-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UNes22NRoIcUjXSSkp4s4jpsrVyK7Masdzcue4Se5KxUSWaG0eU7eVwaZAl/C00n OCXwOh/0WRxXh+QxsHS2Kg== 0000059198-97-000014.txt : 19970808 0000059198-97-000014.hdr.sgml : 19970808 ACCESSION NUMBER: 0000059198-97-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970807 SROS: CSE SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AEROQUIP-VICKERS INC CENTRAL INDEX KEY: 0000059198 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS FABRICATED METAL PRODUCTS [3490] IRS NUMBER: 344288310 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-00924 FILM NUMBER: 97653197 BUSINESS ADDRESS: STREET 1: 3000 STRAYER CITY: MAUMEE STATE: OH ZIP: 43537 BUSINESS PHONE: 4198672200 MAIL ADDRESS: STREET 1: 3000 STRAYER CITY: MAUMEE STATE: OH ZIP: 43537 FORMER COMPANY: FORMER CONFORMED NAME: TRINOVA CORP DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: LIBBEY OWENS FORD CO DATE OF NAME CHANGE: 19860814 FORMER COMPANY: FORMER CONFORMED NAME: LIBBEY OWENS FORD GLASS CO DATE OF NAME CHANGE: 19681004 10-Q 1 FORM 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1997 Commission file number 1-924 Aeroquip-Vickers, Inc. (Exact name of registrant as specified in its charter) Ohio 34-4288310 (State of Incorporation) (I.R.S. Employer Identification No.) 3000 Strayer, Maumee, OH 43537-0050 (Address of principal executive office) Registrant's telephone number, including area code: (419) 867-2200 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, and (2) has been subject to such filing requirements for the past 90 days. Yes X No The number of Common Shares, $5 Par Value, outstanding as of July 25, 1997, was 28,116,745. This document, including exhibits, contains 21 pages. The Exhibit Index is located on page 16. SECURITIES AND EXCHANGE COMMISSION FORM 10-Q FOR QUARTER ENDED JUNE 30, 1997 INDEX TO INFORMATION IN REPORT Aeroquip-Vickers, Inc. Page Number PART I - FINANCIAL INFORMATION Item 1. Financial Statements Statement of Financial Position - June 30, 1997 and December 31, 1996 3 Condensed Statement of Income - Three Months and Six Months Ended June 30, 1997 and 1996 4 Condensed Statement of Cash Flows - Six Months Ended June 30, 1997 and 1996 5 Notes to Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 16 SIGNATURES 17 EXHIBIT INDEX 18 EXHIBIT 11 - STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS 19 EXHIBIT 12 - STATEMENT RE: COMPUTATION OF RATIOS 20 EXHIBIT 27 - FINANCIAL DATA SCHEDULE 21 -2- PART I - FINANCIAL INFORMATION Item 1. - Financial Statements STATEMENT OF FINANCIAL POSITION Aeroquip-Vickers, Inc. (Dollars in thousands, except share data) (Unaudited)
June 30 December 31 1997 1996 ---------- ---------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 26,718 $ 23,934 Receivables 373,311 342,712 Inventories: In-process and finished products 205,987 202,214 Raw materials and manufacturing supplies 70,286 59,955 ---------- ---------- 276,273 262,169 Other current assets 56,511 45,272 ---------- ---------- TOTAL CURRENT ASSETS 732,813 674,087 Plants and properties 984,471 997,350 Less accumulated depreciation 543,468 559,867 ---------- ---------- 441,003 437,483 Goodwill 108,207 110,005 Other assets 79,261 67,912 ---------- ---------- TOTAL ASSETS $1,361,284 $1,289,487 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Notes payable $ 36,950 $ 31,819 Accounts payable 127,023 106,205 Income taxes 33,243 21,150 Other current liabilities 225,434 188,973 Current maturities of long-term debt 51,420 76,809 ---------- ---------- TOTAL CURRENT LIABILITIES 474,070 424,956 Long-term debt 257,763 257,727 Postretirement benefits other than pensions 121,960 121,793 Other liabilities 39,466 38,595 SHAREHOLDERS' EQUITY Common stock - par value $5 a share Authorized - 100,000,000 shares Outstanding - 28,041,622 and 27,912,077 shares, respectively (after deducting 6,168,274 and 6,297,819 shares, respectively, in treasury) 140,214 139,559 Additional paid-in capital 31,273 20,675 Retained earnings 324,953 307,398 Currency translation adjustments (28,415) (21,216) ---------- ---------- TOTAL SHAREHOLDERS' EQUITY 468,025 446,416 ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,361,284 $1,289,487 ========== ========== The Notes to Financial Statements are an integral part of this statement.
