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, 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
TRINOVA Corporation
(Former name, if changed since last report)
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 25, 1997,
was 27,944,991.
This document, including exhibits, contains 34 pages.
The Exhibit Index is located on page 15.
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
FOR QUARTER ENDED MARCH 31, 1997
INDEX TO INFORMATION IN REPORT
Aeroquip-Vickers, Inc.
Page
Number
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Statement of Financial Position -
March 31, 1997 and December 31, 1996 3
Condensed Statement of Income -
Three Months Ended March 31, 1997 and 1996 4
Condensed Statement of Cash Flows -
Three Months Ended March 31, 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 4. Submission of Matters to a Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
EXHIBIT INDEX 15
EXHIBIT 3 - ARTICLES OF INCORPORATION, AS AMENDED APRIL 17, 1997 16
EXHIBIT 11 - STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS 32
EXHIBIT 12 - STATEMENT RE: COMPUTATION OF RATIOS 33
EXHIBIT 27 - FINANCIAL DATA SCHEDULE 34
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<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements
<TABLE>
STATEMENT OF FINANCIAL POSITION
Aeroquip-Vickers, Inc.
(Dollars in thousands, except share data)
(Unaudited)
<CAPTION>
March 31 December 31
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 37,277 $ 23,934
Receivables 370,206 342,712
Inventories:
In-process and finished products 212,913 202,214
Raw materials and manufacturing supplies 52,300 59,955
---------- ----------
265,213 262,169
Other current assets 52,879 45,272
---------- ----------
TOTAL CURRENT ASSETS 725,575 674,087
Plants and properties 985,213 997,350
Less accumulated depreciation 554,326 559,867
---------- ----------
430,887 437,483
Goodwill 109,102 110,005
Other assets 73,782 67,912
---------- ----------
TOTAL ASSETS $1,339,346 $1,289,487
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 45,543 $ 31,819
Accounts payable 130,115 106,205
Income taxes 22,626 21,150
Other current liabilities 204,427 188,973
Current maturities of long-term debt 75,840 76,809
---------- ----------
TOTAL CURRENT LIABILITIES 478,551 424,956
Long-term debt 258,808 257,727
Postretirement benefits other than pensions 121,692 121,793
Other liabilities 40,078 38,595
SHAREHOLDERS' EQUITY
Common stock - par value $5 a share
Authorized - 100,000,000 shares
Outstanding - 27,990,991 and 27,912,077 shares,
respectively (after deducting 6,218,905 and
6,297,819 shares, respectively, in treasury) 139,954 139,559
Additional paid-in capital 23,815 20,675
Retained earnings 306,480 307,398
Currency translation adjustments (30,032) (21,216)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 440,217 446,416
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,339,346 $1,289,487
========== ==========
<FN>
The Notes to Financial Statements are an integral part of this statement.
</FN>
</TABLE>
-3-
<PAGE>
<TABLE>
CONDENSED STATEMENT OF INCOME
Aeroquip-Vickers, Inc.
(In thousands, except per share data)
(Unaudited)
<CAPTION>
Three Months Ended
March 31
------------------------
1997 1996
---------- ----------
<S> <C> <C>
Net sales $ 538,426 $ 512,113
Cost of products sold 405,951 385,856
---------- ----------
MANUFACTURING INCOME 132,475 126,257
Selling and general administrative expenses 65,947 66,601
Engineering, research and development expenses 17,830 19,528
Special charge 30,000 --
---------- ----------
OPERATING INCOME 18,698 40,128
Interest expense (7,371) (6,285)
Other expenses-net (4,733) (3,328)
---------- ----------
INCOME BEFORE INCOME TAXES 6,594 30,515
Income taxes 900 6,100
---------- ----------
NET INCOME $ 5,694 $ 24,415
========== ==========
NET INCOME PER SHARE $ .20 $ .83
========== ==========
Cash dividends per common share $ .20 $ .20
========== ==========
Average shares outstanding 28,115 30,707
========== ==========
<FN>
The Notes to Financial Statements are an integral part of this statement.
</FN>
</TABLE>
-4-
<PAGE>
<TABLE>
CONDENSED STATEMENT OF CASH FLOWS
Aeroquip-Vickers, Inc.
(In thousands)
(Unaudited)
<CAPTION>
Three Months Ended
March 31
--------------------
1997 1995
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 5,694 $ 24,415
Adjustments to reconcile net income to
net cash provided (used) by operating activities:
Depreciation 17,114 16,909
Special charge 30,000 --
Changes in certain components of working
capital other than debt (30,885) (65,922)
Dividends received from affiliates -- 4,983
Other (5,010) 2,441
---------- ---------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 16,913 (17,174)
INVESTING ACTIVITIES
Capital expenditures (25,936) (19,877)
Sale of businesses 17,271 --
Other (3,000) 332
---------- ----------
NET CASH USED BY INVESTING ACTIVITIES (11,665) (19,545)
FINANCING ACTIVITIES
Net increase in short- and long-term debt 11,501 52,164
Cash dividends (5,604) (5,765)
Purchase of common stock (1,160) (8,330)
Stock issuance 3,692 1,432
---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 8,429 39,501
Effect of exchange rate changes on cash (334) 83
---------- ----------
INCREASE IN CASH AND CASH EQUIVALENTS 13,343 2,865
Cash and cash equivalents at beginning of period 23,934 16,186
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 37,277 $ 19,051
========== ==========
<FN>
The Notes to Financial Statements are an integral part of this statement.
