modifications that will need to be made to business and financial strategies
are still being reviewed. From an accounting, treasury and computer system
standpoint, the impact from the euro currency conversion is not expected to
have a material impact on the financial position or results of operations of
the Company.
Accounting Standard
In June 1998, the Financial Accounting Standards Board issued Statement 133
("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities."
SFAS 133 establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. SFAS 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a Company must formally
document, designate, and assess the effectiveness of transactions that receive
hedge accounting. SFAS 133 is effective for fiscal years beginning after
December 31, 2000. The Company has not yet quantified the impacts of adopting
SFAS 133 on its financial statements and has not determined the timing of or
method of its adoption of SFAS 133.
Inflation
Inflation may cause or may be accompanied by increases in gasoline prices
and interest rates. Such increases may adversely affect the sales of the
Company's products. Because of the low level of inflation in recent years,
inflation has not had a significant impact on operating results during the past
three fiscal years.
29
Forward-Looking Statements
This report on Form 10-K contains "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. The Company
wishes to ensure that all such forward-looking statements are accompanied by
meaningful cautionary statements pursuant to the safe harbor established in
such act. All statements other than statements of historical facts included in
this Form 10-K may constitute forward-looking statements. Forward-looking
statements include the intent, belief or current expectations of the Company
and members of its senior management team. All forward-looking statements are
inherently uncertain as they are based on various expectations and assumptions
concerning future events and they are subject to numerous known and unknown
risks and uncertainties which could cause actual events or results to differ
materially from those projected and which include, but are not limited to, the
impact of competitive products and pricing, product demand and market
acceptance, new product development, availability of raw materials, the
availability of adequate financing on terms and conditions acceptable to the
Company, and general economic conditions including interest rates and consumer
confidence. Investors are also directed to other risks discussed in this annual
report on Form 10-K and documents filed by the Company with the Securities and
Exchange Commission.
7A. Quantitative and Qualitative Disclosures about Market Risk
The Company is exposed to market risk from changes in interest and foreign
exchange rates and commodity prices and enters into financial contracts in the
ordinary course of business to hedge these exposures. The Company does not use
financial instruments for trading or speculative purposes. Derivative
instruments are matched to existing assets, liabilities or transactions with
the objective of reducing the impact of adverse movements in interest rates,
currency exchange rates or commodity prices. Generally, the amounts of the
instruments are less than or equal to the amount of the underlying assets,
liabilities or transactions and are held to maturity. Instruments are either
traded over authorized exchanges or with counterparties of high credit
standing. As a result of these factors, the Company's exposure to market and
credit risks from financial derivative instruments is considered to be
negligible.
The following table presents principal cash flows and related weighted
average interest rates by expected maturity dates. Weighted average variable
rates are based on implied forward rates in the yield curve at the reporting
date.
Expected Maturity Date
----------------------------------------------------------------------
Fair
December 31, 1999 12/31/00 12/31/01 12/31/02 12/31/03 12/31/04 Thereafter Total Value
----------------- -------- -------- -------- -------- -------- ---------- ------ ------
Liabilities
Debt:
Fixed Rate ($US)....... $8.4 $7.0 $8.6 $0.4 $0.7 $231.0 $256.1 $170.0
Average Interest
Rate................. 8.1% 8.4% 7.2% 12.0% 11.0% 10.2% 10.0%
Variable Rate ($US).... -- -- -- -- -- $ 5.5 $ 5.5 $ 5.5
Average Interest
Rate................. 5.12% 5.12%
The Company uses forward and option contracts to reduce the earnings and
cash flow impact of nonfunctional currency denominated receivables and
payables. The contract maturities are matched with the settlement dates of the
related transactions. Assuming a 10% depreciation in the U.S. dollar at
December 31, 1999, potential losses in the net fair value of foreign exchange
contracts would have been $0.3 million. As these contracts are used for hedging
purposes, the Company feels that these losses would be largely offset by gains
on the underlying firm commitments or anticipated transactions.
The Company's exposure to commodity price changes relates to certain
manufacturing operations that utilize various commodity-based components,
primarily aluminum. The Company manages its exposure to changes in prices
through the terms of its supply and procurement contracts and the use of
exchange-traded and
30
over-the-counter commodity contracts. As of December 31, 1999, there were
unrealized gains on aluminum futures of $0.5 million. Assuming a 10% increase
in market prices at December 31, 1999, potential losses in the net fair value
of these contracts would have been immaterial.
The estimated losses mentioned above assume the occurrence of certain
adverse market conditions. They do not consider the potential effect of
favorable changes in the market factors.
31
Item 8. Financial Statements and Supplementary Data
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Outboard Marine Corporation:
We have audited the accompanying statements of consolidated financial
position of Outboard Marine Corporation and subsidiaries (the Company) as of
December 31, 1999, and the related statements of consolidated earnings and
comprehensive income, consolidated cash flows, and changes in consolidated
shareholders' investment for the year then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Outboard
Marine Corporation and subsidiaries as of December 31, 1999, and the results of
their operations and their cash flows for the year then ended, in conformity
with generally accepted accounting principles.
KPMG LLP
Chicago, Illinois
February 28, 2000
32
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 ("Post-Merger Company" or "Company") as of December 31, 1998 and
the related Statements of Consolidated Earnings and Comprehensive Income,
Consolidated Cash Flows and Changes in Consolidated Shareholders' Investment
for the three month period ended December 31, 1998 and the year in the period
ended September 30, 1998 and the related Statements of Consolidated Cash Flows
and Changes in Consolidated Shareholders' Investment from inception (see Note
1) to September 30, 1997. We have also audited the accompanying Statements of
Consolidated Earnings and Comprehensive Income, Consolidated Cash Flows and
Changes in Consolidated Shareholders' Investment of Outboard Marine Corporation
(a Delaware corporation) and subsidiaries ("Pre-Merger Company") for the year
in the period ended September 30, 1997. These financial statements are the
responsibility of the Post-Merger and Pre-Merger Company's management. Our
responsibility is to express an opinion on these financial statements based
upon our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 the Post-Merger Company as
of December 31, 1998 and the results of their operations and their cash flows
for the three month period ended December 31, 1998 and for the year in the
period ended September 30, 1998 and their cash flows from inception to
September 30, 1997, and the results of operations and cash flows of the Pre-
Merger Company for the year in the period ended September 30, 1997, in
conformity with accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Chicago, Illinois
February 25, 1999
33
OUTBOARD MARINE CORPORATION
STATEMENTS OF CONSOLIDATED FINANCIAL POSITION
December 31, December 31,
1999 1998
------------- -------------
(Dollars in millions except
amounts per share)
ASSETS
Current assets:
Cash and cash equivalents.................. $ 25.0 $ 13.6
Receivables (less allowance for doubtful
receivables of $6.2 million at December
31, 1999 and $9.2 million at December 31,
1998)..................................... 104.9 130.5
Inventories................................ 188.6 197.2
Deferred taxes............................. 1.9 1.9
Other current assets....................... 15.3 20.4
------------- -------------
Total current assets..................... 335.7 363.6
Restricted cash.............................. 30.6 29.3
Product tooling, net......................... 29.5 30.0
Plant and equipment, net..................... 200.5 197.1
Goodwill, net................................ 107.2 115.5
Trademarks, patents and other intangibles,
net......................................... 79.3 80.9
Pension asset................................ 50.8 46.4
Other assets................................. 14.8 11.4
------------- -------------
Total assets............................. $ 848.4 $ 874.2
============= =============
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Loan payable................................. $ 58.0 $ 32.4
Accounts payable............................. 99.2 90.0
Accrued liabilities.......................... 175.5 185.1
Accrued income taxes......................... 7.7 6.5
Current maturities and sinking fund
requirements of long-term debt.............. 8.4 11.2
------------- -------------
Total current liabilities................ 348.8 325.2
Long-term debt............................... 241.4 247.0
Postretirement benefits other than pensions.. 99.1 124.4
Other non-current liabilities................ 78.8 120.4
Shareholders' investment
Common stock--25 million shares authorized
at $.01 par value with 20.4 million shares
outstanding at December 31, 1999 and
1998...................................... 0.2 0.2
Capital in excess of par value of common
stock..................................... 277.3 276.9
Accumulated deficit........................ (189.2) (197.6)
Accumulated other comprehensive loss....... (8.0) (22.3)
------------- -------------
Total shareholders' investment........... 80.3 57.2
------------- -------------
Total liabilities and shareholders'
investment.............................. $ 848.4 $ 874.2
============= =============
The accompanying notes are an integral part of these statements.
34
OUTBOARD MARINE CORPORATION
STATEMENTS OF CONSOLIDATED EARNINGS AND COMPREHENSIVE INCOME
Pre-Merger
Post-Merger Company Company
----------------------------------------- ---------------------
Twelve Months Ended Three Months Ended Twelve Months Ended
December 31, December 31, September 30,
--------------------- ------------------- ---------------------
1999 1998 1998 1997 1998 1997
-------- ----------- ------ ----------- ---------- ---------
(unaudited) (unaudited)
(Dollars in millions except amounts per share)
Net sales............... $1,110.9 $1,015.6 $199.4 $209.5 $ 1,025.7 $ 979.5
Cost of goods sold...... 881.0 802.6 180.7 171.7 793.6 822.0
-------- -------- ------ ------ ---------- --------
Gross earnings........ 229.9 213.0 18.7 37.8 232.1 157.5
Selling, general, and
administrative
expense................ 207.2 279.7 62.3 48.8 266.2 219.9
Restructuring charge
(income)............... (14.1) 98.5 -- -- 98.5 --
Change in control
expenses-compensation.. -- -- -- -- -- 11.8
-------- -------- ------ ------ ---------- --------
Earnings (loss) from
operations........... 36.8 (165.2) (43.6) (11.0) (132.6) (74.2)
Non-operating expense
(income)
Interest expense...... 23.1 29.2 6.8 7.7 30.1 16.2
Change of control
expenses............. -- -- -- -- -- 15.1
Other, net............ (5.1) (16.5) (3.3) (2.4) (15.6) (29.2)
-------- -------- ------ ------ ---------- --------
18.0 12.7 3.5 5.3 14.5 2.1
Earnings (loss) before
provision for income
taxes................ 18.8 (177.9) (47.1) (16.3) (147.1) (76.3)
Provision for income
taxes.................. 10.6 2.6 -- 0.8 3.4 2.8
-------- -------- ------ ------ ---------- --------
Net earnings (loss)..... $ 8.2 $ (180.5) $(47.1) $(17.1) $ (150.5) $ (79.1)
======== ======== ====== ====== ========== ========
Other comprehensive
income (expense)
Foreign currency
translation
adjustments.......... (1.2) (3.4) 0.4 (3.4) (7.2) 8.5
Minimum pension
liability............ 15.5 (15.5) 9.2 -- (24.7) 3.1
-------- -------- ------ ------ ---------- --------
Other comprehensive
income (expense)... 14.3 (18.9) 9.6 (3.4) (31.9) 11.6
-------- -------- ------ ------ ---------- --------
Comprehensive
income (loss)...... $ 22.5 $ (199.4) $(37.5) $(20.5) $ (182.4) $ (67.5)
======== ======== ====== ====== ========== ========
Net earnings (loss) per
share of common stock
Basic................. $ 0.40 $ (8.85) $(2.31) $(0.84) $ (7.38) $ (3.91)
======== ======== ====== ====== ========== ========
Diluted............... $ 0.40 $ (8.85) $(2.31) $(0.84) $ (7.38) $ (3.91)
======== ======== ====== ====== ========== ========
The accompanying notes are an integral part of these statements.
35
OUTBOARD MARINE CORPORATION
STATEMENTS OF CONSOLIDATED CASH FLOWS
Pre-Merger
Post-Merger Company Company
----------------------------------------------- ----------
Twelve Months Three Months Twelve Months
Ended Ended Ended
December 31, December 31, September 30,
------------------- ------------------- -------------------
1999 1998 1998 1997 1998 1997
------ ----------- ------ ----------- ------- ----------
(unaudited) (unaudited)
(Dollars in millions)
Cash Flows from
Operating Activities:
Net earnings/(loss).... $ 8.2 $(180.5) $(47.1) $(17.1) $(150.5) $(79.1)
Adjustments to
reconcile net
earnings/(loss) to net
cash provided by
operations:
Depreciation and
amortization......... 52.1 50.0 12.4 12.5 50.1 57.0
Curtailment gain...... (15.0) -- -- -- -- --
Restructuring charges
(income)............. (14.1) 98.5 -- -- 98.5 --
Deferred taxes........ 6.0 -- -- -- -- --
Changes in current
accounts excluding
the effects of
acquisitions and
noncash transactions:
Decrease (increase) in
receivables.......... 24.5 1.1 26.4 24.4 (0.9) 9.6
Decrease (increase) in
inventories.......... 4.7 0.3 (22.9) (21.3) 1.9 26.5
Decrease (increase) in
other current
assets............... 1.2 18.3 4.7 31.8 45.4 (0.4)
Increase (decrease) in
accounts payable,
accrued liabilities
and income taxes..... (17.2) (6.5) (24.0) (63.5) (46.3) (5.3)
Increase (decrease) in
other items.......... (9.8) 63.1 (2.5) (3.4) 62.5 (17.5)
------ ------- ------ ------ ------- -------
Net cash provided by
(used for) operating
activities.......... 40.6 44.3 (53.0) (36.6) 60.7 (9.2)
Cash Flows from
Investing Activities:
Expenditures for plant
and equipment, and
tooling............... (48.5) (43.2) (15.1) (6.3) (34.4) (36.3)
Proceeds from sale of
plant and equipment,
including assets held
for sale.............. 4.6 11.8 2.3 0.1 9.6 13.0
Proceeds from sale of
joint venture......... -- 3.2 3.2 -- -- --
Other, net............. 1.4 -- -- 0.8 0.8 (2.8)
------ ------- ------ ------ ------- -------
Net cash used for
investing
activities.......... (42.5) (28.2) (9.6) (5.4) (24.0) (26.1)
Cash Flows from
Financing Activities:
(Payments) issuance of
short-term debt, net.. 25.6 (143.3) 32.4 79.7 (96.0) --
Payments of long-term
debt, including
current maturities.... (12.6) (8.5) (1.2) (67.7) (75.0) --
Proceeds from the
issuance of long-term
debt.................. -- 155.4 -- -- 155.4 --
Cash dividends paid.... -- -- -- -- -- (6.0)
Restricted cash........ (1.3) (29.3) (0.3) -- (29.0) --
Other, net............. 0.4 (0.9) -- -- (0.9) 2.3
------ ------- ------ ------ ------- -------
Net cash provided by
(used for) financing
activities.......... 12.1 (26.6) 30.9 12.0 (45.5) (3.7)
Exchange rate effect on
cash.................. 1.2 -- 0.1 (0.3) (0.4) (2.1)
------ ------- ------ ------ ------- -------
Net increase (decrease)
in cash and cash
equivalents........... 11.4 (10.5) (31.6) (30.3) (9.2) (41.1)
Cash and cash
equivalents at
beginning of period... 13.6 24.1 45.2 54.4 54.4 95.5
------ ------- ------ ------ ------- -------
Cash and cash
equivalents at end of
period................ $ 25.0 $ 13.6 $ 13.6 $ 24.1 $ 45.2 $ 54.4
====== ======= ====== ====== ======= =======
Restricted cash........ $ 30.6 $ 29.3 $ 29.3 $ -- $ 29.0 $ --
====== ======= ====== ====== ======= =======
Post-Merger Company
cash and cash
equivalents prior to--
September 30, 1997.... $ 54.4
Cash Flows from
Financing Activities
(Post-Merger Company):
Proceeds from short-
term borrowings....... 96.0
Issuance of Post-Merger
Company common stock.. 277.0
Purchase of Pre-Merger
Company common stock.. (373.0)
-------
Post-Merger Company
cash and cash
equivalents--September
30, 1997.............. $ 54.4
=======
Supplemental Cash Flow
Disclosures:
Interest paid......... $ 30.4 $ 29.4 $ 12.5 $ 7.2 $ 23.5 $ 21.0
====== ======= ====== ====== ======= =======
Income taxes paid
(refunded), net...... $ (4.9) $ (0.1) $ (1.4) $ 1.3 $ 0.0 $ 3.4
====== ======= ====== ====== ======= =======
The accompanying notes are an integral part of these statements.
36
OUTBOARD MARINE CORPORATION
STATEMENTS OF CHANGES IN CONSOLIDATED SHAREHOLDERS' INVESTMENT
Accumulated
Issued Capital in Earnings
Common Stock Excess (Deficit) Accumulated
Shares of Par Employed Other
-------------- Value of in the Comprehensive Treasury
Shares Amount Common Stock Business Income (loss) Stock
------ ------ ------------ ----------- ------------- --------
(Dollars and shares in millions)
Balance--September 30,
1996................... 20.2 $ 3.0 $ 114.1 $ 134.4 $(11.6) $(2.3)
Net loss................ (79.1)
Dividends declared--20
cents per share........ (4.0)
Minimum pension
liability adjustment... (0.4)
Shares issued under
stock plans............ 0.3 0.1 3.8
Translation
adjustments............ (7.3)
----- ----- ------- ------- ------ -----
Balance--September 30,
1997--Pre-Merger
Company................ 20.5 $ 3.1 $ 117.9 $ 51.3 $(19.3) $(2.3)
Cancellation of Pre-
Merger Company shares
upon merger............ (20.5) (3.1) (117.9) (51.3) 19.3 2.3
Issuance of Post-Merger
Company shares upon
merger................. 20.4 0.2 276.8
----- ----- ------- ------- ------ -----
Balance--September 30,
1997--Post-Merger
Company................ 20.4 $ 0.2 $ 276.8 $ 0.0 $ 0.0 $ --
Net loss................ (150.5)
Minimum pension
liability adjustment... (24.7)
Shares issued under
stock plans............ 0.1
Translation
adjustments............ (7.2)
----- ----- ------- ------- ------ -----
Balance--September 30,
1998--Post-Merger
Company................ 20.4 $ 0.2 $ 276.9 $(150.5) $(31.9) $ --
Net loss................ (47.1)
Minimum pension
liability adjustment... 9.2
Translation
adjustments............ 0.4
----- ----- ------- ------- ------ -----
Balance--December 31,
1998--Post-Merger
Company................ 20.4 $ 0.2 $ 276.9 $(197.6) $(22.3) $ --
Net earnings............ 8.2
Minimum pension
liability adjustment... 15.5
Shares issued under
stock plans............ 0.4
Translation
adjustments............ (1.2)
Other................... 0.2
----- ----- ------- ------- ------ -----
Balance--December 31,
1999--Post-Merger
Company................ 20.4 $ 0.2 $ 277.3 $(189.2) $ (8.0) $ --
===== ===== ======= ======= ====== =====
The accompanying notes are an integral part of these statements.
37
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Merger with Greenmarine Acquisition Corp.
On September 12, 1997, Greenmarine Acquisition Corp. ("Greenmarine")
acquired control of Outboard Marine Corporation (the "Pre-Merger Company") when
shareholders tendered approximately 90 percent of the outstanding shares of the
Pre-Merger Company's common stock to Greenmarine for $18 per share in cash.
Greenmarine was formed solely to purchase the shares of the Pre-Merger Company
and merged with and into the Pre-Merger Company in a non-taxable transaction on
September 30, 1997 (the "Greenmarine Acquisition"). Outboard Marine
Corporation, including its subsidiaries, was the sole surviving entity of the
merger with Greenmarine (the "Post-Merger Company" or the "Company"). All of
the outstanding Pre-Merger Company common stock was cancelled on September 30,
1997 and 20.4 million shares of new common stock were issued to Greenmarine
Holdings LLC (the "Parent") the parent Company of Greenmarine. Greenmarine's
total purchase price of common stock and related acquisition costs amounted to
$373.0 million.
The acquisition and the merger were accounted for using the purchase method
of accounting. Accordingly, the purchase price has been allocated to assets
acquired and liabilities assumed based on fair market values at the date of
acquisition. The fair values of tangible assets acquired and liabilities
assumed were $883.6 million and $817.8 million, respectively. In addition,
$83.9 million of the purchase price was allocated to intangible assets for
trademarks, patents and dealer network. At September 30, 1997, the preliminary
allocation of purchase price to assets acquired and liabilities assumed
included $8.1 million of reserves for: 1) severance costs associated with
closing the Old Hickory, TN facility, 2) guaranteed payments for terminating a
supply agreement, and 3) severance costs for certain corporate employees. At
September 30, 1998, the allocation of purchase price to assets acquired and
liabilities assumed in the Greenmarine Acquisition was finalized. The
adjustments from the preliminary purchase price allocation at September 30,
1997 included $5.3 million to reverse a portion of a valuation allowance (and
related goodwill) established for the disposition of the Company's joint
venture (see Note 3). In addition, the Company reduced its purchase accounting
reserves and corresponding goodwill by $1.4 million for revisions of certain
estimates. The adjusted September 30, 1998 excess purchase price over fair
value of the net assets acquired was approximately $120 million (prior to
goodwill amortization) and has been classified as goodwill in the Statement of
Consolidated Financial Position. The goodwill related to the acquisition will
be amortized using the straight-line method over a period of 40 years.
The acquisition and the merger have been accounted for as if the acquisition
and merger had taken place simultaneously on September 30, 1997. In the opinion
of management, accounting for the acquisition and the merger as of September
30, 1997, as opposed to accounting for the acquisition and the merger on
September 12, 1997, did not materially impact the Statement of Consolidated
Earnings.