-3- CONDENSED STATEMENT OF INCOME Aeroquip-Vickers, Inc. (In thousands, except per share data) (Unaudited)
Three Months Ended Six Months Ended June 30 June 30 ------------------------ ------------------------ 1997 1996 1997 1996 ---------- ---------- ---------- ---------- Net sales $ 556,278 $ 517,924 $1,094,704 $1,030,037 Cost of products sold 409,241 384,015 815,192 769,871 ---------- ---------- ---------- ---------- MANUFACTURING INCOME 147,037 133,909 279,512 260,166 Selling and general administrative expenses 68,027 64,308 133,974 130,909 Engineering, research and development expenses 17,432 17,857 35,262 37,385 Special charge -- -- 30,000 -- ---------- ---------- ---------- ---------- OPERATING INCOME 61,578 51,744 80,276 91,872 Interest expense (6,994) (6,842) (14,365) (13,127) Other income (expenses) - net (3,654) 14,258 (8,387) 10,930 ---------- ---------- ---------- ---------- INCOME BEFORE INCOME TAXES 50,930 59,160 57,524 89,675 Income taxes 17,300 26,100 18,200 32,200 ---------- ---------- ---------- ---------- NET INCOME $ 33,630 $ 33,060 $ 39,324 $ 57,475 ========== ========== ========== ========== NET INCOME PER SHARE $ 1.15 $ 1.11 $ 1.37 $ 1.94 ========== ========== ========== ========== Cash dividends per common share $ .20 $ .20 $ .40 $ .40 ========== ========== ========== ========== Average shares outstanding 30,020 30,528 30,026 30,629 ========== ========== ========== ========== The Notes to Financial Statements are an integral part of this statement.
-4- CONDENSED STATEMENT OF CASH FLOWS Aeroquip-Vickers, Inc. (In thousands) (Unaudited)
Six Months Ended June 30 -------------------- 1997 1996 --------- --------- OPERATING ACTIVITIES Net income $ 39,324 $ 57,475 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 33,510 34,014 Gain on sale of affiliates - (17,300) Special charge 30,000 -- Changes in certain components of working capital other than debt (21,715) (47,755) Dividends received from affiliates -- 9,896 Other (8,402) (2,512) ---------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES 72,717 33,818 INVESTING ACTIVITIES Capital expenditures (60,707) (40,125) Businesses acquired - (6,227) Sale of businesses and affiliates 26,785 40,216 Other (2,044) (21) ---------- ---------- NET CASH USED BY INVESTING ACTIVITIES (35,966) (6,157) FINANCING ACTIVITIES Net increase (decrease) in short- and long-term debt (22,653) 122 Cash dividends (11,189) (11,468) Purchase of common stock (12,107) (13,825) Stock issuance under stock plans 12,780 2,157 Other (452) (2,271)) ---------- ---------- NET CASH USED BY FINANCING ACTIVITIES (33,621) (25,285) Effect of exchange rate changes on cash (346) (24) ---------- ---------- INCREASE IN CASH AND CASH EQUIVALENTS 2,784 2,352 Cash and cash equivalents at beginning of period 23,934 16,186 ---------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 26,718 $ 18,538 ========== ========== The Notes to Financial Statements are an integral part of this statement.