</FN>
</TABLE>
-5-
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Aeroquip-Vickers, Inc.
Note 1 - Change of Company Name
At TRINOVA Corporation's annual meeting on April 17, 1997, shareholders of the
Company approved a proposal to change the Company's name to Aeroquip-Vickers,
Inc.
Note 2 - 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, 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 3 - Special Charge
In February 1997, the Company announced that it plans to exit its automotive
interior plastics business and recorded a special charge of $30 million ($18.5
million net, or $.66 per share) for the 1997 first quarter, comprised
principally of severance and lease termination costs. A significant portion
of this charge is related to exiting certain operations in Germany. On March
28, 1997, the Company sold three facilities which had combined 1996 sales of
approximately $30 million. The Company is in various stages of negotiation
for the sale of other interior plastics facilities which had combined 1996
sales of approximately $100 million.
Note 4 - Income Taxes
The income tax provision for the 1997 first quarter includes 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 income tax provision for the
1996 first quarter includes a credit for settlement of claims for prior years'
research and development credits of $4 million, or $.13 per share. The
effective income tax rate for the 1996 first quarter exclusive of this item
was 33.1%.
-6-
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Note 5 - Net Income per Share
Net income per share (EPS) for the 1996 first quarter was 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 and net income was increased for the after-tax
equivalent of interest expense on the 6% convertible debentures. In the 1997
first quarter, the assumed conversion of the 6% convertible debentures was not
included in average shares outstanding because the effect of the inclusion
would have been anti-dilutive.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 "Earnings per Share" (FAS 128) which is
required to 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 earnings per share computed in
accordance with FAS 128 are each $.20 per share for the 1997 first quarter and
$.85 and $.83, respectively, for the 1996 first quarter.
-7-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
FINANCIAL REVIEW AND ANALYSIS OF OPERATIONS
Analysis of Operations
<TABLE>
First Quarter 1997 Compared with First Quarter 1996
The following data provide highlights for the 1997 first quarter compared with
the 1996 first quarter.
<CAPTION>
Percent
(dollars in thousands, First Quarter Increase
except per share data) 1997 1996 (Decrease)
<S> <C> <C> <C>
CONSOLIDATED
Net sales $ 538,426 $ 512,113 5.1%
Manufacturing income 132,475 126,257 4.9
Manufacturing margin (%) 24.6 24.7
Operating income 18,698(a) 40,128 (53.4)
Operating margin (%) 3.5(a) 7.8
Net income 5,694(a) 24,415(b) (76.7)
Net income per share .20(a) .83(b) (75.9)
INDUSTRIAL
Net sales 291,839 291,906 --
Operating income 24,605 24,579 .1
Operating margin (%) 8.4 8.4
Order intake 317,595 298,126 6.5
Order backlog at March 31 212,558 203,282 4.6
AUTOMOTIVE
Net sales 127,930 124,089 3.1
Operating income (loss) (18,512)(a) 8,785
Operating margin (%) (14.5)(a) 7.1
AEROSPACE
Net sales 118,657 96,118 23.4
Operating income 18,631 12,247 52.1
Operating margin (%) 15.7 12.7
Order intake 129,142 115,775 11.5
Order backlog at March 31 349,191 284,855 22.6
<FN>
(a) After deducting a special charge of $30 million ($18.5 million net, or $.66
per share).
(b) Includes an income tax credit of $4 million, or $.13 per share.
</FN>
</TABLE>
-8-
<PAGE>
Analysis of Operations - Continued
Consolidated sales for the 1997 first quarter increased $26.3 million, or
5.1%, over the 1996 first quarter. Sales for the automotive and aerospace
segments increased 3.1% and 23.4%, respectively, while sales for the
industrial segment were flat compared with the 1996 first quarter. Companies
acquired in 1996, principally in the aerospace segment, generated first-
quarter 1997 sales of $13.8 million, accounting for slightly more than half of
the sales increase. U.S. sales increased $17.1 million, and non-U.S. sales
increased $9.2 million. Changes in currency exchange rates reduced non-U.S.
sales by $6.4 million, principally in the automotive segment.
First-quarter 1997 industrial sales of $291.8 million essentially equaled last
year's first-quarter record level. U.S. industrial sales were flat compared
with 1996, but sales in Europe declined $6.3 million, or 8.6%. Sales in Asia,
Brazil and Mexico collectively increased $6.3 million, or 25%, over the 1996
first quarter. Industrial order intake in 1997 was a quarterly record, up
$19.5 million, or 6.5%, over 1996, principally on the strength of increases in
U.S. orders. Order backlog increased $9.3 million as the increase in the U.S.
backlog was partially offset by a reduction in Europe.