2. Nature of Business and Significant Accounting Policies
Nature of Business. The Company is a multinational company that operates in
the marine recreation business. The Company manufactures and markets marine
engines, boats and marine parts and accessories.
Change in Fiscal Year. Effective October 1, 1998, the Company's fiscal year-
end changed from September 30 to December 31.
Basis of Presentation. The consolidated financial statements for the Post-
Merger Company were prepared using a new basis of purchase accounting. The Pre-
Merger Company's historical basis of accounting was used prior to September 30,
1997. Unaudited Statements of Consolidated Earnings and Comprehensive Income
and Consolidated Cash Flows for the three months ended December 31, 1997 and
the twelve months ended December 31, 1998 have been included for comparative
purposes.
38
Principles of Consolidation. The accounts of all significant subsidiaries
were included in the Consolidated Financial Statements. Inter-company activity
and account balances have been eliminated in consolidation. At December 31,
1999, all subsidiaries were wholly owned except those referred to in Note 3 to
the Consolidated Financial Statements.
Reclassification. Certain amounts in 1998 have been restated to conform to
the 1999 presentation.
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
Financial Position and Consolidated Cash Flows, marketable securities with an
original maturity of three months or less are considered cash equivalents.
The Company's banking system provides for the daily replenishment of major
bank accounts for check clearing requirements. Accordingly, outstanding checks
of $17.5 million and $22.4 million, which had not yet been paid by the banks at
December 31, 1999 and December 31, 1998, respectively, were reflected in trade
accounts payable in the Statements of Consolidated Financial Position.
Restricted Cash. On May 27, 1998, the Company issued $160.0 million of 10
3/4% Senior Notes ("Senior Notes") due 2008. Concurrently with the issuance of
the Senior Notes, the Company entered into a depositary agreement which
provided for the establishment and maintenance of an interest reserve account
("Restricted Cash") for the benefit of the holders of the Senior Notes and
other senior creditors of the Company in an amount equal to one year's interest
due to these lenders. At December 31, 1999 and December 31, 1998, the
Restricted Cash was $30.6 million and $29.3 million, respectively. The
restricted cash must be maintained until the later of May 27, 2001, or such
time as the Company's fixed coverage ratio is greater than 2.5 to 1.0 (as
defined under the depositary agreement), or such time as the Senior Notes are
paid in full.
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 which comprised 21% and 23% of total inventory at December 31,
1999 and December 31, 1998, respectively, is carried at the lower of first-in,
first-out (FIFO) cost or market. In the fiscal year ended September 30, 1998,
the Company changed its accounting for the absorption of certain manufacturing
overhead costs to better reflect the costs to manufacture such inventory. The
effect of this change was to decrease cost of goods sold and increase its
earnings from operations by approximately $3.6 million.
During 1997, the liquidation of LIFO inventory quantities acquired at lower
costs prevailing in prior years as compared with the costs of 1997 purchases,
increased earnings before tax by $1.0 million.
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, which includes assets
acquired under capital leases, 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, 3 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 $44.9
million, $43.1 million and $52.7 million for the fiscal year ended December 31,
1999, and the fiscal years ended September 30, 1998 and 1997, respectively.
39
When plant and equipment is retired or sold, its cost and related
accumulated depreciation are written-off and the resulting gain or loss is
included in other (income) expense, net, in the Statements of Consolidated
Earnings.
Maintenance and repair costs, which are charged directly to earnings as
incurred, were $25.9 million, $27.0 million and $26.5 million for the fiscal
year ended December 31, 1999, and the fiscal years ended September 30, 1998 and
1997, respectively. Major rebuilding costs, which substantially extend the
useful life of an asset are capitalized and depreciated accordingly.
Intangibles. The Statements of Consolidated Financial Position at December
31, 1999 and December 31, 1998 included goodwill, net of amortization expense,
of $107.2 million and $115.5 million, respectively, and trademarks, patents and
other intangibles of $79.3 million and $80.9 million, respectively. 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. In 1999, goodwill was reduced by $6.0 million as
benefits associated with certain deferred tax assets at the date of the
Greenmarine Acquisition were recognized (see note 14).
Amortization of intangibles was $5.7 million, $6.2 million and $1.6 million
for the fiscal year ended December 31, 1999, and the fiscal years ended
September 30, 1998 and 1997, respectively. Accumulated amortization was $14.3
million and $7.6 million at December 31, 1999 and December 31, 1998,
respectively.
Revenue Recognition. The Company generally recognizes the sale of
merchandise and related expenses, including estimated warranty costs, when the
following conditions have been met: i) the customer has paid for the product or
willingly assumed an obligation to pay; and, ii) the customer or common carrier
has physically received the product and risk of ownership has passed to the
customer.
Advertising Costs. Advertising costs are charged to expense as incurred and
were $28.6 million, $27.6 million and $33.7 million for the fiscal year ended
December 31, 1999, and the fiscal years ended September 30, 1998 and 1997,
respectively.
Warranty. The Company generally provides the ultimate consumer a warranty
with each product and accrues warranty expense at the time of sale based upon
accrual estimates, which consider 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 improvements and refinements to existing
products, are expensed as incurred. Such expenditures were $42.2 million, $36.8
million and $38.2 million for fiscal year ended December 31, 1999, and the
fiscal years ended September 30, 1998 and 1997, 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 during the period; and,
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 the
Company for the fiscal year ended December 31, 1999, and the fiscal years ended
September 30, 1998 and 1997 include foreign exchange losses (gains) of $1.9
million, $(0.7) million and $1.0 million, respectively, which resulted
primarily from commercial transactions.
Impairment of Long-Lived Assets. The Company evaluates the long-lived assets
and certain identifiable intangibles for possible impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. The Company periodically evaluates whether events and
circumstances have occurred that indicate the remaining estimated useful life
of intangible assets may warrant revision or that the remaining balance may not
be recoverable. If factors indicate that intangible assets should be evaluated
for possible impairment, the Company would use an estimate of the relative
business unit's expected undiscounted operating cash flow over the remaining
life of the intangible asset in measuring whether
40
the intangible asset is recoverable. If this review indicates that the assets
will not be recoverable, the carrying value of the Company's assets would be
reduced to their estimated fair market value.
Stock-Based Compensation. The Company continues to account for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees".
Compensation cost for stock options, if any, is measured as the excess of the
quoted market price of the Company's stock at the date of grant over the amount
an employee must pay to acquire the stock. Statement of Financial Accounting
Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation,"
established accounting and disclosure requirements using a fair-value-based
method of accounting for stock-based employee compensation plans. The Company
has elected to remain on its current method of accounting as described above,
and has adopted the disclosure requirements of SFAS No. 123.
Derivative Financial Instruments and Foreign Currency Transactions. The
Company uses derivative financial instruments selectively to offset exposure to
market risks arising from changes in foreign exchange rates and interest rates.
Derivative financial instruments currently utilized by the Company primarily
include foreign currency forward contracts. Contracts are executed centrally to
minimize transaction costs on currency conversions and minimize losses due to
adverse changes in foreign currency markets. The Company evaluates and monitors
consolidated net exposures by currency and maturity, and external derivative
financial instruments to minimize that net exposure.
Earnings Per Share of Common Stock. Basic earnings (loss) per share of
common stock is computed based on the weighted average number of shares of
common stock outstanding of 20.4 million for the fiscal year 1999, the twelve
month period ended December 31, 1998, the three-month periods ended December
31, 1998 and 1997, and the fiscal year ended September 30, 1998, respectively,
and 20.2 million for the fiscal year ended September 30, 1997. For fiscal year
1997, the computation of 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 diluted earnings (loss)
per share computations, shares were computed to be 20.6 million for fiscal year
1999 and 20.4 million for the twelve months ended December 31, 1998, the three
month periods ended December 31, 1998 and 1997, and fiscal year 1998. For all
periods, except fiscal year 1999, the computation of diluted earnings (loss)
per share was antidilutive; therefore, the amounts reported for basic and
diluted earnings (loss) per share are identical.
On September 30, 1997, all of the Pre-Merger Company outstanding common
stock was cancelled and 20.4 million shares of new common stock were issued.
See Note 9 concerning the redemption of the 7% convertible subordinated
debentures due 2002.
Segment Information. Effective in 1999, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments of
an Enterprise and Related Information", with respect to segment reporting. As a
result, the Company has changed the way it reports information about its
operating segments. The Company determines its reportable segments based on the
strategic business units and the commonalities among the products and services
within each segment, which corresponds to the manner in which the Company's
management reviews and evaluates operating performance. The Company has
combined certain similar operating segments that meet applicable criteria
established under SFAS No. 131.
41
Comprehensive Income. The Company has chosen to present Other Comprehensive
Income in the Statement of Consolidated Earnings. Accumulated Other
Comprehensive Income consists of the following:
Accumulated
Minimum Foreign Other
Pension Currency Comprehensive
Liability Translation Income
--------- ----------- -------------
Balance at September 30, 1996.......... $ (3.1) $ (8.5) $(11.6)
Fiscal year activity................... (0.4) (7.3) (7.7)
------ ------ ------
Balance at September 30, 1997--Pre-
Merger Company........................ $ (3.5) $(15.8) $(19.3)
Merger activity........................ 3.5 15.8 19.3
------ ------ ------
Balance at September 30, 1997--Post-
Merger Company........................ $ 0.0 $ 0.0 $ 0.0
Fiscal year activity................... (24.7) (7.2) (31.9)
------ ------ ------
Balance at September 30, 1998.......... $(24.7) $ (7.2) $(31.9)
Period activity........................ 9.2 0.4 9.6
------ ------ ------
Balance at December 31, 1998........... $(15.5) $ (6.8) $(22.3)
Fiscal year activity................... 15.5 (1.2) 14.3
------ ------ ------
Balance at December 31, 1999........... $ 0.0 $ (8.0) $ (8.0)
====== ====== ======
3. Joint Venture and Investments
In July 1995, the Pre-Merger 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 Pre-
Merger Company acquired a 51% interest in FICHT GmbH. The Ficht family retained
a 49% interest and continues to operate the business. The Company has an
exclusive license worldwide for the marine industry for the FICHT fuel
injection system. In addition, the Company has an exclusive worldwide license
agreement for all non-automotive applications. Royalty income, if any,
resulting from other licensing of the technology will be distributed through
FICHT.
In July 1993, the Pre-Merger Company and AB Volvo Penta and Volvo Penta of
the Americas, Inc. ("Volvo") formed a joint venture Company to produce gasoline
stern drive and gasoline inboard marine power systems for OEM & after-market
sales. The equity method of accounting was used to account for the Company's
investment in the joint venture. At September 30, 1998 and 1997, the Company's
investment, including current net accounts receivable, was $24.0 and $13.9
million, respectively. The Company recognized gross profit relating to certain
parts sales and incurred expenses for product development that were part of the
joint venture. The Post-Merger Company's share of the joint venture's earnings
(including income derived from the Company's stern-drive joint venture net of
joint venture expenses) was $4.8 million for the fiscal year ended September
1998, and the Pre-Merger Company's share was $7.2 million in fiscal year 1997
which was included in other (income) expense, net in the Statements of
Consolidated Earnings. On December 8, 1998, the Company terminated its joint
venture with AB Volvo Penta and Volvo Penta of the Americas, Inc. ("Volvo") and
entered into a Product Sourcing Contract which will control the future purchase
and sale obligations of various specified goods between the Company and Volvo.
As such, the Company sold its ownership interest to Volvo for approximately
$3.2 million, resulting in no material gain or loss.
4. Restructuring Charges
During the fiscal quarter ended September 30, 1998, the Company finalized a
restructuring plan for the closure/consolidation of its Milwaukee and Waukegan
engine facilities. The Company announced the closure of the Milwaukee and
Waukegan facilities on September 24, 1998. The Company recorded a $98.5 million
restructuring charge which included: 1) costs to recognize severance and
benefits for approximately 950
42
employees to be terminated ($14.0 million), 2) costs to clean and close the
facilities ($6.5 million), 3) costs to ready machinery and equipment for
disposal and costs to dispose of machinery and equipment at the facilities
($3.9 million), 4) costs to write-down certain replacement parts for machinery
and equipment at the facilities to net realizable value ($2.0 million) and 5)
curtailment losses associated with the acceleration of pension ($42.2 million)
and postretirement medical benefits ($29.9 million) for employees at the two
facilities. The Company's plan includes outsourcing substantially all of its
sub-assembly production currently performed in its Milwaukee and Waukegan
facilities to third-party vendors and transferring the balance of production to
other facilities within the Company. The Company anticipates substantial
completion of such plan by the end of fiscal year 2000.
By May 1999, the Company completed its negotiations of the closing
agreements with the unions representing the Milwaukee and Waukegan workers,
respectively. These negotiations resulted in changes to the post-retirement
medical and pension plans for union employees. The changes required an
adjustment in the previous estimate of the curtailment loss for the pension and
postretirement medical benefits. Specifically, in the second fiscal quarter of
1999, the curtailment loss related to the postretirement medical benefit
obligation was decreased by $19 million and the curtailment loss related to the
pension benefit obligation was increased by $5 million, resulting in a net
reduction of the previous curtailment loss from $72.1 million to $58.1 million.
This adjustment was reflected in the Statement of Consolidated Operations and
Comprehensive Income (in the second quarter of 1999) as a $14 million reduction
in the previously recorded Restructuring Charge. The adjusted curtailment loss
of $58.1 million represents the estimate of the increase in pension and
postretirement medical benefit obligations due to the closure of the Milwaukee
and Waukegan facilities. The cash payment for the pension benefits will be made
from the assets of the pension fund while the payment for the postretirement
medical benefits will be made from the general assets of the Company.
As of September 30, 1999, the Company had identified suppliers and begun the
transfer of manufacturing responsibilities for the outsourcing of crankshafts,
propellers, drive shafts, propeller shafts, and numerous investment cast and
service parts to third-party suppliers. In September 1999, the Company made two
additional adjustments to the restructuring accrual. First, the severance
accrual was reduced by $2.6 million due to the attrition of employees at the
Waukegan and Milwaukee locations. In addition, an increase in the pension
obligation of $2.5 million was recorded to reflect an increased benefit offered
to the exempt employees at the Milwaukee and Waukegan locations. The impact of
these entries has been reflected in the Condensed Statement of Consolidated
Operations and Comprehensive Income as a $0.1 million decrease to the
previously recorded Restructuring Charge.
As of December 31, 1999, the Company has incurred approximately $1.0 million
against the restructuring charge established in the prior fiscal year. The
remaining balance will be substantially spent in 2000 as the plants are closed
and the facilities are subsequently sold. As part of its outsourcing efforts,
the Company is negotiating with a potential vendor for the lease of space in
the facility for the supply of some of the production. Although there can be no
assurance, if the Company is successful in its negotiations, there would be a
reduction of the employee severance and other costs previously recorded for
this facility. The Company anticipates having more information regarding the
negotiations early in the second quarter of 2000.
The elements of the restructuring accrual (excluding curtailment
gains/losses) are as follows (in millions):
Balance at
Original Accrual December 31,
Accrual Utilized Changes 1999
-------- -------- ------- ------------
Fiscal 1998 Charge.................... $26.4 $ 1.0 $2.6 $22.8
Fiscal 1996 Charge.................... 25.6 23.8 -- 1.8
----- ----- ---- -----
$52.0 $24.8 $2.6 $24.6
43
5. Inventories
The components of inventory were as follows:
December 31, December 31,
1999 1998
------------ ------------
(Dollars in million)
Finished product................................. $ 67.5 $ 83.9
Raw material, work in process and service parts.. 123.6 114.5
------ ------
Inventory at current cost which is less than
market.......................................... 191.1 198.4
Excess of current cost over LIFO cost............ 2.5 1.2
------ ------
Net inventory.................................... $188.6 $197.2
====== ======
6. Plant and Equipment
Plant and equipment components were as follows:
December 31, December 31,
1999 1998
------------ ------------
(Dollars in million)
Land and improvements.............................. $ 11.3 $ 12.0
Buildings.......................................... 63.0 60.2
Machinery and equipment............................ 146.8 132.4
Construction in progress........................... 25.0 16.2
------ ------
246.1 220.8
Accumulated depreciation........................... 45.6 23.7
------ ------
Plant and equipment, net........................... $200.5 $197.1
====== ======
7. Accrued Liabilities and Other Non-Current Liabilities
December 31, December 31,
1999 1998
------------ ------------
(Dollars in million)
Accrued liabilities were as follows:
Compensation, pension programs and current
postretirement Medical........................ $ 24.6 $ 20.9
Warranty....................................... 40.6 40.9
Marketing programs............................. 43.1 52.9
Restructuring reserves......................... 24.6 10.3
Other.......................................... 42.6 60.1
------ ------
Accrued liabilities.............................. $175.5 $185.1
====== ======
December 31, December 31,
1999 1998
------------ ------------
(Dollars in million)
Other non-current liabilities were as follows:
Pension programs............................... $15.2 $ 35.5
Environmental remediation...................... 21.2 18.0
Warranty....................................... 22.7 20.6
Restructuring reserves......................... -- 20.4
Other.......................................... 19.7 25.9
----- ------
Accrued non-current liabilities.................. $78.8 $120.4
===== ======
44
8. Short-Term Borrowings
A summary of short-term borrowing activity was as follows:
December 31, December 31,
1999 1998
------------ ------------
(Dollars in million)
Outstanding:
Bank borrowing................................... $58.0 $32.4
Average bank borrowing for the period:
Borrowing........................................ $56.8 $ 8.9
Interest rate.................................... 7.3% 8.2%
Maximum month end borrowing........................ $80.0 $32.4
The Company entered into an Amended and Restated Loan and Security
Agreement, effective as of January 6, 1998 (as amended, the "Credit
Agreement"), with a syndicate of lenders for which Bank of America, N.A. is
administrative and collateral agent (the "Agent"). The Credit Agreement
provides a revolving credit facility (the "Revolving Credit Facility") of up to
$150.0 million, subject to borrowing base limitations, to finance working
capital with a $50.0 million sublimit for letters of credit. The Revolving
Credit Facility is secured by a first and only security interest in all of the
Company's existing and hereafter acquired accounts receivable, inventory,
chattel paper, documents, instruments, deposit accounts, contract rights,
patents, trademarks and general intangibles and is guaranteed by the Company's
four principal domestic operating subsidiaries. The Company entered into the
Fifth Amendment to Amended and Restated Loan and Security Agreement, effective
as of February 25, 1999, which among other things, amended the Company's
consolidated tangible net worth, consolidated leverage and consolidated
interest coverage ratios for future periods in order to bring the covenants in
line with anticipated results of operations. In order to meet the Company's
liquidity requirements, the Company entered into a Sixth Amendment to the
Amended and Restated Loan and Security Agreement effective July 30, 1999, which
among other things (i) extended the termination of the Revolving Credit
Facility from December 31, 2000 to December 31, 2001, (ii) included work-in-
process inventory in the borrowing base calculation until September 30, 1999,
and (iii) extended the duration of the borrowing base capacity for intellectual
property through October 31, 1999. On October 27, 1999, the Company entered
into a Seventh Amendment to the Amended and Restated Loan and Security
Agreement which among other things extended the duration of the borrowing base
capacity for intellectual property through December 31, 1999. On February 1,
2000 the Company entered into an Eighth Amendment to the Amended and Restated
Loan and Security Agreement which among other things (i) increased the
borrowing capacity by increasing intellectual property availability by $10.0
million to $20.0 million and increasing the advance rate for finished goods
inventory from 60% to 65%, (ii) eliminated tangible net worth, interest
coverage, and leverage ratio covenants, and (iii) established minimum
availability requirements, maximum capital and tooling expenditures, and
included a minimum earnings before interest, taxes, depreciation, and
amortization covenant test to reflect expected operating results.
45
9. Long-Term Debt
Long-term debt on December 31, 1999 and December 31, 1998, net of sinking
fund requirements included in current liabilities, consisted of the following:
December 31, December 31,
1999 1998
------------ ------------
(Dollars in million)
10 3/4% senior notes due 2008..................... $156.0 $155.5
7% convertible subordinated debentures due 2002... 7.1 7.1
9 1/8% sinking fund debentures due through 2017... 62.9 62.8
Medium-term notes due 2000 through 2001 with rates
ranging from 8.55% to 8.625%..................... 10.8 20.9
Industrial revenue bonds and other debt due 2002
through 2007 with rates ranging from 6.0% to
12.037%.......................................... 10.7 11.9
Other............................................. 2.3 --
------ ------
$249.8 $258.2
Less current maturities........................... (8.4) (11.2)
------ ------
$241.4 $247.0
====== ======
On May 27, 1998, the Company issued $160.0 million of 10 3/4% Senior Notes
("Senior Notes") due 2008, with interest payable semiannually on June 1 and
December 1, of each year. The net proceeds from the issuance totaled $155.2
million, of which $150.0 million was used to prepay the acquisition debt.
Unamortized debt discount costs of $4.0 million remained at December 31, 1999.