-5- NOTES TO FINANCIAL STATEMENTS Aeroquip-Vickers, Inc. Note 1 - Basis of Presentation The accompanying financial statements for the interim periods are unaudited. In the opinion of management, all adjustments necessary for a fair presentation of the results for the interim periods included herein have been made. Operating results for the six months ended June 30, 1997, are not necessarily indicative of the results that may be expected for the year ending December 31, 1997. It is suggested that these financial statements be read in conjunction with the audited 1996 financial statements and notes thereto included in Aeroquip-Vickers, Inc.'s most recent annual report. Note 2 - Special Charge In the 1997 first quarter, the Company announced plans to exit its automotive interior plastics business and recorded a special charge of $30 million ($18.5 million net, or $.62 per share for the 1997 six-month period), comprised principally of severance and lease termination costs. As of June 30, 1997, the Company has sold or closed five facilities that had combined 1996 sales of approximately $65 million. The Company is in various stages of negotiation for the sale of other automotive facilities which also had combined 1996 sales of approximately $65 million. Note 3 - Gain on Sale of Unconsolidated Affiliates In the 1996 second quarter, the Company sold its 35% interest in Yokohama Aeroquip K.K. and its 49% interest in Aeroquip Mexicana S.A. The two transactions resulted in a net combined pretax gain of $17.3 million ($5 million net, or $.16 per share). The combined pretax gain included $6.4 million of net gains previously deferred in the currency translation component of equity. Note 4 - Income Taxes The income tax provision for the 1997 six-month period includes a credit of $11.5 million that was recorded in the first quarter related to the special charge for costs to exit the automotive interior plastics business. The effective income tax rate for the 1997 second quarter and six-month period exclusive of this item was 33.9%. The income tax provision for the 1996 six- month period includes a credit of $4 million recorded in the first quarter for settlement of claims for prior years' research and development credits. The 1996 income tax provision also includes income taxes on $12.3 million resulting from the gain on sale of unconsolidated affiliates. The effective income tax rate for the 1996 second quarter and six-month period exclusive of these items was 33%. -6- NOTES TO FINANCIAL STATEMENTS Note 5 - Redemption of 6% Convertible Subordinated Debentures On June 27, 1997, the Company issued a notice calling for redemption of its 6% Convertible Subordinated Debentures on July 28, 1997. The Debentures were due to mature on October 15, 2002. The Debentures were convertible into common shares of Aeroquip-Vickers, Inc. until the redemption date at a conversion price of $52.50 per share. Prior to the redemption date, Debentures in the amount of $3.7 million were submitted for conversion into 70,950 shares of common stock. The redemption price of the remaining Debentures outstanding in the amount of $96.3 million, was equal to 100.6%. Because the company used $50 million of its available borrowing capacity under its Medium Term Note Program to redeem the Debentures, Debentures in the amount of $50 million were classified as long-term debt at June 30, 1997. The pretax loss from redemption of the Debentures amounting to $1.5 million will be recognized in the 1997 third quarter. Note 6 - Net Income per Share Net income per share (EPS) is computed using the average number of shares outstanding, including common stock equivalents. The assumed conversion of the Company's 6% convertible debentures was included in average shares outstanding, increasing the average number of shares outstanding by 1,904,762 shares. For purposes of computing net income per share, net income was increased for the after-tax equivalent of interest expense on the 6% convertible debentures. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128 "Earnings per Share" (FAS 128) which must be adopted on December 31, 1997. At that time, the Company will be required to change the method currently used to compute EPS and restate all prior periods. Pro forma basic and diluted EPS computed in accordance with FAS 128 are as follows: 1997 1996 Second Quarter: Basic EPS $1.20 $1.16 Diluted EPS 1.15 1.11 Six Months Ended June 30: Basic EPS 1.41 2.01 Diluted EPS 1.37 1.94 -7- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations FINANCIAL REVIEW AND ANALYSIS OF OPERATIONS Analysis of Operations Second Quarter 1997 Compared with Second Quarter 1996 The following data provide highlights for the 1997 second quarter compared with the 1996 second quarter. Percent (dollars in thousands, Second Quarter Increase except per share data) 1997 1996 (Decrease) CONSOLIDATED Net sales $ 556,278 $ 517,924 7.4% Manufacturing income 147,037 133,909 9.8 Manufacturing margin (%) 26.4 25.9 Operating income 61,578 51,744 19.0 Operating margin (%) 11.1 10.0 Net income 33,630 33,060(a) 