-----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, UOym/Wv+iHxBivKOj9IKpqwtfNdiadfbrDt86LY3figE1RcptqlJIG0S1l3PTNcJ BtFRnY8YPiU/LE25nNzbuA== 0000059198-98-000014.txt : 19980511 0000059198-98-000014.hdr.sgml : 19980511 ACCESSION NUMBER: 0000059198-98-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980508 SROS: CSE SROS: NYSE 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: SEC FILE NUMBER: 001-00924 FILM NUMBER: 98614002 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 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 March 31, 1998 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 April 24, 1998, was 28,202,478. This document, including exhibits, contains 18 pages. The Exhibit Index is located on page 16. SECURITIES AND EXCHANGE COMMISSION FORM 10-Q FOR QUARTER ENDED MARCH 31, 1998 INDEX TO INFORMATION IN REPORT Aeroquip-Vickers, Inc. Page Number PART I - FINANCIAL INFORMATION Item 1. Financial Statements Statement of Financial Position - March 31, 1998 and December 31, 1997 3 Condensed Statement of Income - Three Months Ended March 31, 1998 and 1997 4 Condensed Statement of Cash Flows - Three Months Ended March 31, 1998 and 1997 5 Notes to Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 13 Item 6. Exhibits and Reports on Form 8-K 14 SIGNATURES 15 EXHIBIT INDEX 16 EXHIBIT (10)-1 - Aeroquip-Vickers, Inc. Directors' Incorporated Retirement Plan, as amended, filed as herein Exhibit (4)-c to Form S-8 filed on by reference May 7, 1998 EXHIBIT 12 - Statement re: Computation of Ratios 17 EXHIBIT 27 - Financial Data Schedule 18 -2- PART I - FINANCIAL INFORMATION Item 1. - Financial Statements
STATEMENT OF FINANCIAL POSITION Aeroquip-Vickers, Inc. (Dollars in thousands, except share data) (Unaudited) March 31 December 31 1998 1997 ------------ ------------ ASSETS CURRENT ASSETS Cash and cash equivalents $ 27,889 $ 18,736 Receivables 385,813 348,822 Inventories: In-process and finished products 238,974 239,800 Raw materials and manufacturing supplies 64,243 54,967 ---------- ---------- 303,217 294,767 Other current assets 47,046 49,323 ---------- ---------- TOTAL CURRENT ASSETS 763,965 711,648 Plants and properties 1,021,752 993,002 Less accumulated depreciation 530,430 518,860 ---------- ---------- 491,322 474,142 Goodwill 115,401 111,905 Other assets 84,595 78,901 ---------- ---------- TOTAL ASSETS $1,455,283 $1,376,596 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Notes payable $ 142,232 $ 84,044 Accounts payable 123,337 111,800 Income taxes 41,382 30,496 Other current liabilities 189,159 212,800 Current maturities of long-term debt 1,541 1,857 ---------- ---------- TOTAL CURRENT LIABILITIES 497,651 440,997 Long-term debt 247,388 256,707 Postretirement benefits other than pensions 122,278 122,272 Other liabilities 49,053 46,421 SHAREHOLDERS' EQUITY Common stock - par value $5 a share Authorized - 100,000,000 shares Outstanding - 28,166,044 and 28,064,981 shares, respectively(after deducting 6,114,802 and 6,215,865 shares, respectively, in treasury) 140,830 140,325 Additional paid-in capital 43,851 41,288 Retained earnings 391,439 366,676 Accumulated other comprehensive income - currency translation adjustments (37,207) (38,090) ---------- ---------- TOTAL SHAREHOLDERS' EQUITY 538,913 510,199 ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,455,283 $1,376,596 ========== ========== 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 March 31 ------------------------ 1998 1997 ---------- ---------- Net sales $ 547,055 $ 538,426 Cost of products sold 402,823 405,951 ---------- ---------- MANUFACTURING INCOME 144,232 132,475 Selling and general administrative expenses 68,151 65,947 Engineering, research and development expenses 18,311 17,830 Special charge -- 30,000 ---------- ---------- OPERATING INCOME 57,770 18,698 Interest expense (6,727) (7,371) Other expenses - net (5,170) (4,733) ---------- ---------- INCOME BEFORE INCOME TAXES 45,873 6,594 Income taxes 14,700 900 ---------- ---------- NET INCOME $ 31,173 $ 5,694 ========== ========== NET INCOME PER SHARE Basic $ 1.11 $ .20 Diluted 1.10 .20 ========== ========== CASH DIVIDENDS PER SHARE $ .22 $ .20 ========== ========== The Notes to Financial Statements are an integral part of this statement.