The Senior Notes are guaranteed by certain of the Company's U.S. operating
subsidiaries. Concurrently with the issuance of the Senior Notes, the Company
entered into a depositary agreement which provided for the establishment and
maintenance of an interest reserve account for the benefit of the holders of
the Senior Notes and other senior creditors of the Company in an amount equal
to one year's interest due to these lenders. At December 31, 1999 and December
31, 1998, the interest reserve Restricted Cash was $30.6 million and $29.3
million, respectively. Restricted cash must be maintained for a minimum of
three years or at least until such time as the Company's fixed coverage ratio
is greater than 2.5 to 1.0 (as defined under the depositary agreement) or the
Senior Notes are paid in full. The Indenture governing the Senior Notes
contains certain covenants that limit, among other things, the ability of the
Company and its restricted subsidiaries to (i) pay dividends, redeem capital
stock or make certain other restricted payments or investments; (ii) incur
additional indebtedness or issue certain preferred equity interests; (iii)
merge or consolidate with any other person or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its assets; (iv)
create liens on assets; and (v) enter into certain transactions with affiliates
or related persons.
At December 31, 1999, $7.1 million principal amount of the Company's 7%
Convertible Subordinated Debentures due 2002 (the "Convertible Debentures") was
outstanding. Following the Merger, the Company was required to offer to
purchase for cash any and all of the then outstanding Convertible Debentures at
a purchase price equal to 100% of the outstanding principal amount of each
Convertible Debenture plus any accrued and unpaid interest thereon. On November
12, 1997, the Company consummated such offer to purchase and, as a result
thereof, purchased $67.7 million principal amount of Convertible Debentures.
Immediately prior to the Merger, the Convertible Debentures were convertible
into shares of common stock of the Company at the conversion price of $22.25
per share. As a result of the Merger, the remaining $7.1 million principal
amount of outstanding Convertible Debentures are no longer convertible into
shares of common stock of the Company. Each holder of the remaining outstanding
Convertible Debentures now has the right to convert (at $22.25 per share) such
holder's Convertible Debentures and receive cash in an amount equal to what
each holder would have received had they converted the Convertible Debentures
into common stock immediately prior to the Merger ($18.00 per share).
Accordingly, the remaining outstanding Convertible Debentures are convertible
into the right to receive a cash payment equal to $809 for each $1,000
principal amount of
46
Convertible Debentures so converted (i.e., ($18.00/$22.25) x $1,000). The
outstanding Convertible Debentures are convertible at any time prior to their
maturity on July 1, 2002.
On December 31, 1999 and December 31, 1998, 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 2000 through 2004. Amounts
are recorded as a reduction of outstanding debt.
At December 31, 1999, an aggregate of approximately $10.8 million principal
amount of the Company's Medium-Term Notes Series A (the "Medium-Term Notes")
was outstanding in two tranches. $5.8 million of the Medium-Term Notes bear
interest at a rate of 8.55% while the remaining $5.0 million bear interest at
8.625%. The maturity dates of the Medium-Term Notes include March 15, 2000 and
March 15, 2001. Interest on each of the outstanding Medium-Term Notes is
payable semi-annually each March 30 and September 30 and at maturity.
The agreements covering the Company's revolving credit agreement (see Note
8) and one industrial revenue bond have restrictive financial covenants.
Maturities and sinking fund requirements of long-term debt for each of the
next five fiscal years is as follows:
(Dollars in
millions)
-----------
2000............................................................. $8.4
2001............................................................. 7.0
2002............................................................. 8.6
2003............................................................. 0.4
2004............................................................. 0.7
10. Financial Instruments
The carrying values of cash and cash equivalents, receivables, accounts
payable, and current maturities of long-term debt approximate fair values due
to the short term nature of these instruments. The fair value of the long-term
debt was $170.0 million and $239.0 million at December 31, 1999 and December
31, 1998, respectively, versus carrying amounts of $241.4 million and $247.0
million at December 31, 1999 and December 31, 1998, 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 uses various financial instruments to manage interest rate,
foreign currency, and commodity pricing exposures. The agreements are with
major financial institutions, which are expected to fully perform under the
terms of the instruments, thereby mitigating the credit risk from the
transactions. The Company does not hold or issue financial instruments for
trading purposes. The notional amounts of these contracts do not represent
amounts exchanged by the parties and, thus, are not a measure of the Company's
risk. The net amounts exchanged are calculated on the basis of the notional
amounts and other terms of the contracts, such as interest rates or exchange
rates, and only represent a small portion of the notional amounts.
Prior to 1999, the Company had entered into certain 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 and is recognized in
net earnings as an adjustment to interest expense. At December 31, 1998 and
September 30, 1998 the Company had an outstanding variable to fixed interest
rate swap agreement having a total notional principal amount of $5.0 million
expiring February 15, 1999. The fair value of the interest rate swap agreement
at December 31, 1998 was an estimated termination liability of $0.1 million.
This potential expense at each fiscal year end had not yet
47
been reflected in net earnings as it represents the hedging of long-term
activities to be amortized in future reporting periods. The fair value was the
estimated amount the Company would have paid to terminate the swap agreements.
The Company enters into foreign exchange forward contracts and options to
hedge intercompany or particular anticipated transactions expected to be
denominated in such currencies. The recognition of gains or losses on these
instruments is accrued as foreign exchange rates change and is reflected in the
Consolidated Statement of Earnings unless the gains or losses are related to
qualifying hedges on firm foreign currency commitments under which gains and
losses are deferred.
At December 31, 1999, the Company had entered into foreign currency forward
exchange contracts to receive 11.0 million Australian dollars for $7.1 million
with a fair market value of $7.2 million. The $0.1 million gain was recognized
in the Statement of Comprehensive Earnings at December 31, 1999. The Company
also entered into foreign currency forward exchange contracts to receive $4.0
million (also fair market value) for 5.8 million Canadian dollars.
At December 31, 1998, the Company had entered into foreign currency forward
exchange contracts to receive 11.0 million Australian dollars and 29.0 million
Canadian dollars for $25.7 million with a fair market value of $25.7 million.
The Company also entered into foreign currency forward exchange contracts to
receive $25.2 million for 28.3 million Australian dollars and 39.2 million
French francs with a fair market value of $24.4 million. The Company records
the fair market value of these transactions in its financial statements as this
activity represents hedges against inter-Company transactions. Gains and losses
on the adjustment to the fair market value of such instruments are reflected in
the Consolidated Statement of Earnings. The Company also entered into foreign
currency forward exchange contracts to receive 2,633.6 million Japanese yen for
$19.1 million with a fair market value of $23.5 million at December 31, 1998.
The gain on the Japanese yen contracts have been deferred at December 31, 1998
because they relate to qualifying hedges on firm foreign currency commitments
which are deferred off-balance sheet and included as a component of the related
hedged transaction, when incurred.
The foreign currency contracts and options outstanding at December 31, 1999
and December 31, 1998 all mature in one year or less. The fair values were
obtained from major financial institutions based upon the market values as of
December 31, 1999 and December 31, 1998.
The Company purchases commodity futures to hedge anticipated purchases of
aluminum. Gains and losses on open hedging transactions are deferred until the
futures are closed. Upon closing, gains and losses are included in inventories
as a cost of the commodities and reflected in net earnings when the product is
sold. At December 31, 1999, the Company had futures covering approximately 31%
of annual forecasted aluminum purchases. The fair market value of these
aluminum options resulted in a $0.5 million deferred gain and $0.1 million
deferred loss at December 31, 1999 and December 31, 1998, respectively. The
fair market value was obtained from a major financial institution based upon
the market value of those futures at December 31, 1999 and December 31, 1998.
11. Common Stock
On September 30, 1997, all of the outstanding common stock of the Pre-Merger
Company was cancelled and 20.4 million shares of common stock of the Post-
Merger Company were issued.
Due to the merger with Greenmarine, all stock options, stock appreciation
rights and restricted stock granted under the OMC Executive Equity Incentive
Plan and the OMC 1994 Long-Term Incentive Plan were fully vested and payable in
accordance with the terms of the Plans or as provided in the terms of the
grants, as amended. In the case of stock options, participants in the plans
were entitled to receive in cash the difference, if any, between the purchase
price of $18.00 per share (or limited stock appreciation rights at $19.50 per
share as computed for officers) and the stock option purchase price. With
regard to restricted stock granted under either
48
of the plans, participants were entitled to receive the cash value of the
grants based on $18.00 per share or as may have otherwise been agreed to
between the participant and the Pre-Merger Company. All amounts with respect to
the above plans have been expensed and included in the category "change of
control expenses--compensation" in the September 30, 1997 Statement of
Consolidated Earnings.
The Pre-Merger Company adopted the disclosure-only provision under Statement
of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-
Based Compensation," as of September 30, 1997, while continuing to measure
compensation cost under APB Opinion No. 25, "Accounting for Stock Issued to
Employees." If the accounting provisions of SFAS 123 had been adopted as of the
beginning of 1997, the effect on net earnings for 1997 would have been
immaterial.
On March 10, 1998, the Post-Merger Company adopted the Outboard Marine
Corporation Personal Rewards and Opportunities Program ("PROP"). PROP was
designed to recognize and reward, through cash bonuses, stock options and other
equity-based awards, the personal contributions and achievements of employees
of the Company. All employees are eligible to participate in PROP. PROP
replaced all long and short-term incentive plans of the Company. PROP provides
for (i) cash and/or equity annual bonuses based on performance targets, and
(ii) grants of stock options, shares of restricted stock, stock units or stock
appreciation rights. The aggregate number of shares of stock available for
equity awards under PROP is 1,900,000 shares of currently authorized common
stock of the Company. Grants under PROP are discretionary.
Stock option grants under PROP through December 31, 1999 were 1,570,870, net
of cancelled option grants. The grants are primarily exercisable at $18 and $22
per share and expire ten years after date of grant. Additionally, there were
61,105 incentive stock options granted to an executive which expire 11 years
after the date of grant. The Company accounts for PROP under APB Opinion No.
25, and has not recorded any compensation expense for grants through December
31, 1999 as the exercise price of the stock option approximates management's
estimate of fair market value of the Company's stock on the date of grant. If
the accounting provisions of SFAS 123 had been adopted, the effect on net
earnings for the fiscal year ended December 31, 1999, and the fiscal year ended
September 30, 1998 would have been a reduction of pretax earnings of $1.0
million and $0.7 million, respectively, on a proforma basis and a reduction of
basic and diluted earnings per share of $0.05 million and $0.03 per share,
respectively.
A summary of option data for all plans was as follows:
Weighted
Average
Number of Price
Option Shares Per Share
------------- ---------
Options outstanding and unexercised at September
30, 1997......................................... -- --
Options granted................................... 979,245 $18.00
--------- ------
Options outstanding and unexercised at September
30, 1998......................................... 979,245 $18.00
========= ======
Options granted................................... 110,500 $21.80
Options cancelled................................. 28,500 --
--------- ------
Options outstanding and unexercised at December
31, 1998......................................... 1,061,245 $18.86
========= ======
Options granted................................... 596,000 $21.75
Options cancelled................................. 86,375 --
--------- ------
Options outstanding and unexercised at December
31, 1999......................................... 1,570,870 $19.69
========= ======
Exercisable at December 31, 1999.................. 615,703 $18.00
The weighted average fair value per option granted during 1999 and 1998,
estimated on the date of grant using the Black-Scholes option-pricing model was
$4.81 and $3.75, respectively. The fair value of 1999 and 1998 options granted
is estimated on the date of grant using the following assumptions: risk-free
interest rate of
49
5.4% in 1999 and 4.7% in 1998, and an expected life of four years in 1999 and
five years in 1998. The Company has used the "minimum value' method of valuing
stock options based upon SFAS 123.
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 $5.4 million, $5.0 million, and $(2.4) million for the fiscal year
ended December 31, 1999, and the fiscal years ended September 30, 1998, and
September 30, 1997, respectively. In addition, the Company recorded a $42.2
million curtailment loss (as part of its September 1998 restructuring--see Note
4) associated with the acceleration of pension benefits for employees at the
Milwaukee and Waukegan facilities. This curtailment loss was subsequently
increased by $5.0 million in May 1999 and by $2.5 million in September 1999 to
reflect the finalization of the curtailment loss estimate (see Note 4).
In May 1999, the Company made the decision to change the pension and post-
retirement medical plans for current active employees and current retirees of
the Company. The pension plan changes include merging the Company's union and
non-union pension plans into one consolidated pension plan. In addition, the
Company decided to freeze the merged pension plan for non-union employees
effective September 30, 1999. Finally, the postretirement medical plan was
changed to provide new employee contribution rates, changes in benefit levels,
different service providers and the elimination of post-65 retirement medical
coverage for employees who retire on or after January 1, 2000. These changes in
both the pension and postretirement medical plans resulted in a curtailment
gain of $15.0 million which was reflected in the Company's Condensed Statement
of Consolidated Operations and Comprehensive Income as a reduction in selling,
general and administrative expense in fiscal year 1999.
The following schedule of pension expense (income) presents amounts relating
to the Company's pension plans:
Twelve Months Twelve Months Twelve Months
Ended Ended Ended
December 31, September 30, September 30,
1999 1998 1997
------------- ------------- -------------
(Dollars in million)
Benefits earned during the
period.......................... $ 5.0 $ 6.6 $ 6.6
Interest cost on projected
benefit obligation.............. 33.1 28.8 28.5
Return on pension assets......... (44.6) (41.3) (88.5)
Net amortization and deferral.... -- (0.1) 54.3
------ ------ ------
Net periodic pension expense
(income)........................ $ (6.5) $ (6.0) $ 0.9
====== ====== ======
Curtailment (gain) loss.......... (9.7) 42.2 --
Special Termination Benefits..... 7.9 -- --
Actuarial assumptions used for the Company's principal defined benefit
plans:
Twelve Months Twelve Months Twelve Months
Ended Ended Ended
December 31, September 30, September 30,
1999 1998 1997
------------- ------------- -------------
Discount rates................... 7.5% 7.0% 7.5%
Rate of increase in compensation
levels (salaried employee
plans).......................... 5.0% 5.0% 5.0%
Expected long-term rate of return
on assets....................... 9.5% 9.5% 9.5%
50
The following provides a reconciliation of benefit obligations, plan assets
and funded status:
December 31, December 31,
1999 1998
------------ ------------
(Dollars in millions)
Change in Benefit Obligation:
Benefit obligation at beginning of period...... $483.3 $476.3
Service cost................................... 5.0 1.9
Interest cost.................................. 33.1 8.3
Plan amendment................................. (7.5) --
Actuarial (gain) loss.......................... (29.6) 4.2
Benefits paid.................................. (31.0) (7.4)
------ ------
Benefit obligation at end of period:............. $453.3 $483.3
====== ======
Change in plan assets:
Fair value of plan assets at beginning of
period........................................ $474.3 $440.2
Actual return on plan assets................... 83.6 41.0
Employer contribution.......................... 1.5 0.5
Benefits paid.................................. (31.0) (7.4)
------ ------
Fair value of plan assets at end of period....... $528.4 $474.3
====== ======
Reconciliation:
Funded status.................................. $ 75.1 $ (9.0)
Unrecognized net actuarial loss................ (38.9) 19.2
Unrecognized prior service cost................ (0.5) --
------ ------
Prepaid (accrued) benefit cost................... $ 35.7 $ 10.2
====== ======
Amounts recognized in the Statements of Financial
Position consist of:
Prepaid benefit cost........................... $ 50.8 $ 46.4
Accrued benefit liability...................... (15.1) (20.7)
Minimum pension liability...................... -- (15.5)
------ ------
Net amount recognized............................ $ 35.7 $ 10.2
====== ======
At September 30, 1997 in accordance with purchase accounting, plan assets in
excess of or less than the projected benefit obligation had been recorded. 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. In 1998,
because the accumulated benefit obligation exceeded the plan assets and
because, due to the application of purchase accounting, the Company did not
have any unrecognized prior service cost at the beginning of the fiscal year,
the balance of $15.5 million was reported as a separate reduction of
shareholders' investment at December 31, 1998. In 1999, the minimum pension
liability of $15.5 million was reversed due to the Company's decision to merge
and freeze the pension plans for current and active retirees of the Company.
This $15.5 million change is reported as a component of Other Comprehensive
Income in fiscal year 1999.
The Company provides certain health care and life insurance benefits for
eligible retired employees, primarily employees of the Milwaukee, Wisconsin;
Waukegan, Illinois; and former Galesburg, Illinois plants as well as North
American Engine Operations 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. In
addition, as part of the Company's restructuring charge (See Note 4), the
Company recorded a curtailment loss of $29.9 million associated with the
acceleration of postretirement benefits for employees at the Milwaukee and
Waukegan facilities. This
51
curtailment loss was subsequently decreased by $19 million in May 1999 to
reflect the finalization of the union agreements, which were settled with the
Company's unions in 1999 (see Note 4).
The net cost of providing postretirement health care and life insurance
benefits included the following components:
Twelve Months Twelve Months Twelve Months
Ended Ended Ended
December 31, September 30, September 30,
1999 1998 1997
------------- ------------- -------------
(Dollars in million)
Service cost-benefits attributed
to service during the period... $ 0.9 $0.7 $1.1
Interest cost on accumulated
postretirment benefit
obligation..................... 7.6 6.6 7.3
Amortization of prior service
cost and actuarial gain........ (0.7) (0.2) (1.8)
----- ---- ----
Net periodic postretirement
benefit cost................... $ 7.8 $7.1 $6.6
===== ==== ====
Curtailment (gain) loss......... (24.8) 29.9 --
The following provides a reconciliation of benefit obligations, plan assets
and funded status:
December 31, December 31,
1999 1998
------------ ------------
(Dollars in millions)
Change in Benefit Obligation:
Benefit obligation at beginning of period...... $ 135.0 $ 131.4
Service cost................................... 0.9 0.2
Interest cost.................................. 7.6 2.2
Plan amendment................................. (24.8) --
Actuarial (gain) loss.......................... (15.2) 3.7
Benefits paid.................................. (9.5) (2.5)
------- -------
Benefit obligation at end of period.............. $ 94.0 $ 135.0
======= =======
Change in plan assets:
Fair value of plan assets at beginning of
period........................................ $ -- $ --
Actual return on plan assets................... -- --
Employer contribution.......................... 8.6 2.5
Employee contribution.......................... 0.9 --
Benefits paid.................................. (9.5) (2.5)
------- -------
Fair value of plan assets at end of period....... $ -- $ --
------- -------
Funded status.................................... $ (94.0) $(135.0)
Unrecognized net actuarial loss.................. 1.5 3.4
Unrecognized prior service cost.................. (13.1) --
------- -------
Accrued benefit cost............................. $(105.6) $(131.6)
======= =======
Less: Current portion of postretirement
obligation...................................... (7.2) (8.0)
------- -------
Net long-term postretirement obligation.......... (98.4) (123.6)
Ficht GMBH pension plan.......................... (0.1) --
Former officer life insurance obligation......... (0.6) (0.8)
------- -------
Total postretirement benefits other than
pension......................................... $ (99.1) $(124.4)
======= =======
52
The accumulated postretirement benefit obligation was determined using a
7.5% and 7% weighted average discount rate at December 31, 1999 and December
31, 1998, respectively. The health care cost trend rate was assumed to be 7%
and remaining constant thereafter. A one percentage point increase of this
annual trend rate would increase the accumulated postretirement benefit
obligation at December 31, 1999 and December 31, 1998 by approximately $13.6
million and $11.3 million, respectively, and the total service and interest
cost components by $1.2 million and $0.2 million, respectively. A one
percentage point decrease of this annual trend rate would decrease the
accumulated postretirement benefit obligation at December 31, 1999 and December
31, 1998 by approximately $11.7 million and $9.5 million and the total service
and interest cost components by $1.1 million and $0.2 million, respectively.
The Company also sponsors a defined contribution plan. Participation in the
plan is available to substantially all employees of the Company. The defined
contribution plan is a Company sponsored 401(k) plan in which employees can
contribute up to 15% of their eligible pay up to the IRS limit of $10,000 per
year. The Company contributes in cash amounts equal to the first 3% of employee
contributions and 50% the next 2% of employee contributions for non-
collectively bargained employees. The amounts expensed for the Company match
provision of the plan were $1.8 million, $0.9 million, and $0.4 million in the
fiscal year ended December 31, 1999, and the fiscal years ended September 30,
1998 and 1997.