1.7 Net income per share 1.15 1.11(a) 3.6 INDUSTRIAL Net sales 317,455 292,626 8.5 Operating income 32,587 32,093 1.5 Operating margin (%) 10.3 11.0 Order intake 320,747 294,512 8.9 Order backlog at June 30 216,138 201,024 7.5 AUTOMOTIVE Net sales 117,278 129,876 (9.7) Operating income 13,141 11,941 10.0 Operating margin (%) 11.2 9.2 AEROSPACE Net sales 121,545 95,423 27.4 Operating income 21,629 13,523 59.9 Operating margin (%) 17.8 14.2 Order intake 138,360 108,847 27.1 Order backlog at June 30 366,112 297,880 22.9 (a) Includes a net gain from sale of affiliates amounting to $17.3 million ($5 million net, or $.16 per share). Consolidated net sales for the 1997 second quarter increased $38.4 million, or 7.4%, over the 1996 second quarter. Sales for the industrial and aerospace segments increased 8.5% and 27.4%, respectively, while sales for the automotive segment declined 9.7% from the 1996 second quarter because of the sale or closure of certain plants as discussed later. Companies acquired in 1996 generated second-quarter 1997 sales, principally in the aerospace segment, of $15.1 million. U.S. sales increased $25.4 million, and non-U.S. sales increased $13 million. Changes in currency exchange rates reduced non- U.S. sales by $7 million, principally in the automotive segment. -8- Analysis of Operations - Continued Second-quarter 1997 industrial sales grew to a new quarterly record of $317.5 million and were $24.8 million, or 8.5%, greater than in the 1996 second quarter. U.S. industrial sales increased $19.8 million, or 10.2%, and industrial sales in Asia-Pacific, Brazil and Mexico collectively increased $6.8 million, or 22.5%, over the 1996 second quarter. Weak demand contributed to a decline in industrial sales in Europe totaling $1.8 million, or 2.7%, from the 1996 second quarter. Second-quarter 1997 industrial order intake of $320.7 million set a new quarterly record, with increases over a year ago in the U.S., Europe and Asia-Pacific. Order backlog increased $15.1 million, or 7.5%, as significant increases in backlog in the U.S. and Asia-Pacific were partially offset by a reduction in Europe. Automotive sales declined $12.6 million, or 9.7%, from the 1996 second quarter. The sale or closing during 1997 of five automotive interior plastics plants nearly accounted for the U.S. automotive sales decline of $17.2 million, or 32.7%. European automotive sales increased $4.6 million, or 6%, net of the adverse effects of changes in currency exchange rates totaling nearly $5.4 million. The growth in European automotive sales reflects continuing strong demand for fluid connectors for use in automotive air conditioning and power steering applications. Aerospace sales of $121.5 million represented a new quarterly record and were $26.1 million, or 27.4%, higher than in the 1996 second quarter. Nearly $11 million of this increase was due to a 1996 acquisition. Sales were up 28.1% in the U.S. and 23.5% in Europe, reflecting positive increases in sales to commercial OEM and aftermarket customers and to the military aftermarket. Order intake of $138.4 million was also an all-time quarterly record, representing an increase of $29.5 million, or 27.1%, over the prior year. All of the new order increase was in the U.S. Order backlog of $366.1 million represented an increase of $68.2 million, or 22.9%, over 1996. Consolidated manufacturing income of $147 million was also a quarterly record, increasing $13.1 million, or 9.8%, over the 1996 second quarter. Manufacturing margin of 26.4% in the 1997 second quarter improved over the 25.9% margin realized in the 1996 second quarter. Manufacturing income for the industrial segment increased over the comparable prior-year period, principally due to higher sales in the U.S., Asia-Pacific and Brazil. Manufacturing margin for the industrial operations declined, however, due to the general weakness of the European economy and an unfavorable product mix in the U.S. Lower sales and the adverse effects of changes in currency exchange rates reduced manufacturing income for the automotive segment slightly from that of the 1996 second quarter, but manufacturing margin improved 1.4 percentage points. The automotive segment margin improvement is primarily attributable to the divestiture of certain interior automotive plastics facilities. Manufacturing income and margin for the aerospace segment improved over the 1996 second quarter due principally to higher sales and continued improvements in manufacturing processes. -9- Analysis of Operations - Continued Selling and general administrative and engineering, research and development expenses were $3.3 million higher in the 1997 second quarter than in the comparable 1996 period, but as a percent of sales were 15.4% in 1997, compared with 15.9% in 1996. Selling and general administrative expenses were reduced sharply in Europe from 1996 through organizational realignments and continuing process improvements. Such costs, however, were higher in the U.S. and the Asia-Pacific region in the 1997 second quarter, primarily due to increased levels