-4- CONDENSED STATEMENT OF CASH FLOWS Aeroquip-Vickers, Inc. (In thousands) (Unaudited)
Three Months Ended March 31 ------------------------ 1998 1997 ------ ------ OPERATING ACTIVITIES Net income $ 31,173 $ 5,694 Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation 16,362 17,114 Amortization 2,066 1,325 Special charge - 30,000 Changes in certain components of working capital other than debt (38,977) (30,885) Other (442) (6,335) -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES 10,182 16,913 INVESTING ACTIVITIES Capital expenditures (32,174) (25,936) Businesses acquired (13,162) - Sale of businesses - 17,271 Other 755 (3,000) -------- -------- NET CASH USED BY INVESTING ACTIVITIES (44,581) (11,665) FINANCING ACTIVITIES Net increase in short- and long-term debt 47,384 11,501 Cash dividends (6,194) (5,604) Purchase of common stock (240) (1,160) Stock issuance under stock plans 3,092 3,692 Other (293) - -------- -------- NET CASH PROVIDED BY FINANCING ACTIVITIES 43,749 8,429 Effect of exchange rate changes on cash (197) (334) -------- -------- INCREASE IN CASH AND CASH EQUIVALENTS 9,153 13,343 Cash and cash equivalents at beginning of period 18,736 23,934 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 27,889 $ 37,277 ======== ======== 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 three months ended March 31, 1998, are not necessarily indicative of the results that may be expected for the year ending December 31, 1998. It is suggested that these financial statements be read in conjunction with the audited 1997 financial statements and notes thereto included in Aeroquip-Vickers, Inc.'s most recent annual report. Note 2 - Redemption of Debt In December 1997, the Company called its 9.55% senior sinking fund debentures in the principal amount of $42 million for redemption on February 3, 1998. The pretax loss from redemption of the 9.55% senior sinking fund debentures amounting to $2.5 million was recognized in Other expenses - net in the 1998 first quarter. In June 1997, the Company called its 6% convertible subordinated debentures in the principal amount of $100 million for redemption. The 6% convertible debentures, which were due to mature on October 15, 2002, were convertible into common shares of the Company at a conversion price of $52.50 per share. Note 3 - Accounting Pronouncements In the 1998 first quarter, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income." This Statement requires that comprehensive income, which is the total of net income and other comprehensive income, be reported in the financial statements. Other comprehensive income consists of foreign currency items, minimum pension liability adjustments and unrealized gains and losses on certain security investments. Amounts that were previously recognized in other comprehensive income are to be reclassified to net income in the period realized. Historically, the Company's only component of other comprehensive income has been foreign currency items. On an annual basis, disclosure of comprehensive income will be incorporated into the Statement of Shareholders' Equity. Since this statement is not presented on a quarterly basis, following are details of comprehensive income for the three months ended March 31, 1998 and 1997: Three Months Ended March 31 1998 1997 Net income $ 31,173 $ 5,694 Other comprehensive income (loss) - currency translation adjustments during the period 1,010 (10,949) Reclassification of realized amounts to net income (127) 2,133 --------- --------- Comprehensive income (loss) $ 32,056 $ (3,122) ========= ========= -6- NOTES TO FINANCIAL STATEMENTS (Continued) Aeroquip-Vickers, Inc. The Company is currently evaluating its segment disclosures and will adopt Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information," in the 1998 fourth quarter. This Statement requires that operating segment financial information be reported on a basis consistent with the Company's internal reporting that is used for evaluating segment performance and allocating resources. Note 4 - 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 diluted net income per share of $.66 [$.63 for the year]), comprised principally of severance, lease termination and asset disposition costs. As a result, the Company sold or closed eight facilities during 1997 that had combined 1997 sales of approximately $67 million (approximately $31.2 million in the 1997 first quarter). Note 5 - Income Taxes The income tax provision for the 1997 first quarter included a credit of $11.5 million related to the special charge for costs to exit the automotive interior plastics business. The effective income tax rate for the 1997 first quarter exclusive of this item was 33.9%. The effective income tax rate for the 1998 first quarter was 32%. -7- NOTES TO FINANCIAL STATEMENTS (Continued) Aeroquip-Vickers, Inc. Note 6 - Net Income per Share Following is a reconciliation of income and average shares for purposes of calculating basic and diluted net income per share (in thousands, except per share amounts): Three Months Ended March 31 1998 1997 -------- -------- Basic Net Income per Share - -------------------------- Net income $ 31,173 $ 5,694 ========= ======== Average common shares outstanding 28,119 27,974 ========= ======== Basic Net Income per Share $ 1.11 $ .20 ========= ======== Diluted Net Income per Share - ---------------------------- Net income $ 31,173 $ 5,694 After-tax equivalent of interest expense on 6% convertible debentures -- -- --------- -------- Income for purposes of computing diluted net income per share $ 31,173 $ 5,694 ========= ======== Average common shares outstanding 28,119 27,974 Dilutive stock options 217 142 Assumed conversion of 6% convertible debentures -- -- --------- -------- Average common shares for purposes of computing diluted net income per share 28,336 28,116 ========= ======== Diluted Net Income per Share $ 1.10 $ .20 ========= ======== The 6% convertible debentures were redeemed in July 1997. The assumed conversion of the 6% convertible debentures was not included in the computation of diluted net income per share in the 1997 first quarter because the effect of the inclusion would have been anti-dilutive. -8- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations FINANCIAL REVIEW AND ANALYSIS OF OPERATIONS Analysis of Operations First Quarter 1998 Compared with First Quarter 1997 The following data provide highlights for the first quarter 1998 compared with the first quarter 1997.