13. Other Expense (Income), Net
Other non-operating expense (income) in the Statements of Consolidated
Earnings consisted of the following items:
Twelve Months Twelve Months Twelve Months
Ended Ended Ended
December 31, September 30, September 30,
1999 1998 1997
------------- ------------- -------------
(Dollars in million)
Expense (Income)
Interest earned................ $(2.7) $ (4.3) $ (4.5)
Insurance Recovery and Lawsuit
Settlement.................... -- -- (10.7)
Foreign exchange losses
(gains)....................... 1.9 (0.7) 1.0
(Gain) loss on disposition of
plant and equipment........... (2.2) (2.9) (5.8)
Joint venture earnings......... -- (4.8) (7.2)
Miscellaneous, net............. (2.1) (2.9) (2.0)
----- ------ ------
$(5.1) $(15.6) $(29.2)
===== ====== ======
53
14. Income Taxes
The provision for income taxes consisted of the following:
Twelve Months Twelve Months Twelve Months
Ended Ended Ended
December 31, September 30, September 30,
1999 1998 1997
------------- ------------- -------------
(Dollars in millions)
Current provision for income
taxes:
Federal........................ $ -- $ -- $ --
State.......................... 0.5 0.5 0.5
Foreign........................ 4.1 3.1 2.2
Deferred provision for income
taxes:
Federal........................ 1.7 (29.4) (36.7)
State.......................... 1.7 (7.6) (2.8)
Foreign........................ 5.1 0.0 0.6
Valuation Allowance............ (2.5) 36.8 39.0
----- ----- -----
Total Income Tax Provision....... $10.6 $ 3.4 $ 2.8
===== ===== =====
The significant short-term and long-term deferred tax assets and liabilities
were as follows:
December 31, December 31,
1999 1998
------------ ------------
(Dollars in millions)
Deferred tax assets
Litigation and claims............................ $ 17.8 $ 21.4
Product warranty................................. 23.9 22.7
Marketing programs............................... 18.7 22.8
Postretirement medical benefits.................. 41.7 52.3
Restructuring.................................... 19.2 16.8
Loss carryforwards............................... 100.2 77.0
Other............................................ 43.0 57.7
Valuation Allowance.............................. (171.3) (179.8)
------- -------
Total deferred tax assets...................... $ 93.2 $ 90.9
------- -------
Deferred tax liabilities
Depreciation and amortization.................... $ (15.2) $ (14.5)
Employee benefits................................ (18.8) --
Purchase accounting asset evaluations............ (25.5) (39.0)
Other............................................ (31.8) (35.5)
------- -------
Total deferred tax liabilities................. ($91.3) ($89.0)
------- -------
Net deferred tax assets...................... $ 1.9 $ 1.9
======= =======
Under SFAS 109, "Accounting for Income Taxes", the Company is required to
consider several factors in order to determine if it is "more likely than not"
that deferred tax assets will be realized. Those factors include an examination
of the Company's historical profitability and forecasted earnings.
The Company believes the recorded net deferred tax assets of $1.9 million
will more likely than not be realized. A valuation allowance of $171.3 million
has been recorded at December 31, 1999, to reduce the deferred tax assets to
their estimated net realizable value. Of this valuation allowance, $23.9
million relates to deferred tax assets established for foreign and state loss
carryforwards.
54
As of December 31, 1999, certain non-U.S. subsidiaries of the Company had
net operating loss carryforwards for income tax purposes of $26.0 million. Of
this amount, $2.7 million will expire by 2005 with the remaining balance being
unlimited. In addition, the Company has $216.9 million of Federal net operating
loss carryforwards expiring between 2008 and 2020 and $218.8 million of state
net operating loss carryforwards expiring between 2000 and 2015. These
carryforwards are entirely offset by the valuation allowance. No benefit has
been recognized in the Consolidated Financial Statements. These NOL
carryforwards, and other deferred tax assets, were provided for with a
valuation allowance at the time of the Greenmarine Acquisition. Any future
benefits arising from adjusting the valuation allowance for NOL carryforward
utilization (limited to $15.9 million each year), or realization of the
deferred tax assets will be recorded as a reduction of goodwill arising from
the Greenmarine Acquisition until such balance is exhausted, and thereafter to
other intangibles until exhausted, and thereafter will be recorded as a direct
reduction to income tax expense. The benefit of $6 million recorded during the
year ended December 31, 1999 related to a reduction in the valuation allowance
and a corresponding reduction in goodwill at December 31, 1999.
The following summarizes the major percentage 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:
Twelve Months Twelve Months Twelve Months
Ended Ended Ended
December 31, September 30, September 30,
1999 1998 1997
------------- ------------- -------------
(% to pretax earnings)
At statutory rate................. 35.0% (35.0)% (35.0)%
State income taxes, net of Federal
tax deduction.................... 7.6 (3.6) (3.0)
Tax effect of non-U.S. subsidiary
earnings and operating losses at
other than the U.S. rate......... 0.9 0.1 3.0
Tax effect of goodwill
amortization and write-offs...... 4.4 1.4 0.4
Federal tax effect prior year's
state income taxes paid.......... -- -- (0.2)
Disposal of investment not
deductible for tax............... 5.2 -- --
Equity earnings of foreign
affiliates subject to U.S.
taxation......................... 14.9 -- --
Change in valuation allowance..... (13.3) 25.0 51.1
Tax effect of foreign investment
in U.S. property................. -- 6.4 --
Other............................. 1.7 8.0 (12.8)
Actual provision................ 56.4% N.M.% N.M.%
Domestic and non-U.S. earnings before provision (credit) for income taxes
consisted of the following:
Twelve Months Twelve Months Twelve Months
Ended Ended Ended
December 31, September 30, September 30,
1999 1998 1997
------------- ------------- -------------
(Dollars in million)
Earnings (loss) before provision
for income taxes
United States................. $ 1.0 $(144.8) $(68.7)
Non-U.S. ..................... 17.8 (2.3) (7.6)
----- ------- ------
Total....................... $18.8 $(147.1) $(76.3)
===== ======= ======
The above non-U.S. income of $17.8 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 $77.9 million of undistributed
non-U.S. subsidiary earnings. The Company has no plans to repatriate these
earnings and, as such, they are considered permanently invested. While no
detailed calculations have been made of the potential U.S. income tax liability
should such
55
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 calendar year 1999, the Company settled with the Internal Revenue
Service the audits for the fiscal years 1992 through 1994. As a result of this
settlement, an accrual for previously provided interest of $8.2 was no longer
necessary, and upon reversal reduced the Company's total interest expense for
the 1999 year.
15. Segment and Related Information
The Company adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information" in 1999 which changes the way the Company
reports information about its operating segments. The Company has two
reportable segments: marine engines, including parts and accessories, and
boats. The Company markets its products primarily through dealers in the United
States and Canada, through distributors and dealers in Europe, and through
distributors in the rest of the world.
Summarized financial information concerning the Company's reportable
segments is shown in the following table. The "Other Column" reflects primarily
corporate related items including curtailment income, restructuring charges,
corporate staff expenses, and intangible assets (including amortization
expense) related to the Company's acquisition in September 1997.
Marine
Engines Boats Other Total
------- ------ ------ --------
(Dollars in millions)
Fiscal Year Ended December 31, 1999
Revenues................................... $649.8 $461.1 $ -- $1,110.9
Intersegment revenues...................... 75.6 0.2 -- 75.8
Earnings (loss) from operations............ 16.9 2.1 17.8 36.8
Total Assets............................... 640.4 119.5 88.5 848.4
Capital Expenditures....................... 29.0 9.1 10.4 48.5
Depreciation and Amortization.............. 39.3 5.4 7.4 52.1
Three Months Ended December 31, 1998
Revenues................................... $111.9 $ 87.5 $ -- $ 199.4
Intersegment revenues...................... 19.2 -- -- 19.2
Earnings (loss) from operations............ (20.8) (11.6) (11.2) (43.6)
Total Assets............................... 596.0 111.6 166.6 874.2
Capital Expenditures....................... 11.0 2.3 1.8 15.1
Depreciation and Amortization.............. 9.5 1.3 1.6 12.4
Fiscal Year Ended September 30, 1998
Revenues................................... $636.5 $389.2 $ -- $1,025.7
Intersegment revenues...................... 102.2 -- -- 102.2
Earnings (loss) from operations............ 61.6 (34.6) (159.6) (132.6)
Total Assets............................... 612.5 126.1 168.6 907.2
Capital Expenditures....................... 25.8 8.0 0.6 34.4
Depreciation and Amortization.............. 36.0 6.3 7.8 50.1
Fiscal Year Ended September 30, 1997
Revenues................................... $560.4 $419.1 $ -- $ 979.5
Intersegment revenues...................... 131.9 -- -- 131.9
Earnings (loss) from operations............ 16.0 (54.9) (35.3) (74.2)
Total Assets............................... 607.2 151.2 253.2 1,011.6
Capital Expenditures....................... 33.2 2.6 0.5 36.3
Depreciation and Amortization.............. 42.6 9.2 5.2 57.0
56
The following table presents financial information by geographic region.
Revenues are attributed by geographic area upon the location where the products
are sold:
Fiscal Year Three Months Fiscal Year Fiscal Year
Ended Ended Ended Ended
December 31, December 31, September 30, September 30,
1999 1998 1998 1997
------------ ------------ ------------- -------------
(Dollars in millions)
Net sales
United States.......... $ 867.1 $152.0 $ 769.7 $721.0
Hong Kong.............. 12.5 2.3 11.5 20.3
Australia.............. 42.8 10.1 38.3 45.4
Canada................. 57.6 8.5 56.7 44.4
Europe................. 93.4 15.6 91.9 90.9
Latin America
(including Brazil and
Mexico)............... 37.5 10.9 57.6 57.5
-------- ------ -------- ------
Total................ $1,110.9 $199.4 $1,025.7 $979.5
======== ====== ======== ======
Intersegment revenues
United States.......... $ 119.8 $ 29.8 $ 134.2 $119.2
Hong Kong.............. 23.8 9.7 32.8 29.7
Australia.............. 0.6 0.0 0.3 0.2
Canada................. 12.9 2.7 6.8 5.8
Europe................. 0.9 0.1 1.1 2.1
Latin America
(including Brazil and
Mexico)............... -- -- -- --
-------- ------ -------- ------
Total................ $ 158.0 $ 42.3 $ 175.2 $157.0
======== ====== ======== ======
Earnings (loss) from
operations
United States.......... $ 26.4 $(43.1) $ (143.1) $(75.7)
Hong Kong.............. 2.0 1.7 0.8 0.5
Australia.............. 1.0 (0.5) 0.5 3.2
Canada................. 3.9 (0.1) 4.1 1.1
Europe................. 1.9 (2.5) (0.8) (8.8)
Latin America
(including Brazil and
Mexico)............... 1.6 0.9 5.9 5.5
-------- ------ -------- ------
Total................ $ 36.8 $(43.6) $ (132.6) $(74.2)
======== ====== ======== ======
Total Long-lived assets
United States.......... $ 370.8 $378.5 $ 379.0 $407.5
Hong Kong.............. 6.9 6.1 4.5 3.3
Australia.............. 1.2 2.1 2.1 2.7
Canada................. 3.1 2.9 3.1 3.1
Europe................. 2.1 1.2 1.1 1.4
Latin America
(including Brazil and
Mexico)............... 2.8 2.7 2.6 3.4
-------- ------ -------- ------
Total.................. $ 386.9 $393.5 $ 392.4 $421.4
======== ====== ======== ======
Data for Europe (which primarily includes Belgium) and Latin America
(including Brazil and Mexico) is provided as supplemental information as these
locations are individually immaterial. 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.
57
16. Quarterly Information--(Unaudited)
A summary of pertinent quarterly data for fiscal 1999, the three month
period ended December 31, 1998 and fiscal 1998 was as follows:
Quarter Ended
------------------------------------------------
March 31 June 30 September 30 December 31
------------- -------- ------------ ------------
(Dollars in millions, except amounts per share)
Fiscal 1999
Net sales............... $255.2 $315.6 $279.4 $260.7
Gross earnings.......... 53.3 70.2 62.7 43.7
Net earnings (loss)..... (11.9) 33.8 11.0 (24.7)
Net loss per share:
Basic................. $(0.58) $ 1.66 $ 0.54 $(1.21)
------ ------ ------ ------
Diluted............... $(0.58) $ 1.64 $ 0.53 $(1.21)
------ ------ ------ ------
Quarter Ended
December 31
-------------
(Dollars in
millions
except
amounts per
share)
Quarter Ended December 31,
1998
Net sales............... $199.4
Gross earnings.......... 18.7
Net loss................ (47.1)
Net loss per share:
Basic................. $(2.31)
------
Diluted............... $(2.31)
------
Quarter Ended
------------------------------------------------
December 31 March 31 June 30 September 30
------------- -------- ------------ ------------
(Dollars in millions, except amounts per share)
Fiscal 1998
Net sales............... $209.5 $262.2 $282.4 $271.6
Gross earnings.......... 37.8 59.3 67.6 67.4
Net loss................ (17.1) (8.4) (3.8) (121.2)
Net loss per share:
Basic................. $(0.84) $(0.41) $(0.19) $(5.94)
------ ------ ------ ------
Diluted............... $(0.84) $(0.41) $(0.19) $(5.94)
------ ------ ------ ------
In the fourth fiscal quarter of fiscal year 1998, the Company recorded a
$98.5 million restructuring charge (see Note 4). 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 meaningful to compare the results of operations
of different fiscal quarters.
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 products in
the event of repossession upon a retail dealer's default. These arrangements
contain provisions which limit the Company's repurchase obligation to a total
aggregate of approximately $33 million for a period not to exceed 18 months
from the date of invoice. The Company resells any repurchased products at a
discount.
58
Losses incurred under this program have not been material. For the fiscal year
ended December 31, 1999 and for fiscal 1998, the Company repurchased
approximately $5.7 million and $4.1 million of products, respectively, all of
which were resold at a discounted price. The Company accrues for losses that
are anticipated in connection with expected repurchases. The Company does not
expect these repurchases to materially affect its results of operations.
Minimum commitments under operating leases having initial or remaining terms
greater than one year are $7.4 million, $5.8 million, $5.1 million, $3.9
million, $3.0 million, and $4.8 million for the years ending December 31, 2000
through 2004 and after 2004, respectively.
The Company is engaged in a 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.
In October 1996, the AICPA issued Statement of Position 96-1 (SOP 96-1),
"Environmental Remediation Liabilities", which provides authoritative guidance
on the recognition, measurement, display and disclosure of environmental
remediation liabilities. The Company has elected early adoption of SOP 96-1 in
the quarter ended September 30, 1997. The change in accounting estimate
required the Company to accrue for future normal operating and maintenance
costs for site monitoring and compliance requirements at particular sites. The
initial expense for implementation of SOP 96-1 was $7.0 million, charged to
selling, general and administrative expense in the quarter ended September 30,
1997.
As a general rule, the Company accrues remediation costs for continuing
operations on an undiscounted basis and accrues for normal operating and
maintenance costs for site monitoring and compliance requirements. The Company
also accrues for environmental closedown costs associated with discontinued
operations or facilities, including the environmental costs of operation and
maintenance until disposition. At December 31, 1999 the Company has accrued
approximately $23 million for costs related to remediation at contaminated
sites including operation and maintenance for continuing and closed-down
operations. It is reasonably possible that a change in this estimate will occur
in the near term. In addition, the Company has estimated that reasonably
possible environmental loss contingencies may exceed amounts accrued by as much
as $16 million at December 31, 1999. The possible recovery of insurance
proceeds has not been considered in estimating contingent environmental
liabilities.
59
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.
In July 1998, the Company was provided information on the results of a
feasibility study which was performed on the Company's owned property located
in Waukegan, Illinois, commonly known as the Coke plant. This information was
provided to the Company by the two prior owners of the property--General Motors
Corporation and North Shore Gas Company. Although the Company was aware of the
contamination and that the study was being conducted, it was not until July
1998 that the Company became aware of the scope and extent of the contamination
and the associated remedial alternatives. Although the Company believes that it
was not a generator of hazardous substances at the site, as a landowner it is,
by statute, a PRP. Based on its experience with Superfund Sites, the Company
calculated a range of potential allocations and recorded an amount related to
the most probable outcome in its September 1998 financial statements.
In March 1998, the Company received correspondence from Orbital Engine
Corporation Limited ("Orbital") alleging that the Company's FICHT fuel-injected
150 horsepower engines infringed two Australian Orbital patents, which
correspond to three U.S. patents and to a number of foreign patents. In May
1999, the Company entered into a non-assert agreement with Orbital relative to
engines sold by OMC and its licensees which used FICHT fuel injection. Under
the terms of the agreement, the Company will make certain payments to Orbital
for use of the patents and all foreign counterparts, as well as certain other
patents, identified in the agreement. Under the terms of the agreement, the
Company is not precluded from developing FICHT fuel injection for any
application.
18. Subsequent Events
On January 28, 2000, the Company sold an aggregate of 650,000 shares of
Series A Convertible Preferred Stock, par value $.01 per share (the "Series A
Preferred Stock"), and warrants (the "Warrants") to purchase an aggregate of
5,750,000 shares of its Common Stock, par value $.01 per share (the "Common
Stock"), for an aggregate consideration of $65.0 million in a private placement
transaction to Greenlake Holdings II, LLC and Quantum Industrial Partners, LDC.
Approximately $15.0 million of the Series A Preferred Stock was issued in
exchange for certain subordinated notes previously issued by the Company to the
purchasers. The Series A Preferred Stock has an initial liquidation preference
of $100 per share and an initial conversion price of $14 per share (in each
case, subject to adjustment upon occurrence of certain events). The Series A
Preferred Stock is convertible into Common Stock at any time. The Series A
Preferred Stock has an annual dividend rate of 15% of the then current
liquidation preference, and is entitled to share ratably in any dividends paid
on the Common Stock. Dividends will accrue if not paid in cash, and the
liquidation preference will be increased by the amount of any accrued but
unpaid dividends. The Series A Preferred Stock may be redeemed at any time
after October 1, 2008, upon written request of the holders of at least 75% of
the then outstanding shares. The Company may redeem all outstanding shares of
the Series A Preferred Stock if, at any time, less than 10% of the total Series
A Preferred Stock originally sold on January 28, 2000 remains outstanding. The
Warrants are exercisable at any time until January 28, 2010, at an exercise
price of $.01 per share of Common Stock, payable in cash or in shares of Common
Stock. The Company intends to use the proceeds from the sale of the Series A
Preferred Stock and Warrants for general corporate purposes, including funding
its working capital and making capital expenditures.
The Pro Forma impact of the above transaction, had it occurred on January 1,
1999, would have resulted in an approximate $65 million in proceeds, which
would have been used to paydown the existing revolving credit facility. The
transaction would have been recorded as a $29.1 million increase in preferred
stock and a $35.9 million increase in shareholders' investment (the fair market
value of the attached warrants).
The impact of the above transaction to the Statement of Consolidated
Earnings had the transaction occurred as of January 1, 1999 would have included
a decrease in interest expense of $4.7 million and an
60
increase in preferred dividend expense of $14.3 million (which includes annual
dividend expense and preferred stock accretion). As a result, 1999 loss on
common shares would have been $1.4 million, and loss per diluted common share
would have been $0.07.
19. Subsidiary Guarantor Information
The Company issued $160,000,000 10 3/4% Senior Notes due 2008 ("Notes") on
May 21, 1998. The Company's payment obligations under the Notes are to be
guaranteed by certain of the Company's wholly-owned subsidiaries ("Guarantor
Subsidiaries"). Such guarantees are full, unconditional, unsecured and
unsubordinated on a joint and several basis by each of the Guarantor
Subsidiaries. As of and through December 31, 1999, the Guarantor Subsidiaries
were wholly-owned, but not the only wholly-owned, subsidiaries of the Company.
The Credit Agreement and the Indenture governing the Notes contain certain
covenants which, among other things, will restrict the ability of the Company
and certain of its subsidiaries to incur additional indebtedness; pay dividends
or make distributions in respect to their capital stock; enter into certain
transactions with shareholders and affiliates; make certain investments and
other restricted payments; create liens; enter into certain sales and leaseback
transactions and sales of assets. These covenants are, however, subject to a
number of exceptions and qualifications. Separate financial statements of the
Guarantor Subsidiaries are not presented because management of the Company has
determined that they are not material to investors.
The following consolidating financial statements include the Company
("Parent Company"), the Guarantor Subsidiaries and the Company's non-guarantor
subsidiaries ("Other Subsidiaries"). Investments in subsidiaries are accounted
for by the Company under the equity method of accounting for purposes of the
supplemental consolidating presentation. Earnings of subsidiaries are,
therefore, reflected in the Company's investment accounts and earnings. The
Company has not allocated goodwill to the Guarantor Subsidiaries or the other
subsidiaries in association with the acquisition by and merger with
Greenmarine.