of business activity and the expansion of operations. Second-quarter 1997 engineering, research and development costs were down slightly from the prior year. In the 1996 second quarter, the Company sold its 35% interest in Yokohama Aeroquip K.K. and its 49% interest in Aeroquip Mexicana S.A. The two transactions resulted in a net combined pretax gain of $17.3 million, which was reported in Other Income (Expenses) - Net in the Statement of Income. The combined pretax gain from sales of unconsolidated affiliates included net translation gains of $6.4 million previously deferred in the currency translation component of equity. Interest expense for the 1997 second quarter amounted to $7 million, compared with $6.8 million in the 1996 second quarter. Net income for the 1997 second quarter amounted to $33.6 million, or $1.15 per share, compared with net income of $33.1 million, or $1.11 per share, in the 1996 second quarter. Net income for the 1996 second quarter included an after-tax gain of $5 million, or $.16 per share, from the sales of unconsolidated affiliates. The effective income tax rate for the 1997 second quarter was 33.9% compared with 33%, exclusive of the tax associated with the gain on sales of unconsolidated affiliates, in the 1996 second quarter. -10- Analysis of Operations - Continued Six Months 1997 Compared with Six Months 1996 The following data provide highlights for the 1997 first six months compared with the 1996 first six months. Six Months Ended Percent (dollars in thousands, June 30 Increase except per share data) 1997 1996 (Decrease) CONSOLIDATED Net sales $1,094,704 $1,030,037 6.3% Manufacturing income 279,512 260,166 7.4 Manufacturing margin (%) 25.5 25.3 Operating income 80,276(a) 91,872 (12.6) Operating margin (%) 7.3(a) 8.9 Net income 39,324(a) 57,475(b) (31.6) Net income per share 1.37(a) 1.94(b) (29.4) INDUSTRIAL Net sales 609,294 584,531 4.2 Operating income 57,192 56,672 .9 Operating margin (%) 9.4 9.7 Order intake 638,342 592,638 7.7 AUTOMOTIVE Net sales 245,208 253,965 (3.4) Operating income (loss) (5,370)(a) 20,726 Operating margin (%) (2.2)(a) 8.2 AEROSPACE & DEFENSE Net sales 240,202 191,542 25.4 Operating income 40,260 25,771 56.2 Operating margin (%) 16.8 13.5 Order intake 267,503 224,622 19.1 (a) After deducting a special charge of $30 million ($18.5 million net, or $.62 per share). (b) Includes a net gain from sale of affiliates amounting to $17.3 million ($5 million net, or $.16 per share) and an income tax credit of $4 million, or $.13 per share. Consolidated net sales of $1.1 billion for the first six months of 1997 were a record for the Company and were $64.7 million, or 6.3%, greater than in the comparable 1996 period. Sales for the industrial and aerospace segments increased 4.2% and 25.4%, respectively, but automotive sales declined 3.4% because of the sale or closure of certain plants as discussed later. Companies acquired in late 1996 generated six-month 1997 sales, principally in the aerospace segment, of $28.9 million. Including the results of acquisitions, U.S. sales increased $42.6 million, or 6.5%, and non-U.S. sales increased $22.1 million, or 5.9%. Changes in currency exchange rates reduced non-U.S. sales by more than $13 million, principally in the automotive segment. -11- Analysis of Operations - Continued Industrial sales for the first six months of 1997 amounting to $609.3 million were also a record and were $24.8 million, or 4.2%, greater than during the comparable 1996 period. U.S. industrial sales increased $19.8 million, or 5.1%, Asia-Pacific sales increased $8.9 million, or 22%, and industrial sales in Brazil increased $1.8 million, or 12.4%. European industrial sales declined $8.1 million, or 5.8% Automotive sales declined $8.8 million, or 3.4%, from the first six months of 1996 after the adverse effects of changes in currency exchange rates amounting to nearly $11 million. U.S. automotive sales were $19.9 million, or 18.9%, lower than in the comparable 1996 period. The sale or closing during the first six months of 1997 of five automotive interior plastics facilities more than accounted for the decline in U.S. automotive sales. European automotive sales increased $11.1 million, net of the effects of changes in currency exchange rates, over the 1996 six-month period. Aerospace sales grew $48.7 million, or 25.4%, over the comparable 1996 period to a first-half record of $240.2 million. Sales were up 26.3% in the U.S. and 20.6% in Europe. These worldwide sales increases resulted from continued strong demand for commercial aerospace OEM and aftermarket products. Consolidated manufacturing income increased $19.3 million, or 7.4%, over the first six months of 1996, and manufacturing margin increased to 25.5%. Manufacturing income and margin for the industrial segment declined from the prior year primarily as a result of the general weakness of the European economy and changes in sales mix. Manufacturing income and margin for the automotive segment improved modestly primarily as a result of the sale or closing of certain automotive interior plastics