Percent (dollars in thousands, First Quarter Increase except per share data) 1998 1997 (Decrease) CONSOLIDATED Net sales $ 547,055 $ 538,426 1.6% Manufacturing income 144,232 132,475 8.9 Manufacturing margin (%) 26.4 24.6 Operating income 57,770 18,698(a) 18.6(b) Operating margin (%) 10.6 3.5(a) Net income 31,173 5,694(a) 28.8(b) Net income per share Basic 1.11 .20 Diluted 1.10 .20(a) 27.9(b) INDUSTRIAL Net sales 310,447 291,839 6.4 Operating income 27,079 24,605 10.1 Operating margin (%) 8.7 8.4 Order intake 314,125 317,595 (1.1) Order backlog at March 31 232,437 212,558 9.4 AUTOMOTIVE Net sales 101,734 127,930 (20.5) Operating income 12,699 (18,512)(a) 10.5(b) Operating margin (%) 12.5 (14.5)(a) AEROSPACE Net sales 134,874 118,657 13.7 Operating income 24,023 18,631 28.9 Operating margin (%) 17.8 15.7 Order intake 152,473 129,142 18.1 Order backlog at March 31 396,651 349,191 13.6 (a) After deducting a special charge of $30 million ($18.5 million net, or diluted net income per share of $.66). (b) Before deducting a special charge of $30 million ($18.5 million net, or diluted net income per share of $.66).
The Company set a number of first-quarter records in 1998, including consolidated net sales, manufacturing income, operating income, operating margin, net income and net income per share. First-quarter records also included industrial and aerospace sales, aerospace operating income and margin, aerospace order intake and industrial order backlog. -9- Analysis of Operations - Continued Consolidated net sales for the 1998 first quarter increased $8.6 million, or 1.6%, over the 1997 first quarter. Sales for the industrial and aerospace segments increased 6.4% and 13.7%, respectively, but sales for the automotive segment declined 20.5% from the 1997 first quarter. The sales decline for the automotive segment was due to the sale or closure during 1997 of the Company's interior plastics facilities which had first-quarter 1997 sales of $31.2 million. U.S. sales increased $19.4 million, or 5.6%, but non-U.S. sales declined $10.8 million, or 5.7%. Excluding the effects of divestitures and exchange rate changes, U.S. sales increased nearly $40 million, or 12%, and non-U.S. sales increased nearly $11 million, or 6%. Industrial segment sales for the 1998 first quarter amounting to $310.4 million were up $18.6 million, or 6.4%, over the 1997 first quarter. U.S. industrial sales increased $22.1 million, or 11.3%, over 1997. Strong improvement across most industrial sectors, including mobile equipment, truck and bus, and electronic systems, as well as improved distributor sales, contributed to the U.S. industrial sales increase. European industrial sales declined slightly from the 1997 first quarter, due entirely to the effects of currency exchange rate changes. Likewise, industrial sales in Asia-Pacific and Brazil declined $2.9 million, or 9.5%, because of currency exchange rate changes. Industrial order intake declined $3.5 million, or 1.1%, from the 1997 first quarter, due to the effects of exchange rate changes and reduced order intake in the Asia-Pacific region. Order backlog at March 31, 1998, was $19.9 million, or 9.4%, higher than a year ago. The increased order backlog was principally related to Europe. Automotive segment sales declined $26.2 million, or 20.5%, from the 1997 first quarter. During 1997, the Company sold or closed eight automotive interior plastics facilities which had first-quarter 1997 sales of $31.2 million. After adjusting the 1997 first quarter to exclude sales originating from facilities that were sold or closed during 1997, first-quarter 1998 U.S. automotive sales increased slightly over the prior year, and non-U.S. automotive sales increased $4.7 million, or 7.1%. Before the unfavorable effects of exchange rate changes, this pro forma increase in non-U.S. sales would have been nearly $4 million greater. The growth in European sales reflects continued strong demand for automotive air conditioning and power steering fluid connectors. First-quarter 1998 aerospace segment sales of $134.9 million were $16.2 million, or 13.7%, higher than the 1997 first quarter. Sales were up 17.1% in the U.S., but down slightly in Europe. The 1998 first-quarter sales reflected substantial increases over the 1997 first quarter in sales to commercial and military OEM customers and to the commercial aftermarket. Sales to the military aftermarket were somewhat lower than in the 1997 first quarter. Strong first quarter 1998 orders of $152.5 million were $23.3 million, or 18.1%, higher