61
OUTBOARD MARINE CORPORATION
STATEMENTS OF CONSOLIDATING FINANCIAL POSITION
DECEMBER 31, 1999
Parent Guarantor Other Consolidated
Company Subsidiaries Subsidiaries Eliminations Total
------- ------------ ------------ ------------ ------------
(Dollars in Millions)
ASSETS
Current assets:
Cash and cash
equivalents.......... $ 9.3 $ 0.5 $ 15.2 $ 0.0 $ 25.0
Receivables, net...... 58.1 16.8 30.0 0.0 104.9
Intercompany
receivables
(payables)........... (34.3) 1.2 33.1 0.0 0.0
Inventories........... 102.6 46.7 41.1 (1.8) 188.6
Other current assets.. 9.6 2.0 5.6 0.0 17.2
------ ------ ------ ------- ------
Total current
assets............. 145.3 67.2 125.0 (1.8) 335.7
Restricted cash......... 30.6 0.0 0.0 0.0 30.6
Product tooling, net.... 24.3 5.0 0.2 0.0 29.5
Property, plant and
equipment, net......... 150.1 32.4 18.1 (0.1) 200.5
Goodwill and other in-
tangibles, net......... 181.3 0.0 5.2 0.0 186.5
Other assets............ 56.0 2.5 7.1 0.0 65.6
Intercompany notes,
net.................... (88.3) 0.0 88.3 0.0 0.0
Investment in subsidiar-
ies.................... 256.5 0.0 0.0 (256.5) 0.0
------ ------ ------ ------- ------
Total assets.......... $755.8 $107.1 $243.9 $(258.4) $848.4
====== ====== ====== ======= ======
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current liabilities:
Loan payable.......... $ 58.0 $ 0.0 $ 0.0 $ 0.0 $ 58.0
Accounts payable...... 73.6 16.4 9.2 0.0 99.2
Accrued and other..... 133.5 29.6 21.7 (1.6) 183.2
Current maturities of
long-term debt....... 8.2 0.2 0.0 0.0 8.4
------ ------ ------ ------- ------
Total current
liabilities........ 273.3 46.2 30.9 (1.6) 348.8
Long-term debt.......... 239.3 2.1 0.0 0.0 241.4
Other non-current
liabilities............ 162.6 7.7 7.6 0.0 177.9
Shareholders'
investment............. 80.6 51.1 205.4 (256.8) 80.3
------ ------ ------ ------- ------
Total liabilities
and shareholders'
investment......... $755.8 $107.1 $243.9 $(258.4) $848.4
====== ====== ====== ======= ======
62
OUTBOARD MARINE CORPORATION
STATEMENTS OF CONSOLIDATING FINANCIAL POSITION
DECEMBER 31, 1998
Parent Guarantor Other Consolidated
Company Subsidiaries Subsidiaries Eliminations Total
------- ------------ ------------ ------------ ------------
(Dollars in Millions)
ASSETS
Current assets:
Cash and cash
equivalents.......... $ 2.2 $ 0.1 $ 11.3 $ 0.0 $ 13.6
Receivables, net...... 71.8 23.3 35.4 0.0 130.5
Intercompany
receivables
(payables)........... (93.5) (9.7) 103.2 0.0 0.0
Inventories........... 103.4 47.8 47.8 (1.8) 197.2
Other current assets.. 12.5 3.2 6.6 0.0 22.3
------ ----- ------ ------- ------
Total current
assets............. 96.4 64.7 204.3 (1.8) 363.6
Restricted cash......... 29.3 0.0 0.0 0.0 29.3
Product tooling, net.... 26.8 2.9 0.3 0.0 30.0
Property, plant and
equipment, net......... 156.9 23.9 16.5 (0.2) 197.1
Goodwill and other
intangibles, net....... 189.4 0.0 7.0 0.0 196.4
Other assets............ 50.8 2.3 4.7 0.0 57.8
Intercompany notes,
net.................... (97.4) 0.0 97.4 0.0 0.0
Investment in
subsidiaries........... 339.3 0.0 0.0 (339.3) 0.0
------ ----- ------ ------- ------
Total assets........ $791.5 $93.8 $330.2 $(341.3) $874.2
====== ===== ====== ======= ======
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current liabilities:
Loan payable.......... $ 32.4 $ 0.0 $ 0.0 $ 0.0 $ 32.4
Accounts payable...... 68.1 12.8 9.1 0.0 90.0
Accrued and other..... 143.0 30.0 19.8 (1.2) 191.6
Current maturities of
long-term debt....... 11.2 0.0 0.0 0.0 11.2
------ ----- ------ ------- ------
Total current
liabilities........ 254.7 42.8 28.9 (1.2) 325.2
Long-term debt.......... 247.0 0.0 0.0 0.0 247.0
Other non-current
liabilities............ 231.8 7.9 5.1 0.0 244.8
Shareholders'
investment............. 58.0 43.1 296.2 (340.1) 57.2
------ ----- ------ ------- ------
Total liabilities
and shareholders'
investment......... $791.5 $93.8 $330.2 $(341.3) $874.2
====== ===== ====== ======= ======
63
OUTBOARD MARINE CORPORATION
STATEMENTS OF CONSOLIDATED OPERATIONS
AND COMPREHENSIVE INCOME
TWELVE MONTHS ENDED DECEMBER 31, 1999
Parent Guarantor Other Consolidated
Company Subsidiaries Subsidiaries Eliminations Total
------- ------------ ------------ ------------ ------------
(Dollars in Millions)
Net sales............... $652.7 $466.6 $253.0 $ (261.4) $1,110.9
Cost of goods sold...... 525.5 411.3 205.8 (261.6) 881.0
------ ------ ------ -------- --------
Gross Earnings.......... 127.2 55.3 47.2 0.2 229.9
Selling, general and
administrative
expense................ 116.0 51.4 39.8 0.0 207.2
Restructuring charge
(income)............... (14.1) 0.0 0.0 0.0 (14.1)
------ ------ ------ -------- --------
Earnings from
operations............. 25.3 3.9 7.4 0.2 36.8
Non-operating expense
(income)............... 31.3 (0.1) (13.2) 0.0 18.0
Equity earnings (loss)--
subsidiaries........... 20.2 0.0 0.0 (20.2) 0.0
------ ------ ------ -------- --------
Earnings (loss) before
provision for income
taxes.................. 14.2 4.0 20.6 (20.0) 18.8
Provision for income
taxes.................. 6.0 0.0 4.5 0.1 10.6
------ ------ ------ -------- --------
Net earnings (loss)... $ 8.2 $ 4.0 $ 16.1 $ (20.1) $ 8.2
====== ====== ====== ======== ========
Other comprehensive
income (expense):
Foreign currency
translation
adjustment............. (0.4) (0.2) (0.6) 0.0 (1.2)
Minimum pension
liability adjustment... 15.5 0.0 0.0 0.0 15.5
------ ------ ------ -------- --------
Other comprehensive
income (expense)..... 15.1 (0.2) (0.6) 0.0 14.3
------ ------ ------ -------- --------
Comprehensive income
(loss)................. $ 23.3 $ 3.8 $ 15.5 $ (20.1) $ 22.5
====== ====== ====== ======== ========
64
OUTBOARD MARINE CORPORATION
STATEMENTS OF CONSOLIDATED OPERATIONS AND COMPREHENSIVE INCOME
TWELVE MONTHS ENDED SEPTEMBER 30, 1998
Parent Guarantor Other Consolidated
Company Subsidiaries Subsidiaries Eliminations Total
------- ------------ ------------ ------------ ------------
(Dollars in Millions)
Net sales............... $ 668.5 $ 411.1 $256.4 $(310.3) $1,025.7
Cost of goods sold...... 505.8 391.6 211.8 (315.6) 793.6
------- ------- ------ ------- --------
Gross Earnings.......... 162.7 19.5 44.6 5.3 232.1
Selling, general and
administrative
expense................ 178.0 49.4 38.8 0.0 266.2
Restructuring charge
(income)............... 98.5 0.0 0.0 0.0 98.5
------- ------- ------ ------- --------
Earnings (loss) from
operations............. (113.8) (29.9) 5.8 5.3 (132.6)
Non-operating expense
(income)............... 12.1 1.4 1.0 0.0 14.5
Equity earnings (loss)--
subsidiaries........... (29.9) 0.0 0.0 29.9 0.0
------- ------- ------ ------- --------
Earnings (loss) before
provision for income
taxes.................. (155.8) (31.3) 4.8 35.2 (147.1)
Provision for income
taxes.................. 0.0 0.0 3.4 0.0 3.4
------- ------- ------ ------- --------
Net earnings (loss)... $(155.8) $ (31.3) $ 1.4 $ 35.2 $ (150.5)
======= ======= ====== ======= ========
Other comprehensive
income (expense):
Foreign currency
translation
adjustment............. 1.0 0.0 (8.2) 0.0 (7.2)
Minimum pension
liability adjustment... (24.7) 0.0 0.0 0.0 (24.7)
------- ------- ------ ------- --------
Other comprehensive
income (expense)..... (23.7) 0.0 (8.2) 0.0 (31.9)
------- ------- ------ ------- --------
Comprehensive earnings
(loss)................. $(179.5) $ (31.3) $ (6.8) $ 35.2 $ (182.4)
======= ======= ====== ======= ========
65
OUTBOARD MARINE CORPORATION
STATEMENTS OF CONSOLIDATED OPERATIONS AND COMPREHENSIVE INCOME
TWELVE MONTHS ENDED SEPTEMBER 30, 1997
Parent Guarantor Other Consolidated
Company Subsidiaries Subsidiaries Eliminations Total
------- ------------ ------------ ------------ ------------
(Dollars in Millions)
Net sales............... $607.2 $439.0 $255.4 $(322.1) $979.5
Cost of goods sold...... 505.6 437.4 197.9 (318.9) 822.0
------ ------ ------ ------- ------
Gross earnings.......... 101.6 1.6 57.5 (3.2) 157.5
Selling, general and
administrative
expense................ 116.3 52.2 51.4 0.0 219.9
Change in control
expenses--
compensation........... 11.8 0.0 0.0 0.0 11.8
------ ------ ------ ------- ------
Earnings (loss) from
operations............. (26.5) (50.6) 6.1 (3.2) (74.2)
Non-operating expense
(income)............... 10.0 0.1 (8.0) 0.0 2.1
Equity earnings (loss)--
subsidiaries........... (39.4) 0.0 0.0 39.4 0.0
------ ------ ------ ------- ------
Earnings (loss) before
provision for income
taxes.................. (75.9) (50.7) 14.1 36.2 (76.3)
Provision for income
taxes.................. 0.0 0.0 2.8 0.0 2.8
------ ------ ------ ------- ------
Net earnings (loss)... $(75.9) $(50.7) $ 11.3 $ 36.2 $(79.1)
====== ====== ====== ======= ======
Other comprehensive
income (expense):
Foreign currency
translation
adjustment............. 16.2 0.0 (7.7) 0.0 8.5
Minimum pension
liability adjustment... 3.1 0.0 0.0 0.0 3.1
------ ------ ------ ------- ------
Other comprehensive
income (expense)..... 19.3 0.0 (7.7) 0.0 11.6
------ ------ ------ ------- ------
Comprehensive earnings
(loss)................. $(56.6) $(50.7) $ 3.6 $ 36.2 $(67.5)
====== ====== ====== ======= ======
66
OUTBOARD MARINE CORPORATION
STATEMENTS OF CONSOLIDATED CASH FLOWS
TWELVE MONTHS ENDED DECEMBER 31, 1999
Parent Guarantor Other Consolidated
Company Subsidiaries Subsidiaries Eliminations Total
------- ------------ ------------ ------------ ------------
(Dollars in Millions)
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net earnings (loss)...... $ 8.2 $ 4.0 $ 16.1 $(20.1) $ 8.2
Adjustments to reconcile
net earnings (loss) to
net cash provided by
operations:
Depreciation and
amortization........... 38.7 10.0 3.5 (0.1) 52.1
Curtailment gain........ (15.0) -- -- -- (15.0)
Restructuring charge.... (14.1) -- -- -- (14.1)
Deferred taxes.......... 6.0 -- -- -- 6.0
Changes in current
accounts excluding the
effects of
acquisitions and
noncash transactions:
Decrease (increase) in
receivables.......... 15.2 6.5 2.8 -- 24.5
Decrease (increase) in
intercompany
receivables and
payables, and
intercompany note
receivables and note
payables............. 29.4 (6.9) (22.5) -- --
Decrease (increase) in
inventories.......... 0.2 1.1 3.5 (0.1) 4.7
Decrease (increase) in
other current
assets............... (2.0) 1.2 0.9 1.1 1.2
Increase (decrease) in
accounts payable and
accrued liabilities.. (21.5) 3.0 1.7 (0.4) (17.2)
Other, net............ (6.9) (4.4) 2.0 (0.5) (9.8)
------ ------ ------ ------ ------
Net cash provided by
(used for)
operating
activities......... 38.2 14.5 8.0 (20.1) 40.6
CASH FLOWS FROM INVESTING
ACTIVITIES:
Expenditures for plant
and equipment, and
tooling................. (24.6) (21.2) (2.7) -- (48.5)
Proceeds from sale of
plant and equipment..... 4.3 0.1 0.2 -- 4.6
Equity earnings (loss)... (20.1) -- -- 20.1 --
Change in subsidiary
investment.............. (0.7) -- -- 0.7 --
Other, net............... 0.7 0.5 0.2 -- 1.4
------ ------ ------ ------ ------
Net cash provided by
(used for)
investing
activities......... (40.4) (20.6) (2.3) 20.8 (42.5)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net increase in short-
term debt............... 25.6 -- -- -- 25.6
Net change in long-term
debt, including current
maturities.............. (14.9) 2.3 -- -- (12.6)
Change in subsidiary
capital................. (0.1) 4.2 (3.4) (0.7) --
Change in restricted
cash.................... (1.3) -- -- -- (1.3)
Other, net............... 0.4 -- -- -- 0.4
------ ------ ------ ------ ------
Net cash provided by
(used for)
financing
activities......... 9.7 6.5 (3.4) (0.7) 12.1
Exchange Rate Effect on
Cash.................... (0.3) -- 1.5 -- 1.2
------ ------ ------ ------ ------
Net increase in Cash and
Cash Equivalents........ 7.2 0.4 3.8 (0.0) 11.4
Cash and Cash Equivalents
at Beginning of Period.. 2.2 0.1 11.3 -- 13.6
------ ------ ------ ------ ------
Cash and Cash Equivalents
at End of Period........ $ 9.4 $ 0.5 $ 15.1 $ (0.0) $ 25.0
====== ====== ====== ====== ======
67
OUTBOARD MARINE CORPORATION
STATEMENTS OF CONSOLIDATED CASH FLOW
TWELVE MONTHS ENDED SEPTMEBER 30, 1998
Parent Guarantor Other Consolidated
Company Subsidiaries Subsidiaries Eliminations Total
------- ------------ ------------ ------------ ------------
(Dollars in Millions)
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net earnings (loss)...... $(155.8) $(31.3) $ 1.4 $35.2 $(150.5)
Adjustments to reconcile
net earnings (loss) to
net cash provided by
operations:
Depreciation and
amortization........... 42.4 4.5 3.1 0.1 50.1
Restructuring charge.... 98.5 -- -- -- 98.5
Changes in current
accounts excluding the
effects of
acquisitions and
noncash transactions:
Decrease (increase) in
receivables.......... (2.4) (0.3) 5.2 (3.4) (0.9)
Decrease (increase) in
intercompany
receivables and
payables, and
intercompany note
receivables and note
payables............. 188.2 0.3 (188.5) -- --
Decrease (increase) in
inventories.......... (15.2) 24.5 (2.0) (5.4) 1.9
Decrease (increase) in
other current
assets............... 43.4 0.4 (1.2) 2.8 45.4
Increase (decrease) in
accounts payable and
accrued liabilities.. (57.6) 1.4 3.6 6.3 (46.3)
Other, net............ 64.0 3.3 1.1 (5.9) 62.5
------- ------ ------- ----- -------
Net cash provided by
(used for)
operating
activities......... 205.5 2.8 (177.3) 29.7 60.7
CASH FLOWS FROM INVESTING
ACTIVITIES:
Expenditures for plant
and equipment, and
tooling................. (25.8) (4.7) (3.9) -- (34.4)
Proceeds from sale of
plant and equipment..... 8.3 1.3 -- -- 9.6
Equity earnings (loss)... 29.7 -- -- (29.7) --
Other, net............... 2.5 0.8 (2.5) -- 0.8
------- ------ ------- ----- -------
Net cash provided by
(used for)
investing
activities......... 14.7 (2.6) (6.4) (29.7) (24.0)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net increase in short-
term debt............... (96.0) -- -- -- (96.0)
Net change in long-term
debt, including current
maturities.............. 80.6 -- (0.2) -- 80.4
Change in subsidiary
capital................. (175.6) -- 175.6 -- --
Change in restricted
cash.................... (29.0) -- -- -- (29.0)
Other, net............... (0.9) -- -- -- (0.9)
------- ------ ------- ----- -------
Net cash provided by
(used for)
financing
activities......... (220.9) -- 175.4 -- (45.5)
Exchange Rate Effect on
Cash.................... -- -- (0.4) -- (0.4)
------- ------ ------- ----- -------
Net increase in Cash and
Cash Equivalents........ (0.7) 0.2 (8.7) 0.0 (9.2)
Cash and Cash Equivalents
at Beginning of Period.. 27.3 0.5 26.6 -- 54.4
------- ------ ------- ----- -------
Cash and Cash Equivalents
at End of Period........ $ 26.6 $ 0.7 $ 17.9 $ 0.0 $ 45.2
======= ====== ======= ===== =======
68
OUTBOARD MARINE CORPORATION
STATEMENTS OF CONSOLIDATED CASH FLOWS
TWELVE MONTHS ENDED SEPTEMBER 30, 1997
Parent Guarantor Other Consolidated
Company Subsidiaries Subsidiaries Eliminations Total
------- ------------ ------------ ------------ ------------
(Dollars in millions)
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net earnings (loss)...... $(75.9) $(50.7) $ 11.3 $ 36.2 $(79.1)
Adjustments to reconcile
net earnings (loss) to
net cash provided by
operations:
Depreciation and
amortization........... 44.9 7.1 5.0 -- 57.0
Changes in current
accounts excluding the
effects of
acquisitions and
noncash transactions:
Decrease (increase) in
receivables.......... (39.5) (32.0) 82.7 (1.6) 9.6
Decrease (increase) in
intercompany
receivables and
payables, and
intercompany note
receivables and note
payables............. 45.0 56.1 (101.1) -- --
Decrease (increase) in
inventories.......... 14.1 4.0 5.4 3.0 26.5
Decrease (increase) in
other current
assets............... (0.5) 1.0 1.9 (2.8) (0.4)
Increase (decrease) in
accounts payable and
accrued liabilities.. 3.0 5.9 (15.8) 1.6 (5.3)
Other, net............ (27.1) 7.5 (0.9) 3.0 (17.5)
------ ------ ------ ------ ------
Net cash provided by
(used for)
operating
activities......... (36.0) (1.1) (11.5) 39.4 (9.2)
CASH FLOWS FROM INVESTING
ACTIVITIES:
Expenditures for plant
and equipment, and
tooling................. (32.3) (2.4) (1.6) -- (36.3)
Proceeds from sale of
plant and equipment..... 10.9 1.4 0.7 -- 13.0
Equity earnings (loss)... 39.4 -- -- (39.4) --
Other, net............... (5.3) 2.0 0.5 -- (2.8)
------ ------ ------ ------ ------
Net cash provided by
(used for)
investing
activities......... 12.7 1.0 (0.4) (39.4) (26.1)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net change in long-term
debt, including current
maturities.............. 0.3 -- (0.3) -- --
Cash dividends paid...... (6.0) -- -- -- (6.0)
Other, net............... 1.8 -- 0.5 -- 2.3
------ ------ ------ ------ ------
Net cash provided by
(used for)
financing
activities......... (3.9) -- 0.2 -- (3.7)
Exchange Rate Effect on
Cash.................... -- -- (2.1) -- (2.1)
------ ------ ------ ------ ------
Net increase in Cash and
Cash Equivalents........ (27.2) (0.1) (13.8) 0.0 (41.1)
Cash and Cash Equivalents
at Beginning of Period.. 54.5 0.6 40.4 -- 95.5
------ ------ ------ ------ ------
Cash and Cash Equivalents
at End of Period........ $ 27.3 $ 0.5 $ 26.6 $ 0.0 $ 54.4
====== ====== ====== ====== ======
69
Item 9. Changes in and Disagreements on Accounting and Financial Disclosure
No disclosure is required pursuant to this item.
PART III
Item 10. Directors and Executive Officers of the Registrant
Set forth below is certain information regarding each director and executive
officer of the Company as of December 31, 1999:
Name Age Position
- ---- --- --------
David D. Jones, Jr...... 56 Chairman, President and Chief Executive Officer
Alfred D. Kingsley...... 57 Vice Chairman of the Board
Richard Katz............ 57 Vice Chairman of the Board
Gary K. Duberstein...... 45 Director and Assistant Secretary
Ron Hiram............... 47 Director
Frank V. Sica........... 48 Director
Andrew P. Hines......... 60 Executive Vice President and Chief Financial Officer; Director
Johan Arzbach........... 55 Vice President of OMC and President of International Operations
Robert B. Gowens, Jr.... 52 Vice President of OMC and President, North American Engine Operations
Eric T. Martinez........ 36 Vice President and Treasurer
James B. Pekarek........ 31 Vice President and Controller
Robert S. Romano........ 45 Vice President, General Counsel and Secretary
Directors
David D. Jones, Jr. has been Chairman of the Board of Directors since May
1999 and President and Chief Executive Officer and a director since September
25, 1997. From 1990 to 1997, Mr. Jones held numerous positions with the Mercury
Marine Division of Brunswick Corporation and most recently as President of the
Mercury Marine Division. Mr. Jones is also a director of McLaren Engines, Inc.,
Livonia, Michigan.
Alfred D. Kingsley has been Vice Chairman of the Board of Directors since
May 1999 and prior to that was Chairman of the Board of Directors since
September 12, 1997. Since 1993, Mr. Kingsley has been Senior Managing Director
of Greenway Partners, L.P., an investment partnership. Prior to that, Mr.
Kingsley held various positions at Icahn & Co., Inc., including senior adviser
until 1992. Mr. Kingsley is also a director of ACF Industries, Incorporated,
and a director of the general partner of American Real Estate Partners, L.P.
Mr. Kingsley is Chairman of the Compensation Committee and a member of the
Audit Committee.
Richard Katz has been Vice Chairman of the Board of Directors since
September 12, 1997. From 1977 to 1993, Mr. Katz was a director of NM Rothschild
& Sons Limited, London, England. Since 1986, he has served as a Supervisory
Director for a number of entities affiliated with Soros Fund Management LLC.
Mr. Katz is also a director of Apex Silver Mines Limited.
Gary K. Duberstein has been a director and Assistant Secretary since
September 12, 1997 and was Vice Chairman of the Board of Directors from
September 12, 1997 to May, 1999. Since 1993, Mr. Duberstein has been a Managing
Director of Greenway Partners, L.P., an investment partnership. Prior to that,
Mr. Duberstein
70
served as general counsel to Icahn & Co., Inc., and as vice president of
certain companies operated by Carl Icahn from 1985 to 1993. Mr. Duberstein is a
member of the Compensation Committee and Chairman of the Audit Committee.