facilities. Manufacturing income and margin for the aerospace segment increased significantly over the prior year six-month period principally because of strong sales growth and continued process improvements. Selling and general administrative and engineering, research and development expenses were nearly $1 million higher than in the comparable 1996 six-month period, but as a percent of sales were 15.5% in 1997 compared with 16.3% in 1996. Selling and general administrative expenses were reduced sharply in Europe from 1996 through organizational realignments and continuing process improvements. Such costs, however, were higher in the U.S. and the Asia- Pacific region in the 1997 six-month period. Engineering, research and development costs were down $2.1 million from the prior year, driven by more focused program direction. In the 1997 first quarter, the Company announced its plans to exit the automotive interior plastics business and recorded a special charge of $30 million, comprised principally of severance and lease termination costs. A significant portion of this charge related to exiting operations in Germany. During the first six months of 1997, the Company sold or closed five facilities that had combined 1996 annual sales of approximately $65 million. Subsequent to June 30, 1997, the Company disposed of another facility that had 1996 sales of $15 million, and announced that an additional facility will be closed during the 1997 third quarter that also had 1996 sales of $15 million. Shipments will continue at reduced levels from an inventory bank at one of -12- Analysis of Operations - Continued these facilities through the remainder of the year. Negotiations continue for the sale of a remaining facility that had 1996 sales of more than $35 million. Following the sale or closure of these facilities, which is expected to be substantially completed during 1997, fluid connectors will be the Company's primary automotive focus. Automotive fluid connectors (hose and the attached fittings), used for conveying fluids in air conditioning, power steering and oil cooling systems in cars, light trucks, vans and sport utility vehicles, is a business generated from Aeroquip's industrial fluid power expertise. On April 11, 1997, the Company announced that it entered into a joint-venture and global product and technology alliance with Komatsu Ltd., a world leader in the construction equipment market. This agreement is intended to extend the Company's product offering into the Japanese mobile equipment market and to provide opportunities for the development of new products for mobile equipment customers. The Company expects that this agreement will also enable the Company to sell the full range of hydraulic products of Komatsu and Komatsu Zenoah under the Vickers brand name on a worldwide basis through the Vickers global sales network. The Company also entered into a joint-venture agreement with Sturman Industries for development of integrated digital electrohydraulic systems. Interest expense for the 1997 six-month period was $1.2 million higher than in the comparable 1996 period and was attributable to a higher interest rate on long-term debt that was issued in the 1996 second quarter. Other Income (Expenses) - Net for the 1996 six-month period included a gain of $17.3 million resulting from the sales of investments in unconsolidated affiliates. Net income for the first six months of 1997 amounted to $39.3 million, or $1.37 per share, and is after deducting a special charge amounting to $18.5 million net of tax, or $.62 per share, recorded in the first quarter to exit the automotive interior plastics business . This compares with net income for the six months ended June 30, 1996, of $57.5 million, or $1.94 per share, which included income from special items net of tax totaling $9 million, or $.29 per share. The income tax provision for the 1997 six-month period included a credit of $11.5 million that was recorded in the first quarter related to the special charge for costs to exit the automotive interior plastics business. The effective income tax rate for the 1997 six-month period exclusive of this item was 33.9%. The income tax provision for the 1996 six-month period included a credit of $4 million recorded in the first quarter for settlement of claims for prior years' research and development credits. The 1996 income tax provision also included income taxes of $12.3 million resulting from the gain on sales of unconsolidated affiliates. The effective income tax rate for the 1996 six-month period exclusive of these items was 33% In the first half of 1997, the Financial Accounting Standards Board issued final statements that change the method for calculating and reporting earnings per share (EPS), that require the disclosure of total comprehensive income, and that change the method for determining and reporting business segment information. The Company will adopt FAS 128, "Earnings per Share," on -13- Analysis of Operations - Continued December 31, 1997, and quarterly EPS amounts will be restated as specified