than the 1997 first quarter. Order backlog at $396.7 million was $47.5 million, or 13.6%, over the March 31, 1997, backlog. Consolidated manufacturing income increased $11.8 million, or 8.9%, over the 1997 first quarter. Manufacturing margin improved from 24.6% in the 1997 first quarter to 26.4% in the 1998 first quarter. Manufacturing income for -10- Analysis of Operations - Continued the industrial segment increased as a result of higher sales. However, principally because of normal start-up inefficiencies associated with a new pump manufacturing facility and the adverse effects of exchange rate changes in Europe, manufacturing margin was flat compared with the 1997 first quarter. Manufacturing income for the automotive segment declined slightly from the prior year because of lower sales volume due to the divestiture of the automotive interior plastics business. However, automotive manufacturing margin improved significantly over the 1997 first quarter since margins for the fluid connectors business exceed those in the interior plastics business. Manufacturing income for the aerospace segment increased more than 20% over the 1997 first quarter, principally the result of increased sales volume, which also led to improved manufacturing margin. Selling and general administrative and engineering, research and development expenses were $2.7 million higher in the 1998 first quarter than in the comparable 1997 period and, as a percent of sales, were 15.8% in 1998, compared with 15.6% in 1997. Continued development of infrastructure in the Asia-Pacific industrial segment accounted for nearly 40% of the increase, while disposition of the interior plastics business contributed to a reduction of overhead costs in the automotive segment. 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 ($18.5 million net, or diluted net income per share of $.66 [$.63 for the year]), comprised principally of severance, lease termination and asset disposition costs. As a result, the Company sold or closed eight facilities during 1997 that had combined 1997 sales of approximately $67 million ($31.2 million in the 1997 first quarter). The planned actions to which this special charge related were substantially completed during 1997. Interest expense for the 1998 first quarter amounted to $6.7 million, compared with $7.4 million in the 1997 first quarter. The reduction was due, in part, to slightly lower average debt levels in the 1998 first quarter, but more significantly to the change in mix of debt. Certain debt obligations, principally the Company's 7.95% notes in the amount of $75 million that were repaid in 1997 and the 9.55% sinking fund debentures in the amount of $42 million that were repaid in the 1998 first quarter, were replaced with debt bearing lower interest rates. Other expenses - net in the 1998 first quarter included a loss of $2.5 million from redemption of the Company's 9.55% sinking fund debentures. Net income for the 1998 first quarter amounted to $31.2 million, or diluted net income per share of $1.10, which compares with first-quarter 1997 income of $24.2 million, or $.86 per share before deducting the special charge to exit the automotive interior plastics business. Net income in the 1998 first quarter was after deducting $.05 per share for the redemption of the 9.55% debentures. Net income for the 1997 first quarter, after deducting the special charge of $18.5 million net of tax, or $.66 per share, was $5.7 million, or diluted net income per share of $.20. The effective income tax rate for the 1998 first quarter was 32%, compared with 33.9% for the 1997 first quarter exclusive of the credit related to the special charge. -11- Liquidity and Capital Resources Cash provided by operating activities amounted to $10.2 million in the 1998 first quarter, compared with $16.9 million in the 1997 first quarter. Working capital requirements of $39 million included $36.1 million to finance a higher level of receivables and $5.5 million for growth in inventories. The increase in accounts receivable reflects the historical pattern of first-quarter increases due to the seasonality of shipments in certain businesses. The 1997 first-quarter working capital requirements of $30.9 million included $35.1 million and $7.1 million to finance growth in receivables and inventories, respectively. In both periods, these cash requirements were partially offset by lower cash requirements for payables and income taxes. Capital expenditures totaled $32.2 million in the 1998 first quarter, compared with $25.9 million