Ron Hiram has been a director since September 30, 1997. Mr. Hiram has been
associated with Soros Fund Management LLC, an investment management Company,
since 1995 and has been a Managing Director thereof since 1997. From 1992 to
1995, Mr. Hiram was a Managing Director of Lehman Brothers Incorporated.
Mr. Hiram is a member of the Compensation Committee and Audit Committee.
Frank V. Sica has been a director since July 22, 1998. Mr. Sica has been a
Managing Director of Soros Fund Management LLC and head of its private equity
operations since May 1, 1998. Prior to joining Soros Fund Management LLC, Mr.
Sica held various positions during his 18-year tenure at Morgan Stanley Dean
Witter & Co. Mr. Sica is a director of Banco Hipotecario S.A., Emmis
Broadcasting Corporation, CSG Systems International, Inc., Kohl's Corporation
and PointOne Telecommunications. Mr. Sica is a member of the Compensation
Committee.
Andrew P. Hines has been the Executive Vice President and Chief Financial
Officer since October 6, 1997. Mr. Hines has been a director since October 7,
1997. Prior to joining the Company, Mr. Hines held the position of Senior Vice
President and Chief Financial Officer for Woolworth Corporation since 1994.
During 1993, Mr. Hines was a consultant to Pentland PLC, England. From 1989 to
1992, Mr. Hines held the position of Executive Vice President and Chief
Financial Officer with Adidas USA. Prior to that, Mr. Hines held various senior
financial positions with RJR Nabisco, Inc. from 1976 to 1989.
Executive Officers
Johan Arzbach has been Vice President of OMC and President of OMC's
International Operations since January 1999 and prior thereto spent twenty-
three years at Ingersoll Rand in positions of increasing responsibility, where
he most recently served as Vice President and General Manager of the Asia-
Pacific operations of Ingersoll Rand's air compressor group.
Robert B. Gowens, Jr. has been Vice President, President of North American
Operations since October 1, 1998. Prior to his appointment to such position,
Mr. Gowens held the position of Vice President and General Manager of the
Quicksilver Unit of the Mercury Marine Division of Brunswick Corporation since
and, prior thereto, Vice President of Sales of Mercury Marine's Mercruiser
unit. From 1984 to 1992, Mr. Gowens served as President and Chief Executive
Officer of Cigarette Racing Team, Inc., which specialized in high performance
boat manufacturing. Prior thereto, Mr. Gowens served as a Vice President of
A.T. Kearney, Inc. since 1980.
Eric T. Martinez has been Vice President and Treasurer since March 1, 1999.
Prior to that, Mr. Martinez was the Assistant Treasurer for Favorite Brands
International, Inc. since July, 1998. From April, 1997 to June, 1998, Mr.
Martinez served as Assistant Treasurer of Corporate Finance and Global Capital
Markets for IMC Global, Inc. Prior to that, from 1996 to 1997, Mr. Martinez was
the mergers and acquisitions finance leader for GE Plastics, a division of
General Electric Company. From 1991 to 1996, he was Financial Evaluations and
Analysis Supervisor for Amoco Corporation.
James B. Pekarek has been Vice President and Controller since January, 2000.
Prior to that, Mr. Pekarek was the Director of Reporting from September, 1998,
to January, 2000. From September, 1995 to September, 1998, Mr. Pekarek served
as Director of Reporting for Alliant Foodservice where he was responsible for
all internal and external financial reporting.
Robert S. Romano has been Vice President, General Counsel and Secretary
since October 9, 1997. Prior to his election to such position, Mr. Romano was
appointed Assistant Secretary and Assistant General Counsel in 1996 and 1994,
respectively. Mr. Romano has held various positions within the Company's legal
department since joining the Company in 1980.
71
To the knowledge of the Company, there are no family relationships between
any director or executive officer and any other director or executive officer.
Item 11. Executive Compensation
Personal Rewards and Opportunities Program
On March 10, 1998, the Board of Directors of the Company adopted the
Outboard Marine Corporation Personal Rewards and Opportunities Program
("PROP"). PROP was designed to recognize and reward, through cash bonuses,
stock options and other equity-based awards, the personal contributions and
achievements of key employees of the Company, both individually and as members
of the management and key employee team. All employees of the Company and its
subsidiaries are eligible to participate in PROP. PROP replaced all prior long
and short-term incentive plans of the Company. PROP provides for (i) cash
and/or equity annual bonuses based on performance targets, and (ii) grants of
stock options, shares of restricted stock, stock units or stock appreciation
rights. The aggregate number of shares of stock available for equity awards
under PROP is 1,900,000 shares of currently authorized common stock of the
Company. PROP is administered by the Board of Directors of the Company or a
committee or subcommittee of the Board appointed by the Board among its
members, which, in either case, has authority, at its discretion, to determine
the persons to whom equity awards will be granted and the specifics of those
grants. As of December 31, 1999, the Company had granted and outstanding stock
options relating to 1,570,870 shares of common stock. Of these options, 144,745
were vested at the time of grant. The other 1,426,125 options have vested or
will vest as follows: 429,958 as of December 31, 1999; 404,505 in the Company's
fiscal year ending December 31, 2000; 283,316 in the Company's fiscal year
ending December 31, 2001 and 308,346 thereafter. All of these stock options are
exercisable at their fair market value on the date of grant as determined in
accordance with PROP, and expire ten years after the date of grant except for
Mr. Jones', whose options were granted at a price pursuant to his employment
agreement.
72
Summary Compensation Table
The following table sets forth information concerning the annual and long-
term compensation paid or to be paid to those persons who were, at December 31,
1999, (i) the Chief Executive Officer or served in such capacity during
calendar 1999, (ii) the other four most highly compensated Executive Officers
of the Company, who were serving in such capacity as of December 31, 1999 and
(iii) individuals who would have been one of the four most highly paid
Executive Officers but for the fact that they were not serving as an Executive
Officer on December 31, 1999 (collectively the "Named Executives") for services
rendered in all capacities to the Company for the 1999 and 1998 calendar years
and the 1998 and 1997 fiscal years (designated with an "f").
For a discussion of compensation payable to each of Messrs. Jones, Hines and
Gowens, see Item 10--"Directors and Executive Officers of Registrant".
Annual Compensation Long-Term Compensation
---------------------------- -----------------------------
Securities
Other Restricted Underlying
Annual Stock Options/ LTIP All Other
Name and Principal Salary Bonus Compensation Awards SARS Payouts Compensation
Position Year ($) ($)(1) ($)(2) ($)(3) (#)(4) ($)(5) ($)(6)
- ------------------ ---- ------- ------- ------------ ---------- ---------- ------- ------------
D.D. Jones, Jr.(7)...... 1999 600,001 -- -- -- 37,500 -- 18,219
Chairman, President and 1998 597,309 900,000 63,358 -- 346,140 -- 649,019
Chief Executive Officer 1998f 556,925 900,000 114,736 -- 407,245 -- 2,578,014
1997f 7,692 -- -- -- -- -- --
A.P. Hines(8)........... 1999 374,999 -- 61,146 -- -- -- 4,083
Executive Vice 1998 375,000 117,187 119,215 351,558 180,000 -- --
President and Chief 1998f 349,708 117,187 -- 351,558 180,000 -- --
Financial Officer 1997f -- -- -- -- -- -- --
R.B. Gowens(9).......... 1999 300,000 250,000 -- -- -- -- 14,290
Vice President, OMC, & 1998 77,308 -- -- -- 100,000 -- 17,734
President, NAEO 1998f -- -- -- -- -- -- --
1997f -- -- -- -- -- -- --
J. Arzbach(10).......... 1999 230,000 85,000 -- -- 40,000 -- 26,150
Vice President, OMC, & 1998 -- -- -- -- -- -- --
President, 1998f -- -- -- -- -- -- --
International 1997f -- -- -- -- -- -- --
Operations
R. S. Romano............ 1999 209,039 75,000 -- -- 15,000 -- 2,774
Vice President, General 1998 197,307 19,000 -- -- 8,000 2,928 2,230
Counsel and Secretary 1997f 143,917 11,488 -- -- -- -- 4,320
1998f 190,000 19,000 -- -- 8,000 19,353 1,974
- --------
(1) Calendar and fiscal 1998 bonuses for Mr. Hines include $117,187 in cash and
19,531 shares of Restricted Stock under PROP valued at $18.00 per share.
All fiscal 1998 and 1997 and calendar 1999 and 1998 bonuses to Messrs.
Jones, Gowens, Arzbach and Romano were paid in cash.
(2) For calendar year 1999, other compensation for Mr. Jones, includes $16,759
moving expenses, $16,014 for Company car, $19,451 for financial services,
$18,220 as payment for interest on a loan from the Company, and $45,723 for
tax gross-up; and for Mr. Hines, includes $9,997 for Company car, $22,415
for financial services, and $28,734 for tax gross-up. For calendar year
1998, other annual compensation for Mr. Jones, includes $13,810 for moving
expense, $5,818 for financial services, $10,490 for Company car, $5,466 as
payment for interest on a loan from the Company, and $27,324 for tax gross-
up; and for Mr. Hines, includes $58,258 for moving expense, $9,587 for
Company car and $51,370 for tax gross-up. For fiscal year 1998, other
annual compensation for Mr. Jones includes $89,023 for moving expense,
$5,250 for financial services, $19,553 for Company car and $910 as payment
for interest on a loan from the Company (see "Item 13--Certain
Relationships and Related Transactions"). Each of Messrs. Gowens, Arzbach
and Romano in 1999 and Messrs. Hines, Gowens, Arzbach and Romano in fiscal
year 1998, and Messrs. Gowens, Arzbach and Romano in calendar 1998,
received a de minimis amount of perquisites and other
73
personal benefits, the value of which did not exceed either $50,000 or 10%
of the total amount of annual salary and bonus received by each during
calendar 1999 or fiscal or calendar 1998, as applicable.
(3) See Footnote (1) above for Mr. Hines' Restricted Stock award.
(4) See Option grants in the 1999 Fiscal Year below.
(5) For Mr. Romano, the amount in fiscal year 1998 consists of $9,000 payment
for options, $7,425 payment for performance units and $2,928 payment of
restricted stock of the pre-merger Company following the change of
control, with only the $2,928 payment made in calendar year 1998.
(6) For calendar year 1999, all other compensation for Mr. Jones included
$13,581 for life insurance premiums and $4,638 as a Company contribution
under the Company's 401(k) retirement plan. For calendar year 1998, all
other compensation for Mr. Jones includes $643,470 as a cash sign-on
bonus, $1,415 as a Company contribution under the Company's 401(k)
retirement plan and $4,134 for life insurance premiums. For fiscal year
1998, for Mr. Jones, (i) $2,573,880 represents an amount equal to
incentives that Mr. Jones was to receive from his prior employer, but were
forfeited by Mr. Jones in connection with his being hired by the Company,
which amount included $643,470, paid to Mr. Jones as a cash sign-on bonus,
and (ii) $4,134 for life insurance premiums. For calendar year 1999, all
other compensation for Mr. Hines included $4,083 for life insurance
premiums. For calendar year 1999, all other compensation for Mr. Gowens
included $1,627 as a contribution under the Company's 401(k) retirement
plan and $12,663 for a sign-on bonus. For calendar year 1999, all other
compensation for Mr. Arzbach included $1,150 as a contribution under the
Company's 401(k) retirement plan and $25,000 for a sign-on bonus. For Mr.
Romano, all other compensation includes $1,156 for life insurance premiums
and $1,618 as a contribution under the Company's 401(k) retirement plan
and a life insurance premium of $68 in calendar year 1998 and
contributions by the Company under the Company's 401(k) retirement plan of
$2,162 in calendar year 1998, and of $1,974 and $4,320 in fiscal year 1998
and 1997.
(7) Mr. Jones was hired by the Company on September 25, 1997 and, therefore,
information prior to that date does not exist.
(8) Mr. Hines was hired by the Company on October 6, 1997 and, therefore,
information prior to that date does not exist.
(9) Mr. Gowens was hired by the Company on October 1, 1998 and, therefore,
information prior to that date does not exist.
(10) Mr. Arzbach was hired by the Company on January 5, 1999 and, therefore,
information prior to that date does not exist.
74
Option Grants Fiscal Year 1999
The following table provides information on the grants of options to
purchase common stock of the Company given to the Named Executives in fiscal
year 1999.
% of
Number of Total
Securities Options
Underlying Granted Exercise Market Potential
Options/ to all Price Price Realizable
SARs Employees Per on Date Value($)(4)
Grant Granted in Share of Expiration -----------------
Name Date (#)(1) 1999(2) $(3) Grant(3) Date 5% 10%
- ---- ------- ---------- --------- -------- -------- ---------- ------- ---------
D.D. Jones,Jr........... 9/30/99 37,500 6.29 $18.00 $22.00 9/30/09 424,504 1,075,776
A.P. Hines.............. N/A N/A N/A N/A N/A N/A N/A N/A
R. B. Gowens............ N/A N/A N/A N/A N/A N/A N/A N/A
J. Arzbach.............. 1/5/99 25,000 4.19 $22.00 N/A 1/5/09 345,892 876,558
12/1/99 15,000 2.51 $22.00 N/A 12/1/09 207,535 525,935
R.S. Romano............. 12/1/99 15,000 2.52 $22.00 N/A 12/1/09 207,535 525,935
- --------
(1) All options vest over a three year period; beginning one year from the date
of grant except for Mr. Arzbach's January 5, 1999 grant which vests over a
period of four years, 25% exercisable at the end of the first year, then an
additional 25% each year thereafter.
(2) In the 1999 calendar year, 143 employees received stock options.
(3) Mr. Jones' options, and the exercise price therefore, are pursuant to his
employment agreement with the Company. See "Employment Contracts and
Severance Agreements" below. Market and grant price of $22.00 per share as
determined by the Board of Directors of the Company in accordance with the
terms of PROP.
(4) The amounts set forth reflect the potential realizable value of the options
granted at assumed annual rates of stock price appreciation of 5% and 10%
through the expiration date of the options (ten years). The use of 5% and
10% is pursuant to Securities and Exchange Commission requirements and is
not intended by the Company to forecast possible future appreciation.
Option Exercises in the 1999 Fiscal Year and Fiscal Year End Option Values
No options were exercised by the Named Executives during fiscal year 1999.
The per share fair market value of the Company's common stock used to make the
calculations in the following table is $22.00, which is the fair market value
as of December 31, 1999 as determined by the Board of Directors of the Company
in accordance with PROP.
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
Shares at Fiscal at Fiscal
Acquired Value Year End(#) Year End($)
on Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
- ---- ----------- -------- --------------- -------------------
D.D. Jones, Jr........ 0 0 344,745/100,000 7,584,390/2,200,000
A.P. Hines............ 0 0 120,000/ 60,000 2,640,000/1,320,000
R.B. Gowens........... 0 0 33,333/66,667 733,326/1,466,674
J. Arzbach............ 0 0 0/40,000 0/880,000
R.S. Romano........... 0 0 2,000/21,000 44,000/462,000
Long-term Incentive Plan Awards in Fiscal Year 1999
There were no amounts paid in fiscal year 1999 to any employee, including
the Named Executives in the form of an LTIP under PROP.
75
Retirement Plans
The approximate total annual benefit for the Named Executive participants
payable from the Outboard Marine Corporation Employees Retirement Plan (the
"Retirement Plan") and the supplemental non-qualified retirement plan is shown
in the table below for selected average base earnings levels and years of
service based upon certain assumptions including all years of credited service
as an Executive Officer, retirement at age 65 and election of a single life
annuity for the benefit payment.
Years of Service
-------------------------------------
Average Annual Base Earnings 5 10 15 20 or More
- ---------------------------- -------- -------- -------- ----------
$ 150,000................................ $ 19,125 $ 38,250 $ 57,375 $ 76,500
$ 250,000................................ $ 31,875 $ 63,750 $ 95,625 $127,500
$ 300,000................................ $ 38,250 $ 76,500 $114,750 $153,000
$ 500,000................................ $ 63,750 $127,500 $191,250 $255,000
$ 900,000................................ $114,750 $229,500 $344,250 $459,000
$1,300,000................................ $165,750 $331,500 $497,250 $663,000
$1,900,000................................ $242,250 $484,500 $726,750 $969,000
The Retirement Plan provides a fixed benefit determined on the basis of
years of service and final average base earnings. The approximate annual
benefits shown in the table above are not subject to social security offset but
are subject to offset for any benefits payable from retirement programs of the
Company's foreign subsidiaries.
In addition to the benefits from the Retirement Plan, certain participants
in the Company's annual incentive compensation plan(s) are eligible for
retirement benefits from the supplemental non-qualified retirement plan. The
retirement benefits under the non-qualified plan are based upon amounts paid
under the annual bonus plan as well as salary, and the total retirement
benefits payable under both plans may exceed the maximum benefits payable under
the Employee Retirement Income Security Act of 1974, as amended. The basis for
benefits under both plans are those amounts contained in the Summary
Compensation Table above, for Salary and Bonus, if the years disclosed are one
or more of the three highest annual earnings in the last ten years as discussed
below. Effective September 30, 1999, the Company froze the retirement plan.
Participants in the plans who are not Executive Officers receive an
aggregate benefit equal to 1.20% of total pay and 0.5% above social security
covered compensation for each year of credited service times the average of the
five highest consecutive annual earnings (base annual salary rate plus
incentive compensation earned in the same year under an annual incentive
compensation plan) during such participant's last ten years of employment. An
Executive Officer who participates in the plans will receive the 1.20% of total
pay and 0.5% above social security covered compensation for each year of
credited service as a non-Executive Officer and 2.55% for each year of credited
service as an Executive Officer times the average of the three highest annual
earnings during such participant's last ten years of employment.
As of December 31, 1998, Messrs. Jones, Hines, Gowens, Arzbach, and Romano
will have 2.08, 2.00, 1.00, 0.75, and 2.00, respectively, credited years of
officer service and 0.0, 0.0, 0.0, 0.0, and 17.91, respectively, credited years
of non-officer service under the Company's retirement plans. The total
estimated vested annual benefit payable from these two plans for Messrs. Jones,
Hines, Gowens, Arzbach, and Romano based upon certain assumptions including
actual years of credited service as a non-Executive Officer and Executive
Officer, as the case may be, current age and base earning levels, and election
of a single life annuity for the benefit payment is $46,020, $18,275, $25,374,
$4,399, and $7,650, respectively, which payments are not subject to social
security offset but are subject to offset for any benefits payable from
retirement programs of the Company's foreign subsidiaries.
76
Compensation of Directors
Directors of the Company do not receive any compensation for services
provided to the Company as a Director, including participation on any
committees. Directors may be entitled to reimbursement for travel expenses
associates with Board activities.
Employment Contracts and Severance Agreements
David D. Jones, Jr. The Company and David D. Jones, Jr. have entered into an
employment agreement, dated as of March 10, 1998 and effective as of September
25, 1997 (the "Jones Employment Agreement"). Pursuant to the Jones Employment
Agreement, Mr. Jones will serve as President and Chief Executive Officer of the
Company and as a member of the Board of Directors of the Company. The term of
Mr. Jones's employment under the Jones Employment Agreement expires on
September 30, 2000, or, if OMC changes its fiscal year to a calendar year, on
December 31, 2000 (in either case, the "Jones Initial Term"), which term shall
automatically renew for an additional two years on the initial expiration date
and each expiration date thereafter until the end of the fiscal year during
which Mr. Jones attains age 65, unless Mr. Jones's employment is otherwise
terminated pursuant to the terms of the Jones Employment Agreement. In exchange
for his services, Mr. Jones will receive (1) a base salary of $500,000 per
annum for the first six months of his employment and $600,000 per annum for the
remainder of the term of Mr. Jones's employment subject to increases at the
discretion of the Board of Directors, (2) an annual bonus of up to 200% of base
salary contingent on OMC achieving certain financial performance goals, of
which, during the Jones Initial Term, one-fourth shall be paid in cash and
three-fourths shall be paid in common stock of OMC using a value of $18.00 per
share, or at Mr. Jones' election, the three-fourths, or any portion thereof,
shall be paid in the form of a cash deferral (subject to reduction in the event
the per share value of the common stock of OMC declines below $18.00) in which
case Mr. Jones will receive a fully vested and immediately exercisable option,
at a per share exercise price equal to $18.00 with respect to the total number
of shares of the bonus stock, (3) an incentive option to purchase 61,105 shares
of common stock of OMC at an exercise price of $18.00 per share, 5,555 shares
of which vested upon grant, and with annual vesting of 5,555 shares each
January 1st until fully exercisable, (4) a non-qualified option to purchase
238,895 shares of common stock of OMC at an exercise price of $18.00 per share
with scheduled annual vesting each year over a three-year period, and (5) (i)
payment by OMC of $643,470 in cash, (ii) the issuance of a non-qualified stock
option to purchase 107,245 shares of common stock of OMC at an exercise price
of $18.00 per share, 90,578 shares of which vested upon grant, with the
remaining 16,667 shares vesting on December 31, 1998, and (iii) a deferred
compensation obligation of the Company to him in the amount of $1,930,410
reduced by the product of (A) any decrease in the per share value of the common
stock of OMC below $18.00 per share and (B) 107,245, in consideration of the
incentive compensation, unvested options and restricted stock forfeited by Mr.