by the Statement. Pro forma EPS for the three- and six-month periods ended June 30, 1997 and 1996, calculated in accordance with provisions of this Statement, are provided in the Notes to Financial Statements. The Company has not determined when it will adopt the disclosure requirements of FAS 130, "Reporting Comprehensive Income," and FAS 131, "Disclosures about Segments of an Enterprise and Related Information." Historically, the Company's only component of other comprehensive income is foreign currency items. Liquidity, Working Capital and Capital Investment Cash provided by operating activities for the first six months of 1997 amounted to $72.7 million, compared with $33.8 million for the comparable 1996 period. Working capital requirements for 1997 of $21.7 million included $37.8 million to finance a higher level of receivables and $18.5 million for growth in inventories. These cash requirements were partially offset by the effects of increases in payables and taxes. Working capital requirements for the first six months of 1996 totaling $47.8 million included $62.3 million to finance an increase in receivables. The 1996 receivables increase reflected the growth in receivable balances to normal operating levels for a company acquired in late 1995 for which receivables were not part of the assets purchased. Inventory reductions during the first six months of 1996 provided cash of $12.7 million. Cash provided by operating activities in 1996 included dividends received from affiliates amounting to $9.9 million. During the first six months of 1997, the Company received $26.8 million from sales of certain automotive interior plastics facilities. Proceeds from sales of the remaining automotive interior plastics facilities are projected to be received during the 1997 third and fourth quarters. During the first half of 1996, the Company received $40.2 million from the sales of investments in two unconsolidated affiliates. During the first six months of 1997, the Company purchased 306,500 shares of its common stock at a cost of $12.1 million. At its April 17, 1997, meeting, the Company's Board of Directors authorized a new program to purchase up to $100 million of the Company's outstanding common stock. As of June 30, 1997, $90.4 million of additional common stock may be purchased under this authorization. The Company may make further purchases during 1997, but is not committed to purchase a specific number of shares. Dividend payments in 1997 were $.20 per share in each of the first two quarters, totaling $11.2 million for the six-month period. Dividends declared for the 1997 third quarter to be paid in September were also $.20 per share. The debt-to-capitalization ratio (debt divided by debt plus equity) was 42.5% at June 30, 1997, compared with 45.1% at December 31, 1996. -14- Liquidity, Working Capital and Capital Investment - Continued On April 18, 1997, the Company established a $150 million Medium Term Note Program, committing to this program the remaining amount available under an existing shelf registration statement filed in 1996. Upon issuance, each series of notes may mature nine months or more from date of issue and may have either a fixed or floating rate of interest. The remaining borrowing capacity under this program at June 30, 1997, was $100 million. The Company also maintains a revolving credit agreement with a consortium of U.S. and non-U.S. banks expiring in 2001 under which the Company may borrow up to $175 million. The agreement is intended to support the Company's commercial paper borrowings and, to the extent not so utilized, provide domestic borrowing capacity. The remaining borrowing capacity under this agreement at June 30, 1997, was $143.5 million. In addition to this agreement, the Company has uncommitted arrangements with various banks to provide short-term financing as necessary. On June 27, 1997, the Company issued a notice calling for redemption of its 6% Convertible Subordinated Debentures on July 28, 1997. The Debentures were due to mature on October 15, 2002. The Debentures were convertible into common shares of Aeroquip-Vickers, Inc. through the redemption date at a conversion price of $52.50 per share. Prior to the redemption date, Debentures in the amount of $3.7 million were submitted for conversion into 70,950 shares of common stock. The redemption price of the remaining Debentures, outstanding in the amount of $96.3 million, was equal to 100.6%. The Company used $50 million of available borrowing capacity under its Medium Term Note Program and short-term borrowings to redeem the Debentures. The pretax loss from redemption of the Debentures amounting to $1.5 million will be recognized in the 1997 third quarter. The Company expects that cash flow from operating activities and remaining available credit lines will be sufficient to meet normal operating requirements, including payment of debt obligations maturing in the near term, and planned capital expenditures. -15- PART II - OTHER INFORMATION Aeroquip-Vickers, Inc. Item 6. Exhibits and Reports on Form 8-K (a) The