in the 1997 first quarter. The Company expects that its capital spending for the year 1998 will exceed that of 1997 to support its growth initiatives and continued manufacturing process improvements. The Company spent $6.5 million in the 1998 first quarter to acquire two businesses in the industrial segment and placed $6.7 million in escrow to purchase a business in the automotive segment that was acquired early in the second quarter. In the 1997 first quarter, the Company received $17.3 million from sales of certain of its automotive interior plastics facilities. Dividend payments in the 1998 first quarter were $.22 per share, or $6.2 million. The dividend declared for the 1998 second quarter to be paid in June was also $.22 per share. The debt-to-capitalization ratio (debt divided by debt plus equity) was 42.1% at March 31, 1998, compared with 40.2% at December 31, 1997. In the 1998 first quarter, the Company retired its 9.55% senior sinking fund debentures in the amount of $42 million. Additional borrowings under the Company's Medium Term Note program and short-term debt were used to redeem the debentures and to meet other first quarter funding requirements. The remaining borrowing capacity at March 31, 1998, under provisions of current shelf registration statements for the Medium Term Note program was $217 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 March 31, 1998, was $76 million. In addition to this agreement, the Company has uncommitted arrangements with various banks to provide short-term financing as necessary. The Company expects that cash flow from operating activities and remaining available credit lines will be sufficient to meet normal operating requirements including debt obligations maturing in the near term, planned acquisitions and planned capital expenditures. Other The Company is currently evaluating its segment disclosures and will adopt Statement of Financial Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and Related Information", in the 1998 fourth -12- Other - Continued quarter. This Statement requires that operating segment financial information be reported on a basis consistent with the Company's internal reporting that is used for evaluating segment performance and allocating resources. The Company is in the process of assessing and taking actions to correct problems caused by the inability of certain of its information systems to properly process transactions using dates in the Year 2000 and beyond, or to operate at the turn of the century. The Year 2000 Issue is faced by virtually all manufacturing and services companies that use computer systems to support business operations and that incorporate computer systems in their products. In 1997, the Company's Information Technology leadership team prepared an assessment of the Year 2000 Issue exposure in each operating unit within the Corporate entity. During 1998, the Company will continue its efforts to assure completion of the system testing and auditing in a timely and effective manner. The Company is also developing responses to customer inquiries relative to its Year 2000 readiness, and assessing readiness of its supplier base. From a cost perspective, the Company has budgeted the necessary funds to address Year 2000 Issue related projects. The incremental cost of compliance is anticipated to be relatively low as both Aeroquip and Vickers are in the process of replacing existing systems with packaged software which is date compliant. These systems replacement projects have been undertaken to optimize business operations and have been incorporated into the capital budgets of the Company. Risk factors which may affect the Company's ability to meet its implementation schedule to process transactions and operate efficiently in the Year 2000 and beyond include, but are not necessarily limited to, availability of date compliant software from vendors; availability of necessary resources, both internal and external, to install new purchased software or reprogram existing software and complete the necessary testing; and readiness of customers, vendors and service providers to operate in the Year 2000. Portions of the narrative set forth in this Financial Review and Analysis of Operations, which are not historical in nature, are forward-looking statements. The Company's actual performance may differ from that contemplated by the forward-looking statements due to a variety of factors, which include among other things, the condition of the economy, the condition of the markets that the Company