Jones solely as a result of his severance from Brunswick Corporation to accept
employment with the Company. The Jones Employment Agreement provides that Mr.
Jones will be entitled to participate in or receive benefits under any employee
benefit plan, program or arrangement made available generally by OMC to its
similarly situated executives and that Mr. Jones is entitled to participate in
OMC's Supplemental Non-Qualified Retirement Plan for Elected Officers.
If OMC terminates Mr. Jones's employment for cause or Mr. Jones voluntarily
resigns from his employment with OMC other than for good reason, OMC will be
obligated to pay Mr. Jones his base salary through the date of termination. If
OMC terminates Mr. Jones's employment with OMC without cause or Mr. Jones
terminates his employment with OMC for good reason, Mr. Jones will be entitled
to receive (1) his base salary through the date of termination plus any accrued
vacation, (2) his annual bonus, if any, for the fiscal year in which such
termination occurred prorated for the number of full months Mr. Jones was
employed during such fiscal year, (3) an amount equal to the greater of his
base salary for one year or his base salary for the remainder of the term of
the Jones Employment Agreement, (4) the benefit of continued participation in
the OMC employee benefit plans, programs or arrangements in which Mr. Jones
participated prior to his termination until the greater of one year or the end
of the then remaining term of the Jones Employment Agreement, and (5) any
remaining unvested stock options granted by OMC to Mr. Jones pursuant to the
Jones
77
Employment Agreement, which stock options shall automatically vest as of the
date of termination and be exercisable for 90 days thereafter. If Mr. Jones's
employment with OMC terminates as a result of his death, (1) OMC will be
obligated to pay to Mr. Jones's estate his base salary to the date of his death
plus any accrued vacation, and Mr. Jones's annual bonus, if any, for the fiscal
year in which his death occurs prorated for the number of full months Mr. Jones
was employed during such fiscal year, (2) in the event Mr. Jones dies during
any twelve-month period during the term of his employment, any unvested stock
options granted by OMC to Mr. Jones pursuant to the Jones Employment Agreement
which would have become vested if Mr. Jones continued his employment during
such twelve-month vesting period shall vest pro-rata for the number of full
months Mr. Jones was employed during such twelve-month period in which his
death occurs and be exercisable for 12 months after Mr. Jones's death, and (3)
Mr. Jones's surviving spouse shall be entitled to participate in OMC's group
medical and dental plans for the remainder of the term of the Jones Employment
Agreement. If Mr. Jones's employment with OMC is terminated as a result of his
total disability, (1) OMC will be obligated to pay Mr. Jones his base salary to
the date on which total disability is deemed to have occurred plus any accrued
vacation, and Mr. Jones's annual bonus, if any, for the fiscal year in which
his total disability occurs prorated for the number of full months Mr. Jones
was employed during such fiscal year, (2) in the event total disability occurs
during any twelve-month period during the term of Mr. Jones's employment, any
unvested stock options granted by OMC to Mr. Jones pursuant to the Jones
Employment Agreement which would have become vested if Mr. Jones continued his
employment during such twelve-month vesting period shall vest pro rata for the
number of full months Mr. Jones was employed during such twelve-month period in
which his total disability occurs and be exercisable for 12 months after Mr.
Jones's total disability, and (3) Mr. Jones shall be permitted to participate
in OMC's employee benefit plans, programs or arrangements in which he
participated prior to he termination of his employment until the end of the
then remaining term of the Jones Employment Agreement.
Pursuant to the Jones Employment Agreement, OMC will have the right to
repurchase all shares of common stock of OMC owned by Mr. Jones and vested
stock options granted by OMC to Mr. Jones upon the termination of Mr. Jones's
employment with OMC for any reason. Upon the termination by OMC of Mr. Jones's
employment without cause, the termination by Mr. Jones of his employment for
good reason, the voluntary termination by Mr. Jones of his employment at or
after the expiration of the term of the Jones Employment Agreement, the
voluntary termination by Mr. Jones of his employment at or after his attaining
age 62, or the termination of Mr. Jones's employment as a result of his death
or total disability, Mr. Jones or his estate, as applicable, will have the
right to require OMC purchase all shares of common stock of OMC owned by Mr.
Jones and vested stock options granted by OMC to Mr. Jones.
Mr. Jones is prohibited from disposing his shares of OMC common stock
without the prior written consent of OMC.
However, pursuant to the Jones Employment Agreement, Mr. Jones will have a
tag-along right, subject to certain exceptions, with respect to certain
dispositions of common stock of OMC by Greenmarine Holdings. Greenmarine
Holdings will have certain take-along rights to require Mr. Jones to sell his
shares of OMC common stock if Greenmarine Holdings proposes to sell not less
than 50% of the OMC common stock owned by Greenmarine Holdings.
Mr. Jones is subject to confidentiality, non-competition and non-
solicitation provisions, which are enforceable during the term of the Jones
Employment Agreement and for a one-year period commencing on the expiration or
termination of Mr. Jones's employment with OMC.
See also "Item 13--Certain Relationships and Related Transactions."
Andrew P. Hines. The Company and Andrew P. Hines have entered into an
employment agreement, effective as of October 6, 1997 (the "Hines Employment
Agreement"). Pursuant to the Hines Employment Agreement, Mr. Hines will serve
as Executive Vice President and Chief Financial Officer of the Company and as a
member of the Board of Directors of the Company. The term of Mr. Hines's
employment under the Hines
78
Employment Agreement expires on October 6, 2000, which term shall automatically
renew for an additional year on the initial expiration date and each expiration
date thereafter, unless Mr. Hines's employment is otherwise terminated pursuant
to the terms of the Hines Employment Agreement. In exchange for his services,
Mr. Hines will receive (1) a base salary of $325,000 per annum, which was
increased to $375,000 per annum by the Board of Directors in June 1998 and may
be increased at the discretion of the Board of Directors and (2) a non-
qualified option to purchase 180,000 shares of common stock of OMC at an
exercise price of $18.00 per share with annual vesting in equal proportions
over a three-year period. Simultaneously with the execution of the Hines
Employment Agreement, Mr. Hines purchased from OMC 14,444 shares of OMC common
stock, of which 2,777 shares were issued in consideration of a $50,000 cash
payment and 11,667 shares were issued in consideration of Mr. Hines issuing a
promissory note in favor of OMC in the principal amount of $210,000. On April
6, 1998, Mr. Hines purchased an additional 5,556 shares of common stock issued
in consideration of a $100,000 cash payment. The Hines Employment Agreement
provides that Mr. Hines, in certain circumstances, will be entitled to
participate in the short-term and long-term incentive and stock option or other
equity or quasi-equity participation plans, programs or arrangements in which
similarly situated executives are entitled to participate. Mr. Hines will also
be entitled to receive benefits under any employee benefit plan, program or
arrangement made available generally by OMC to its similarly situated
executives.
If OMC terminates Mr. Hines's employment for cause or Mr. Hines voluntarily
resigns from his employment with OMC other than for good reason, OMC will be
obligated to pay Mr. Hines's base salary through the date of termination. If
OMC terminates Mr. Hines's employment with OMC without cause or Mr. Hines
terminates his employment with OMC for good reason, Mr. Hines will be entitled
to receive (1) his base salary through the date of termination plus any accrued
vacation, (2) an amount equal to the greater of his base salary for one year or
his base salary for the remainder of the term of the Hines Employment
Agreement, (3) the benefit of continued participation in OMC's employee benefit
plans, programs or arrangements in which Mr. Hines participated prior to his
termination until the greater of one year or the end of the then remaining term
of the Hines Employment Agreement, and (4) any remaining unvested stock options
granted by OMC to Mr. Hines, which stock options shall automatically vest as of
the date of termination and be exercisable for 90 days thereafter. If Mr.
Hines's employment with OMC terminates as a result of his death, (1) OMC will
be obligated to pay to Mr. Hines's estate Mr. Hines's base salary to the date
of his death plus any accrued vacation, and any bonus for the fiscal year in
which his death occurs prorated for the number of full months Mr. Hines was
employed during such fiscal year, and (2) Mr. Hines's estate will have one year
from the date of Mr. Hines's death to exercise all vested and unexercised stock
options granted by OMC to Mr. Hines. If Mr. Hines's employment with OMC is
terminated as a result of his total disability, (1) OMC will be obligated to
pay Mr. Hines his base salary to the date on which total disability is deemed
to have occurred plus any accrued vacation, and any bonus for the fiscal year
in which his total disability occurs prorated for the number of full months Mr.
Hines was employed during such fiscal year, (2) any stock options granted by
OMC to Mr. Hines that have vested as of the date of such total disability shall
be exercisable for 90 days after the date of such termination, and (3) Mr.
Hines shall be permitted to participate in OMC's employee benefit plans,
programs or arrangements in which he participated prior to he termination of
his employment until the end of the then remaining term of the Hines Employment
Agreement.
Pursuant to the Hines Employment Agreement, OMC will have the right to
repurchase all shares of common stock of OMC owned by Mr. Hines and vested
stock options granted by OMC to Mr. Hines upon the termination of Mr. Hines's
employment with OMC for any reason. Upon the termination by OMC of Mr. Hines'
employment without cause, the termination by Mr. Hines of his employment for
good reason, the voluntary termination by Mr. Hines of his employment at or
after the expiration of the term of the Hines Employment Agreement, the
voluntary termination by Mr. Hines of his employment at or after his attaining
age 62, or the termination of Mr. Hines's employment as a result of his death
or total disability, Mr. Hines or his estate, as applicable, will have the
right to require OMC purchase all shares of common stock of OMC owned by Mr.
Hines and stock options granted by OMC to Mr. Hines.
Mr. Hines is prohibited from disposing his shares of OMC common stock
without the prior written consent of OMC. However, pursuant to the Hines
Employment Agreement, Mr. Hines will have a tag-along
79
right, subject to certain exceptions, with respect to certain dispositions of
common stock of OMC by Greenmarine Holdings. Greenmarine Holdings will have
certain take-along rights to require Mr. Hines to sell his shares of OMC common
stock if Greenmarine Holdings proposes to sell not less than 50% of the OMC
common stock owned by Greenmarine Holdings.
Mr. Hines is subject to confidentiality, non-competition and non-
solicitation provisions, which are enforceable during the term of the Hines
Employment Agreement and for a one-year period commencing on the expiration or
termination of Mr. Hines's employment with OMC.
See also "Item 13--Certain Relationships and Related Transactions."
Robert B. Gowens, Jr. The Company and Robert B. Gowens, Jr. have entered
into an Employment Agreement effective as of October 1, 1998 (the "Gowens
Employment Agreement"). Pursuant to the Gowens Employment Agreement, Mr. Gowens
will serve as Vice President of the Company and President, North American
Engine Operations. The term of the Gowens Employment Agreement commenced on
October 1, 1998 and shall continue through the earlier of its third anniversary
or Mr. Gowens' death or total disability or as otherwise terminated pursuant to
the terms of the Gowens Employment Agreement. In exchange for his services, Mr.
Gowens will receive (1) a base salary of $300,000 per annum and (2) a non-
qualified option to purchase 100,000 shares of common stock of OMC at an
exercise price of $22.00 per share with annual vesting in equal proportions
over a three year period. The Gowens Employment Agreement provides that Mr.
Gowens shall be eligible to participate in the Company's bonus and incentive
compensation programs applicable, generally, to similarly situated senior
executive officers. The Gowens Employment Agreement also provides for a loan
from the Company in order to assist Mr. Gowens in purchasing a new, permanent
residence in the Chicago, Illinois geographic vicinity. Mr. Gowens will also be
entitled to receive benefits under any employee benefit plan, program or
arrangement made available, generally, by OMC to similarly situated executive
officers.
If OMC terminates Mr. Gowens' employment Without Cause or Mr. Gowens
voluntarily resigns his employment with Good Reason, Mr. Gowens will be
entitled to receive (1) his accrued and unpaid base salary and vacation as of
the date of his termination of employment; (2) a lump sum payment in the amount
equal to the greater of (a) Mr. Gowens' base salary for one year and (b) his
base salary for the remainder of the term of his Employment Agreement; and (3)
OMC shall pay to Mr. Gowens, within sixty (60) days of the end of the fiscal
year, his bonus for the fiscal year in which such termination occurred, based
upon the Company's level of actual attainment of his bonus target for such
fiscal year, prorated for the number of full months Mr. Gowens was employed
during that fiscal year. In addition, OMC shall, at its expense, continue for
one year Mr. Gowens' participation on the same basis as active employees in the
Company's group, medical and life insurance plans in which he participated
prior to the termination of his employment. Any unvested stock options granted
to Mr. Gowens shall automatically vest as the date of termination and shall be
exercisable, along with other vested options, in accordance with the terms of
the plan.
If OMC terminates Mr. Gowens' employment for cause or Mr. Gowens voluntarily
resigned without Good Reason, Mr. Gowens shall be entitled his accrued and
unpaid base salary through such date of termination. In the event of Mr.
Gowens' death, OMC shall pay to his estate his base salary and vacation owed
through the date of death and any bonus for the fiscal year in which his death
occurs, prorated for the number of full months Mr. Gowens was employed during
such fiscal year and any restricted stock grant shall become fully vested.
In the event that the Agreement terminates as a result of Mr. Gowens' total
disability, OMC shall pay to Mr. Gowens his base salary through the date in
which he is determined to have become totally disabled and any bonus for the
fiscal year in which his total disability occurs, prorated for the number of
full months he was employed during such fiscal year, provided, however, that
OMC shall only be required to pay such amounts to Mr. Gowens that are not
covered by long term disability payments, if any, to Mr. Gowens pursuant to any
long term disability policy or plan of the Company.
80
Pursuant to the Gowens Employment Agreement, OMC will have the right to
repurchase, at fair market value, all shares of common stock of OMC owned by
Mr. Gowens, and vested stock options granted by OMC to Mr. Gowens upon the
termination of Mr. Gowens' employment with OMC for any reason. Upon the
termination by OMC of Mr. Gowens' employment Without Cause, for Good Reason, a
voluntary termination by Mr. Gowens, a voluntary termination by Mr. Gowens at
or after attaining his age 62 or as a result of total disability or death, Mr.
Gowens or his estate, as applicable, will have the right to require OMC to
purchase all shares of common stock of OMC owned by Mr. Gowens and stock
options granted by OMC to Mr. Gowens.
Mr. Gowens is subject to a confidentiality provision which is enforceable
during the term of the Gowens Employment Agreement and thereafter and a non-
competition provision which is enforceable during the term of the Gowens
Employment Agreement and for a period of one year commencing on the expiration
or termination of Mr. Gowens' employment with OMC.
See also "Item 13--Certain Relationships and Related Transactions."
Certain Severance Arrangements. The Company has a severance agreement with
Robert S. Romano. This agreement was entered into prior to the Greenmarine
Acquisition, and the Company's potential severance obligations thereunder
became effective upon the change in control of the Company resulting from the
Greenmarine Acquisition. The agreement provides that if Mr. Romano elects to
resign his employment for specified reasons, or is terminated by the Company
other than for cause, the Company will pay to him an amount in cash equal to
not more than one times (1) salary, plus (2) the amount of the highest annual
incentive compensation received by him in the five fiscal years preceding the
fiscal year of the change in control. Additionally, for a period of 12 months
following the termination date (the "Continuation Period"), the Company will
arrange to provide to Mr. Romano benefits substantially similar to those he was
receiving or entitled to receive immediately prior to the termination date.
Further, the Company will provide a lump sum cash payment in an amount equal to
the actuarial equivalent of the excess of (1) the retirement, pension, medical,
life and other benefits that will be payable to Mr. Ramano under the Company's
retirement plans if he continued to be employed through the Continuation Period
given his base salary over (2) the retirement, pension, medical, life and other
benefits that he is entitled to receive under the Company's retirement plans.
The term of this severance agreement will remain in force until September 12,
2000, or as otherwise may be negotiated by Mr. Romano and the Company.
Compensation Committee Interlocks and Insider Participation
Messrs. Kingsley, Duberstein, Sica and Hiram served on the Compensation
Committee of the Company's Board of Directors during fiscal year 1999. Mr.
Kingsley served as Vice Chairman of the Board in fiscal year 1999. Messrs
Kingsley, Duberstein, Sica and Hiram did not serve as an officer or employee of
the Company or any of its subsidiaries during fiscal year 1999.
Messrs. Kingsley and Duberstein control Greenlake Holdings LLC, which has
approximately a 30.5% interest in Greenmarine Holdings, and also control
Greenlake Holdings, II LLC. Mr. Hiram is a Managing Director of Soros Fund
Management LLC, which serves as the principal investment adviser to the
indirect parent entity of Quantum Industrial Holdings, Ltd., which is the owner
of approximately 34.75% of Greenmarine Holdings. Mr. Sica is a Managing
Director of Soros Fund Management LLC. In fiscal year 1999, Greenmarine
Holdings was controlled by a Management Committee comprised by Messrs.
Kingsley, Duberstein, Sica, Hiram and Katz. See "Item 12--Security Ownership".
81
Item 12. Security Ownership
The following table sets forth information with respect to the beneficial
ownership of the Company's voting securities, by class, as of March 15, 2000 by
(i) any person or group who beneficially owns more than 5% of any class of the
Company's outstanding voting securities (ii) each director and executive
officer of OMC and all directors and executive officers of OMC as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Shares of common stock of OMC, beneficial
ownership of which may be acquired within 60 days of March 15, 2000, are deemed
outstanding for computing the percentage of the person holding such options but
are not deemed outstanding for computing the percentage of any other person.
Except as otherwise indicated, beneficial ownership in the following tables
includes sole voting and dispositive power.
Series A Convertible
Common Stock Preferred Stock
------------------------ ---------------------
Shares Shares
Beneficially Percent Beneficially Percent
Name and Address Owned of Class(1) Owned of Class
- ---------------- ------------ ----------- ------------ --------
Greenmarine Holdings LLC(1).... 20,400,000 65.2% -- --
277 Park Avenue, 27th Floor
New York, New York 10172
Quantum Industrial Partners
LDC(1)........................ 7,907,426 25.3% 494,554 76.1%
Kaya Flamboyan 9,
Villemstad
Curacao
Netherlands-Antilles
Greenlake Holdings II LLC(2)... 2,485,430 7.9% 155,446 23.9%
277 Park Avenue, 27th Floor
New York, New York 10172
Alfred D. Kingsley(3).......... 22,885,430 73.1% 155,446 23.9%
277 Park Avenue, 27th Floor
New York, New York 10172
Gary K. Duberstein(3).......... 22,885,430 73.1% 155,446 23.9%
277 Park Avenue, 27th Floor
New York, New York 10172
Richard Katz(4)................ 28,307,426 90.4% 494,554 76.1%
Villa La Sirena
Vico dell'Olivetta 12
18039 Martola Inferiore
Ventimiglia, Italy
Ron Hiram(5)................... 28,307,426 90.4% 494,554 76.1%
888 Seventh Avenue, 33rd Floor
New York, New York 10106
Frank V. Sica(6)............... 28,307,426 90.4% 494,554 76.1%
888 Seventh Avenue, 33rd Floor
New York, New York 10106
David D. Jones, Jr.(7)......... 350,300 1.1% -- --
c/o Outboard Marine
Corporation
100 Sea Horse Drive
Waukegan, Illinois 60085
Andrew P. Hines(8)............. 159,531 * -- --
c/o Outboard Marine
Corporation
100 Sea Horse Drive
Waukegan, Illinois 60085
Directors and Executive
Officers as a group (12
persons)(9)................... 31,302,688 100.0% 650,000 100.0%
82
- --------
* Less than 1%
(1) The members of Greenmarine Holdings are Greenlake Holdings LLC, a Delaware
limited liability company ("Greenlake"), Quasar Strategic Partners LDC, a
Cayman Islands limited duration company ("QSP"), and Quantum Industrial
Partners LDC, a Cayman Islands limited duration company ("QIP"). Greenlake,
QSP and QIP have approximately a 30.5%, 34.75% and 34.75% interest in
Greenmarine Holdings, respectively. Greenlake is controlled by Mr. Alfred
D. Kingsley and Mr. Gary K. Duberstein. QSP is an indirect subsidiary of
QIP. QIP is the principal operating subsidiary of Quantum Industrial
Holdings Ltd., a British Virgin Islands corporation ("QIH"). The principal
business of QIP is investing in securities. QIH is an investment fund which
has as its principal investment advisor Soros Fund Management LLC ("SFM
LLC"). Mr. George Soros is the Chairman of SFM LLC. Mr. Stanley
Druckenmiller is the Lead Portfolio Manager and a Member of the Management
Committee of SFM LLC. QIH Management Investor, L.P. ("QIHMI"), an
investment advisory firm, is a minority shareholder of QIP. Pursuant to
constituent documents of QIP, QIHMI is vested with investment discretion
with respect to the portfolio assets held for the accounts of each of QIP.