following exhibits are filed hereunder as part of Part I: Exhibit (11) Statement re: Computation of Per Share Earnings Exhibit (12) Statement re: Computation of Ratios The following exhibit is filed as part of Part II: Exhibit (27) Financial Data Schedule (b) On April 25, 1997, the Company filed a report on Form 8-K reporting the commencement of its medium-term note program and its name change from TRINOVA Corporation to Aeroquip-Vickers, Inc. -16- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Aeroquip-Vickers, Inc. By /S/ DARRYL F. ALLEN ----------------------------------------- August 7, 1997 Darryl F. Allen Chairman, President and Chief Executive Officer (Principal Executive Officer) By /S/ DAVID M. RISLEY August 7, 1997 ----------------------------------------- David M. Risley Vice President - Finance and Chief Financial Officer (Principal Financial Officer) -17- EX-99 2 EXHIBIT INDEX EXHIBIT INDEX Exhibit No. Page No. (11) Statement re: Computation of Per Share Earnings 19 (12) Statement re: Computation of Ratios 20 (27) Financial Data Schedule 21 -18- EX-11 3 EXHIBIT 11 EXHIBIT 11 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS Aeroquip-Vickers, Inc. (In thousands, except per share data)
Three Months Ended Six Months Ended June 30 June 30 ------------------ ------------------- 1997 1996 1997 1996 ---- ---- ---- ---- AVERAGE SHARES OF COMMON STOCK AND COMMON STOCK EQUIVALENTS OUTSTANDING (NOTE A) Average shares outstanding 27,948 28,551 27,966 28,652 Assumed conversion of the 6% convertible debentures 1,905 1,905 1,905 1,905 Net effect of dilutive stock options based upon treasury stock method using average market price 167 72 155 72 --------- ---------- -------------------- Average shares of common stock and common stock equivalents outstanding 30,020 30,528 30,026 30,629 ========== ========== ==================== INCOME ATTRIBUTABLE TO COMMON STOCK (NOTE A) Net income $ 33,630 $ 33,060 $ 39,324$ 57,475 After-tax equivalent of interest expense on the 6% convertible debentures 930 930 1,860 1,860 ---------- ---------- -------------------- Income attributable to common stock$ 34,560 $ 33,990 $ 41,184$ 59,335 ========== ========== ==================== Net Income per Share $ 1.15 $ 1.11 $ 1.37$ 1.94 ========== ========== ==================== Note A - Net income per share is computed using the average number of common shares outstanding, including common stock equivalents. The assumed conversion of the Company's 6% convertible debentures was included in average shares outstanding, increasing the average number of shares outstanding by 1,904,762 shares. For purposes of computing net income per share, net income was increased for the after-tax equivalent of interest expense on the 6% convertible debentures.
-19- EX-12 4 EXHIBIT 12 EXHIBIT 12 STATEMENT RE: COMPUTATION OF RATIOS Aeroquip-Vickers, Inc. (In thousands, except per share data)
Six Months Ended Year Ended December 31 June 30, ---------------------------------------- 1997 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- ---- RATIO OF EARNINGS TO FIXED CHARGES Income before income taxes and cumulative effect of accounting change $ 57,524 $153,421 $128,196 $101,255 $ 17,111 $ 24,042 Dividends received, net of equity in earnings (loss) of unconsolidated affiliates 1,305 9,961 (3,704) 1,213 1 (1,931) Fixed charges 23,112 41,712 31,762 30,249 33,370 34,623 -------- -------- -------- -------- -------- --------- Income before cumulative effect of accounting change for computation purposes $ 81,941 $205,094 $156,254 $132,717 $ 50,482 $ 56,734 ======== ======== ======== ======== ======== ========= FIXED CHARGES Interest expense, including interest related to corporate owned life insurance $ 19,762 $ 34,963 $ 24,477 $ 22,582 $ 25,516 $ 26,313 Portion of rent expense representing interest 3,078 6,288 6,903 7,303 7,490 7,987 Amortization of debt expense and debt discount 272 461 382 364 364 323 -------- -------- -------- -------- -------- -------- Total fixed charges $ 23,112 $ 41,712 $ 31,762 $ 30,249 $ 33,370 $ 34,623 ======== ======== ======== ======== ======== ======== Ratio of Earnings to Fixed Charges 3.5x 4.9x 4.9x 4.4x 1.5x 1.6x ======== ======== ======== ======== ======== ======== For the purpose of computing the ratio of earnings to fixed charges, "earnings" consist of income before income taxes and cumulative effect of accounting change, plus fixed charges and dividends received, net of equity in earnings (loss) of unconsolidated affiliates. Fixed charges consists of interest expense, the portion of rent expense representing interest and amortization of debt discount.
-20- EX-27 5 FINANCIAL DATA SCHEDULE
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE STATEMENT OF FINANCIAL POSITION AND THE CONDENSED STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1997 JUN-30-1997 26,718 0 388,062 14,751 276,273 732,813 984,471 543,468 1,361,284 474,070 257,763 140,214 0 0 327,811 1,361,284 1,094,704 1,094,704 815,192 815,192 30,000 0 14,365 57,524 18,200 39,324 0 0 0 39,324 1.37 1.37
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