serves and the success of the Company's strategic plans and contemplated capital investments. PART II - OTHER INFORMATION Aeroquip-Vickers, Inc. Item 4. Submission of Matters to a Vote of Security Holders At the annual meeting of shareholders held on April 16, 1998, in Maumee, Ohio, the shareholders elected directors, approved the Aeroquip-Vickers, Inc. 1998 Stock Incentive Plan, approved the Aeroquip-Vickers, Inc. Non-Employee Directors' Stock Award Plan and ratified the employment of Ernst & Young LLP as Aeroquip-Vickers' independent auditors for 1998. The following is a tabulation of all votes timely cast in person or by proxy by shareholders of Aeroquip-Vickers for the annual meeting: -13- Part II - Other Information (Cont.) To elect directors: WITHHOLD BROKER NOMINEE FOR AUTHORITY NON-VOTES Darryl F. Allen 24,578,605 204,562 0 Virgis W. Colbert 24,390,956 392,211 0 Purdy Crawford 24,574,438 208,729 0 Joseph C. Farrell 24,567,195 215,972 0 David R. Goode 24,568,762 214,405 0 Paul A. Ormond 24,568,636 214,531 0 John P. Reilly 24,579,483 203,684 0 W. R. Timken, Jr. 24,582,653 200,514 0 To approve the Aeroquip-Vickers, Inc. 1998 Stock Incentive Plan: FOR 21,590,280 AGAINST 1,125,609 ABSTAIN 172,870 BROKER NON-VOTES 1,894,408 To approve the Aeroquip-Vickers, Inc. Non-Employee Directors' Stock Award Plan: FOR 21,590,691 AGAINST 997,000 ABSTAIN 301,068 BROKER NON-VOTES 1,894,408 To ratify the employment of Ernst & Young LLP as Aeroquip-Vickers' independent auditors for 1998: FOR 24,472,091 AGAINST 241,194 ABSTAIN 69,882 BROKER NON-VOTES 0 Item 6. Exhibits and Reports on Form 8-K (a) The following exhibits are filed hereunder as part of Part I: Exhibit (10)-1 Aeroquip-Vickers, Inc. Directors' Retirement Plan, as amended, filed as Exhibit (4)-c to Form S-8 filed on May 7, 1998, and incorporated herein by reference Exhibit (12) Statement re: Computation of Ratios The following exhibit is filed as part of Part II: Exhibit (27) Financial Data Schedule (b) There were no reports on Form 8-K filed for the quarter ended March 31, 1998. -14- 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 ------------------------------------ May 8, 1998 Darryl F. Allen Chairman, President and Chief Executive Officer (Principal Executive Officer) By /S/ DAVID M. RISLEY ------------------------------------ May 8, 1998 David M. Risley Vice President - Finance and Chief Financial Officer (Principal Financial Officer) -15- EX-99 2 EXHIBIT INDEX Exhibit No. Page No. (10)-1 Aeroquip-Vickers, Inc. Directors' Retirement Incorporated Plan, as amended, filed as Exhibit (4)-c to herein by Form S-8 filed on May 7, 1998 reference (12) Statement re: Computation of Ratios 17 (27) Financial Data Schedule 18 -16- EX-12 3 EXHIBIT 12 STATEMENT RE: COMPUTATION OF RATIOS Aeroquip-Vickers, Inc. (Dollars in thousands)
Three Months Ended Year Ended December 31 March 31 ----------------------------------------- 1998 1997 1996 1995 1994 1993 ------------ ---- ---- ---- ---- ---- RATIO OF EARNINGS TO FIXED CHARGES Income before income taxes and cumulative effect of accounting change $ 45,873 $148,153 $153,421 $128,196 $101,255 $ 17,111 Dividends received, net of equity in earnings (loss) of unconsolidated affiliates 342 1,605 9,961 (3,704) 1,213 1 Fixed charges 13,694 46,034 41,712 31,762 30,249 33,370 -------- -------- -------- -------- -------- -------- Income before cumulative effect of accounting change for computation purposes $ 59,909 $195,792 $205,094 $156,254 $132,717 $ 50,482 ======== ======== ======== ======== ======== ======== FIXED CHARGES Interest expense, including interest related to corporate owned life insurance $ 9,460 $ 37,971 $ 34,963 $ 24,477 $ 22,582 $ 25,516 Portion of rent expense representing interest 1,688 6,819 6,288 6,903 7,303 7,490 Amortization of debt expense and debt discount 2,546 1,244 461 382 364 364 -------- -------- -------- -------- -------- -------- Total fixed charges $ 13,694 $ 46,034 $ 41,712 $ 31,762 $ 30,249 $ 33,370 ======== ======== ======== ======== ======== ======== Ratio of Earnings to Fixed Charges 4.4x 4.3x 4.9x 4.9x 4.4x 1.5x ======== ======== ======== ======== ======== ======== 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.
-17- EX-27 4
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 3-MOS DEC-31-1998 MAR-31-1998 27,889 0 400,441 14,628 303,217 763,965 1,021,752 530,430 1,455,283 497,651 247,388 140,830 0 0 398,083 1,455,283 547,055 547,055 402,823 402,823 0 0 6,727 45,873 14,700 31,173 0 0 0 31,173 1.11 1.10
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