The principal business of QIHMI is to provide management and advisory
services to, and to invest in, QIP. Mr. Soros is the sole shareholder of
QIH Management, Inc. ("QIH Management"), which is the sole general partner
of QIHMI. The principal business of QIH Management is to serve as the sole
general partner of QIHMI. Mr. Soros has entered into an agreement pursuant
to which he has agreed to use his best efforts to cause QIH Management, as
the general partner of QIHMI, to act at the discretion of SFM LLC. The
address of each of Mr. George Soros and Mr. Stanley Druckenmiller is 888
Seventh Avenue, 33rd Floor, New York, New York 10106. Greenmarine Holdings
is controlled by a Management Committee comprised of a total of five
Managers. Pursuant to the Operating Agreement of Greenmarine Holdings,
Greenlake has the right to appoint two designees to Greenmarine Holding's
Management Committee and the holders of a majority of Greenmarine Holdings'
interest held by QSP and QIP have the right to appoint three members of
Greenmarine Holdings' Management Committee. Greenmarine Holdings'
Management Committee is currently comprised of Messrs. Alfred D. Kingsley,
Gary K. Duberstein, Frank V. Sica, Ron Hiram and Richard Katz. The vote of
three of the members of Greenmarine Holdings' Management Committee is
required for action by the Management Committee. 4,374,898 of the common
stock shares indicated as beneficially owned by QIP are as a result of
warrant to purchase and 3,532,528 of the common stock shares are
beneficially owned are as a result of Series A Convertible Preferred Stock.
(See Item 7) Management Discussion and Analysis of Financial Condition and
Results of Operations, Financial Condition, Liability and Capital
Resources.
(2) Greenlake Holdings II LLC ("Greenlake II") is controlled by Mr. Alfred D.
Kingsley and Mr. Gary K. Duberstein. 1,375,102 of the common stock shares
indicated as beneficially owned by Greenlake II are as a result of warrant
to purchase and 1,110,328 common stock shares indicated as beneficially
owned as a result of Series A Convertible Preferred Stock. (See Item 7),
Management's Discussion and Analysis of Financial Condition and Results of
Operation, Financial Condition, Liquidity and Capital Resources.
(3) Each of Alfred D. Kingsley and Gary K. Duberstein is a director of the
Company. In addition, each of Messrs. Kingsley and Duberstein are members
of Greenmarine Holdings' Management Committee and they control Greenlake.
All of the shares indicated as owned by each of Messrs. Kingsley and
Duberstein are owned directly by Greenmarine Holdings and Greenlake II,
respectively and are included because of their affiliation with Greenmarine
Holdings and their control of Greenlake II. As such, Messrs. Kingsley and
Duberstein may be deemed to have beneficial ownership of these shares
within the meaning of Rule 13d-3 under the Exchange Act.
(4) Richard Katz is a director of the Company. In addition, Mr. Katz is a
member of Greenmarine Holdings' Management Committee. Mr. Katz is also
Chairman of the Board of QIH. All of the shares indicated as owned by Mr.
Katz are owned directly by Greenmarine Holdings and QIP, respectively, and
are included because of his affiliation with Greenmarine Holdings and QIH's
relationship with QIP. The reference to such shares shall not be deemed
admission that Mr. Katz may be deemed to have beneficial ownership of these
shares within the meaning of Rule 13d-3 under the Exchange Act.
83
(5) Ron Hiram is a director of the Company. Mr. Hiram is a Managing Director of
Soros Fund Management LLC. Soros Fund Management LLC is the principal
investment advisor to QIH. In addition, Mr. Hiram is a member of
Greenmarine Holdings' Management Committee. See footnote 1 above and
"Management--Directors and Executive Officers of the Company." All of the
shares indicated as owned by Mr. Hiram are owned directly by Greenmarine
Holdings and QIP, respectively, and are included because of his affiliation
with Greenmarine Holdings and QIH's relationship with QIP. The reference to
such shares shall not be deemed admission that Mr. Hiram may be deemed to
have beneficial ownership of these shares within the meaning of Rule 13d-3
under the Exchange Act.
(6) Frank V. Sica is a director of the Company. Mr. Sica is a Managing Director
of Soros Fund Management LLC. Soros Fund Management LLC is the principal
investment advisor to QIH. In addition, Mr. Sica is a member of Greenmarine
Holdings' Management Committee. See footnote 1 above and "Management--
Directors and Executive Officers of the Company." All of the shares
indicated as owned by Mr. Sica are owned directly by Greenmarine Holdings
and QIP, respectively, and are included because of his affiliation with
Greenmarine Holdings and QIH's relationship with QIP. The reference to such
shares shall not be deemed admission that Mr. Sica may be deemed to have
beneficial ownership of these shares within the meaning of Rule 13d-3 under
the Exchange Act.
(7) Beneficial ownership of common stock represents 350,300 shares of OMC
common stock issuable upon exercise of options granted to Mr. Jones
pursuant to the Jones Employment Agreement, which options are currently
exercisable. Does not include 94,445 shares of OMC common stock issuable
upon exercise of options granted to Mr. Jones pursuant to the Jones
Employment Agreement, which options will not become exercisable within 60
days of the date of March 15, 2000. See "Employment Contracts and Severance
Agreements."
(8) Of the 159,531 shares of common stock indicated as owned by Mr. Hines,
8,333 were purchased in consideration of $150,000 in cash payments, 11,667
were purchased in consideration of Mr. Hines issuing a promissory note in
favor of the Company in the principal amount of $210,000, 19,531 shares
represent restricted stock granted to Mr. Hines pursuant to PROP (See
"Employment Contracts and Severance Agreements") and 120,000 currently
exercisable options to purchase common stock. Mr. Hines has pledged 20,000
shares to the Company to secure his obligations under the promissory note.
Does not include 60,000 shares of OMC common stock issuable upon exercise
of options granted to Mr. Hines pursuant to the Hines Employment Agreement,
which options will not become exercisable within 60 days of the date of
March 15, 2000. See "Employment Contracts and Severance Agreements."
(9) The common stock includes 20,400,000 shares indicated as owned by Messrs.
Kingsley, Duberstein, Katz, Hiram and Sica as a result of their affiliation
with Greenmarine Holdings, 5,750,000 common stock shares beneficially owned
by QIP and Greenlake II as a result of warrant to purchase and 4,642,856
common stock shares beneficially owned by the same group as a result of
Series A Convertible Preferred Stock. The series A convertible preferred
stock includes 155,446 shares indicated as owned by Messrs. Kingsley and
Duberstein as a result of their affiliation with Greenlake II and 494,554
shares indicated as owned by Messrs. Katz, Hiram and Sica as a result of
their affiliation with QIP.
Item 13. Certain Relationships and Related Transactions
The Company is party to an employment agreement with each of David D. Jones,
Jr., Andrew P. Hines, and Robert B. Gowens, Jr. and to severance agreement with
Robert S. Romano. See "Management--Employment Contracts and Severance
Agreements."
OMC has agreed to reimburse Mr. Jones for his reasonable moving expenses
incurred in connection with his relocation to the vicinity of Chicago,
Illinois. Through December 31, 1999, such expenses have been approximately
$89,000. In addition, on August 14, 1998, OMC loaned to Mr. Jones the amount of
$280,322 for the purchase of property in Lake Forest, Illinois for the
construction of a new residence. During the term of Mr. Jones' employment with
OMC, OMC will pay to Mr. Jones an amount equal to the interest payable on any
such loan, which is being charged a rate of 6.5% per annum. This loan is
evidenced by a promissory note and secured by a second mortgage in favor of
OMC. OMC has agreed to bear the "first-loss" position in the event
84
that Mr. Jones' new residence is sold for an amount less than its original
cost, plus improvements. In the event Mr. Jones' employment with OMC is
terminated for any reason and such new residence has not been sold, within 120
days after such termination, Mr. Jones will be obligated to repay such loan or
repurchase such equity investment, as the case may be, at an appraised value to
be determined by an independent appraiser. OMC has also agreed to reimburse Mr.
Jones for any loss he incurs on the sale of his current residence. During
fiscal year 1999, the Company replaced the second mortgage on the Lake Forest,
Illinois residence for a first mortgage on a residence located in Green Lake,
Wisconsin on the same terms and conditions.
To enable Mr. Jones to exercise at any time during his employment with OMC
all or any portion of the non-qualified option to purchase 238,895 shares of
OMC common stock granted by OMC to Mr. Jones pursuant to the Jones Employment
Agreement, OMC has agreed to loan to Mr. Jones an amount equal to the aggregate
exercise price of the portion of such option being exercised. Any such loan
shall be due and payable in full within 30 days following Mr. Jones'
termination of employment for any reason. In addition, pursuant to the Jones
Employment Agreement, OMC has purchased for the benefit of Mr. Jones and his
heirs a term life insurance policy with a death benefit of $1,500,000.
OMC has agreed to reimburse Mr. Hines until the date he permanently
relocates to the Chicago, Illinois vicinity, Mr. Hines' rental fees for a
temporary residence in the Chicago, Illinois area, including all utilities, and
for round trip coach airfares between New Jersey and Chicago for reasonable
travel between such locations by Mr. Hines. Through December 31, 1999, such
expenses have been approximately $62,400. On December 18, 1998 the Company
purchased Mr. Hines' home located in New Jersey for the amount of $860,000. The
Company issued to Mr. Hines a demand promissory note in the amount of $860,000,
secured by a mortgage, bearing interest at a rate of 6.5%. The note was paid on
March 31, 1999 and the mortgage released. Concurrently with the transfer of the
property, Mr. Hines entered into a lease of the home from the Company through
March 31, 1999. OMC shall have the right to sell such residence and shall
assume all mortgage payment obligations for such residence. OMC will be
entitled to any profits and will suffer any losses that result from the actual
sale price of Mr. Hines' New Jersey residence.
Pursuant to the Hines Employment Agreement, the Company loaned to Mr. Hines
the amount of $210,000 for the sole purpose of purchasing 11,666.66 shares of
common stock of the Company. The loan is evidenced by a promissory note bearing
interest at a rate of 5.81% per annum and secured by a pledge and security
agreement with the shares of OMC common stock issued to Mr. Hines as
collateral.
On December 8, 1998, the Company loaned to Mr. Gowens the amount of $100,000
for the purchase of his principal residence located in the Chicago vicinity,
secured by a second mortgage. The promissory note bears interest at a rate of
6.5% per annum with payments of interest only. The note is payable if (1) Mr.
Gowens leaves the employment of OMC before October 1, 2001 without Good Reason
or as a result of termination for Cause as defined in the Gowens Employment
Agreement; (2) Mr. Gowens is required by OMC to relocate his residence any time
prior to October 1, 2001 or (3) Mr. Gowens dies before October 1, 2001, all
subject to extension as agreed to between Mr. Gowens and OMC. In the event that
Mr. Gowens is required by OMC to relocate his residence prior to October 1,
2001, OMC shall suffer the loss, if any, on the note if the gross sale price of
the mortgaged property or the fair market value of the mortgaged property,
whichever is greater, is greater than the purchase price of the mortgaged
property, plus documented improvements.
85
PART IV
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K
(a) Documents filed as part of this Transition Report on Form 10-K:
1. Report of Independent Public Accountants
2. Financial statement schedules required to be filed by Item 8 of this
Transition Report on Form 10-K:
All 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 set forth below:
Exhibit
Number Description
------- --------------------------------------------------------------------
3.1(a) Restated Certificate of Incorporation of the Company (filed as
Exhibit 3(a) to the Company's Annual Report on Form 10-K/A for the
year ended September 30, 1997 (the "1997 10-K"))*
3.1(a)(1) Amendment to Restated Certificate of Incorporation of the Company,
attached hereto and incorporated herein as Exhibit 3.1(a)(1)
3.2(a) Amended and Restated bylaws of the Company (filed as Exhibit 3(B) to
the 1997 10-K)*
(a)(1) Amended and Restated bylaws of the Company (adopted July 23,
1998)(filed as Exhibit 3.2(a)(1) to the Company's Registration
Statement on Form S-4 (Registration No. 333-57949)(the "Form S-4"))*
4.1 Indenture for the 10 3/4% Senior Notes due 2008, Series A (the "Old
Notes") and 10 3/4% Senior Notes due 2008, Series B (the "Exchange
Notes"), dated as of May 27, 1998 among the Company, the Subsidiary
Guarantors and State Street Bank and Trust Company, as trustee
(filed as Exhibit 4.1 to the Form S-4)*
4.2 Form of Exchange Note (filed as Exhibit 4.2 to the Form S-4)*
4.3 Form of Subsidiary guarantee of the Old Notes and the Exchange Notes
(included in Exhibit 4.1)(filed as Exhibit 4.1 to the Form S-4)*
4.4 Depositary Agreement dated as of May 27, 1998 among the Company,
State Street Bank and Trust Company, as trustee, NationsBank, N.A.,
as administrator agent, and State Street Bank and Trust Company, as
depositary agent (filed as Exhibit 4.6 to the Form S-4)*
4.5 With respect to rights of holders of the Company's 9 1/8% Sinking
Fund Debentures due 2017, reference is made to Exhibit 4(A) to the
Company's Registration Statement Number 33-12759 filed on March 20,
1987*
86
Exhibit
Number Description
------- ----------------------------------------------------------------------
4.6 With respect to rights of holders of the Company's 7% Convertible
Subordinated Debentures due 2002, reference is made to the Company's
Registration Statement Number 33-47354 filed on April 28, 1992*
4.7 With respect to the Supplemental Indenture dated September 30, 1997
related to the Company's 7% Convertible Subordinated Debentures due
2002, reference is made to Exhibit 4(c) to the 1997 10-K*
4.8 Outboard Marine Corporation Certificate of the Powers, Designations,
Preferences and Rights of the Series A Convertible Preferred Stock,
Par Value $.01 Per Share, attached hereto and incorporated herein as
Exhibit 4.8.
4.9 Series A Convertible Preferred Stock and Warrant Purchase Agreement,
attached hereto and incorporated herein as Exhibit 4.9.
4.10 Stockholder Agreement between Outboard Marine Corporation, Quantum
Industrial Partners LDC and Greenlake Holdings II LLC, attached hereto
and incorporated herein as Exhibit 4.10.
4.11 Warrant to Purchase Shares of Common Stock of Outboard Marine
Corporation by Quantum Industrial Partners LDC, attached hereto and
incorporated herein as Exhibit 4.11.
4.12 Warrant to Purchase Shares of Common Stock of Outboard Marine
Corporation by Greenlake Holdings LLC, attached hereto and
incorporated herein as Exhibit 4.12.
4.13 Registration Rights Agreement between Outboard Marine Corporation,
Quantum Industrial Partners LDC, Greenlake Holdings II LLC and
Greenmarine Holdings LLC, attached hereto and incorporated herein as
Exhibit 4.13.
10.1 Severance Agreements between the Company and certain elected and
appointed officers and certain other executives of the Company,
reference is made to Exhibit 99.3 and 99.4 of the Company's Schedule
14D-9 filed with the Securities and Exchange Commission on July 15,
1997*
10.2 Employment Agreement of Mr. Hines dated October 6, 1997, reference is
made to Exhibit 10(J) to the 1997 10-K*
10.3 Amended and Restated Loan and Security Agreement between the Company
and NationsBank of Texas, N.A. dated January 6, 1998, reference is
made to Exhibit 10(E) to the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended December 31, 1997*
10.4 First Amendment to Amended and Restated Loan and Security Agreement
between the Company and NationsBank of Texas, N.A. dated May 21, 1998
(filed as Exhibit 10.5 to the Form S-4)*
10.5 Employment Agreement of Mr. Jones dated March 10, 1998, reference is
made to Exhibit 10(F) to the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended March 31, 1998*
10.6 With respect to the Personal Rewards and Opportunity Program,
reference is made to Exhibit 10(G) to the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended March 31, 1998*
10.7 Employment Agreement of Robert Gowens dated October 1, 1998 (filed as
Exhibit 10.8 to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1998 (the "1998 10-K"))*
10.8 Second Amendment to Amended and Restated Loan and Security Agreement
between the Company and NationsBank of Texas, N.A. dated effective as
of August 31, 1998 (filed as Exhibit 10.9 to the 1998 10-K)*
10.9 Third Amendment to Amended and Restated Loan and Security Agreement
between the Company and NationsBank of Texas, N.A. dated effective as
of December 21, 1998 (filed as Exhibit 10.10 to the 1998 10-K)*
87
Exhibit
Number Description
------- ----------------------------------------------------------------------
10.10 Fourth Amendment to Amended and Restated Loan and Security Agreement
between the Company and NationsBank of Texas, N.A. dated effective as
of February 1, 1999 (filed as Exhibit 10.11 to the Transition Report
on Form 10-K for the transition period ended December 31, 1998)*
10.11 Fifth Amendment to Amended and Restated Loan and Security Agreement
between the Company and NationsBank of Texas, N.A. dated effective as
of February 25, 1999 (filed as Exhibit 10.12 to the Transition Report
on Form 10-K for the transition period December 31, 1998)*
10.12 Promissory Note dated December 4, 1998 with Robert Gowens, Jr. and
Donna Gowens, as Maker, and the Company, as Payee (filed as Exhibit
10.16 to the Transition Report on Form 10-K for the transition period
ended December 31, 1998)*
10.13 Second Mortgage dated December 4, 1998 with Robert Gowens, Jr. and
Donna Gowens, as Mortgagor, and the Company, as Mortgagee (filed as
Exhibit 10.17 to the Transition Report on Form 10-K for the transition
period ended December 31, 1998)*
10.14 Nonqualified Stock Option Agreement dated October 1, 1998 between the
Company and Robert B. Gowens (filed as Exhibit 10.18 to the Transition
Report on Form 10-K for the transition period ended December 31,
1998)*
10.15 Secured Promissory Note dated October 6, 1997 with Andrew Hines, as
Maker, and the Company, as Payee (filed as Exhibit 10.19 to the
Transition Report on Form 10-K for the transition period ended
December 31, 1998)*
10.16 Sixth Amendment to Amended and Restated Loan and Security Agreement
between the Company and Bank of America, N.A., dated effective as of
July 30, 1999 filed as Exhibit 10.16 to the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended June 30, 1999*
10.17 Pledge and Security Agreement dated October 6, 1997 between the
Company and Andrew Hines (filed as Exhibit 10.20 to the Transition
Report on Form 10-K for the transition period ended December 31,
1998)*
10.18 Nonqualified Stock Option Grant Agreement dated October 6, 1997
between the Company and Andrew Hines (filed as Exhibit 10.21 to the
Transition Report on Form 10-K for the transition period ended
December 31, 1998)*
10.19 Incentive Stock Option Grant Agreement dated December 30, 1997 between
the Company and David Jones (filed as Exhibit 10.22 to the Transition
Report on Form 10-K for the transition period ended December 31,
1998)*
10.20 Nonqualified Stock Option Grant Agreement dated March 10, 1998 between
the Company and David Jones (filed as Exhibit 10.23 to the Transition
Report on Form 10-K for the transition period ended December 31,
1998)*
10.21 Nonqualified Stock Option Grant Agreement dated March 10, 1998 between
the Company and David Jones (filed as Exhibit 10.24 to the Transition
Report on Form 10-K for the transition period ended December 31,
1998)*
10.22 Seventh Amendment to Amended and Restated Loan and Security Agreement
between the Company and Bank of America, N.A., dated effective as of
October 27, 1999 (filed as Exhibit 10.22 to the Form 10-Q for the
period ended September 30, 1999)*
10.23 Eighth Amendment to Amended and Restated Loan and Security Agreement
between the Company and Bank of America, N.A., dated effective as of
January 31, 2000, attached hereto and incorporated herein as Exhibit
10.24.
88
Exhibit
Number Description
------- ----------------------------------------------------------------------
10.24 Subordinated Promissory Note dated January 19, 2000 with Outboard
Marine Corporation, as borrower, and Quantum Industrial Partners LDC,
as lender, attached hereto and incorporated herein as Exhibit 10.24.
10.25 Subordinated Promissory Note dated January 19, 2000 with Outboard
Marine Corporation, as borrower, and Greenlake Holdings II LLC, as
lender, attached hereto and incorporated herein as Exhibit 10.25.
11. Computation of per share earnings (loss)
21. Subsidiaries of Registrant, attached hereto and incorporated herein as
Exhibit 21.
27. Financial Data Schedule
- --------
* Incorporated herein by reference.
(b) On February 1, 2000, the Company filed a Report on Form 8-K announcing
the sale of 650,000 shares of Series A Preferred Stock and Warrants to
purchase 5,750,000 shares of the Company's Common Stock.
(c) Exhibits are attached hereto.
(d) None.
89
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: March 30, 2000
/s/ David D. Jones, Jr.
By: _________________________________
David D. Jones, Jr.
President, Chief Executive
Officer and Chairman of the Board
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.
Signature Title Date
--------- ----- ----
/s/ David D. Jones, Jr. President, Chief Executive March 30, 2000
______________________________________ Officer and Chairman of
David D. Jones, Jr. the Board
/s/ Alfred D. Kingsley Vice Chairman of the Board March 30, 2000
______________________________________
Alfred D. Kingsley
/s/ Gary K. Duberstein Director and Assistant March 30, 2000
______________________________________ Secretary of the Board
Gary K. Duberstein
/s/ Richard Katz Vice Chairman of the Board March 30, 2000
______________________________________
Richard Katz
/s/ Ron Hiram Director March 30, 2000
______________________________________
Ron Hiram
/s/ Frank V. Sica Director March 30, 2000
______________________________________
Frank V. Sica
/s/ Andrew P. Hines Executive Vice President March 30, 2000
______________________________________ Strategic Planning and
Andrew P. Hines Business Development and
Director
/s/ Eric T. Martinez Interim Chief Financial March 30, 2000
______________________________________ Officer and Vice
Eric T. Martinez President and Treasurer
(Principal Financial
Officer)
/s/ James B. Pekarek Vice President and March 30, 2000
______________________________________ Controller (Principal
James B. Pekarek Accounting Officer)
90