Automotive sales increased $3.8 million, or 3.1%, over the 1996 first quarter.
U.S. automotive sales declined $2.7 million, or 5.1%, primarily due to phasing
out two automotive plastics facilities. European automotive sales increased
$6.5 million, or 9.1%, net of the adverse effects of changes in currency
exchange rates totaling nearly $5.4 million. The growth in Europe reflects
increasing demand for air conditioning and power steering fluid connectors,
even as overall demand for vehicles is soft. First-quarter 1997 sales
included sales through the end of the quarter for three automotive interior
plastics plants sold on March 28, 1997.
Aerospace sales of $118.7 million were a first-quarter record and were $22.5
million, or 23.4%, higher than the 1996 first quarter. This represents a
succession of sales increases over the prior-year period spanning the last
five quarters. Sales were up 24.5% in the U.S. and 17.8% in Europe,
reflecting positive increases in sales to commercial OEM and aftermarket
customers and to the military aftermarket. Order intake was an all-time
quarterly record at $129.1 million, an increase of $13.4 million, or 11.5%,
over the prior year. Most of the new order increase was in the U.S. Order
backlog of $349.2 million represented an increase of $64.3 million, or 22.6%,
over 1996. Most of this increase was also attributable to the U.S.
Consolidated manufacturing income of $132.5 million was a first-quarter
record, increasing $6.2 million, or 4.9%, over the 1996 first quarter.
Manufacturing margin, however, remained relatively flat - 24.6% in 1997
compared with 24.7% in 1996. Manufacturing income and margin for the
industrial segment declined from the comparable prior-year period, principally
due to changes in sales mix. Manufacturing income and margin for the
automotive and aerospace segments increased over the 1996 first quarter, due
principally to higher sales and continued process improvements in both
segments.
-9-
<PAGE>
Analysis of Operations - Continued
In the 1997 first quarter, the Company announced that it plans to exit its
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 is related to exiting certain operations in
Germany. The Company sold three facilities in the 1997 first quarter which
had combined 1996 sales of approximately $30 million. The Company is in
various stages of negotiation for the sale of other automotive plastics
facilities which had combined 1996 sales of approximately $100 million.
Following the sale or closure of these facilities, which is expected to be
substantially completed during 1997, fluid connectors will continue to 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 adapted from Aeroquip's industrial fluid power
expertise.
Selling and general administrative and engineering, research and development
expenses were $2.4 million lower in the 1997 first quarter than in the 1996
first quarter and as a percent of sales were 15.6% in 1997, compared with
16.8% in 1996. Selling and general administrative expenses were reduced
sharply in Europe from 1996 levels through organizational realignments and
continuing process improvements. Engineering, research and development costs
were also lower than the prior year, driven by more focused program direction.
Interest expense for the first quarter of 1997 amounted to $7.4 million,
compared with $6.3 million in the 1996 first quarter. The increase was
attributable to slightly higher debt levels and a higher interest rate on
long-term debt that was issued in the 1996 second quarter.
Net income for the 1997 first quarter amounted to $5.7 million, or $.20 per
share, compared with net income of $24.4 million, or $.83 per share, in the
1996 first quarter. Net income for the 1997 first quarter is after deducting
the special charge of $30 million pretax, $18.5 million net, or $.66 per
share, to exit the Company's automotive interior plastics business. The
income tax provision for the 1996 first quarter included a credit for
settlement of claims for prior years' research and development tax credits of
$4 million, equal to $.13 per share. The effective income tax rates,
exclusive of special items, were 33.9% and 33.1% in the first quarters of 1997
and 1996, respectively.
The Company recently announced that it entered into a joint venture and a
global product and technology alliance with Komatsu Ltd., a world leader in
the construction equipment market, that are intended to extend the Company's
product offering into the Japanese mobile equipment market. This will enable
the Company to begin selling worldwide outside of Japan the full range of
hydraulic products of Komatsu and Komatsu Zenoah under the Vickers brand name
through Vickers' global sales network and to provide opportunities for the
development of new products for mobile equipment customers. The Company also
recently entered into a joint-venture agreement with Sturman Industries for
development of integrated digital electrohydraulic systems.
-10-
<PAGE>
Liquidity, Working Capital and Capital Investment
Cash provided by operating activities in the 1997 first quarter amounted to
$16.9 million, compared with 1996 first-quarter operating cash requirements of
$17.2 million. Working capital requirements of $30.9 million included $35.1
million to finance a higher level of receivables and $7.1 million for growth
in inventories. This increase in accounts receivable reflects, in part, the
historical pattern of first-quarter increases. The 1996 first-quarter working
capital requirements of $65.9 million included $55.9 million to finance
receivable increases. The 1996 receivable increase also reflected the growth
in receivable balances to normal operating levels for Vickers Electronic
Systems that was acquired in late 1995 and for which receivables were not part
of the assets purchased.
In the 1997 first quarter the Company purchased 31,200 shares of its common
stock at a cost of $1.2 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. This program replaced and
superseded the existing authorization that was initiated in November 1995 and
under which purchases through March 31, 1997, totaled 1,239,500 shares at a
cumulative cost of $38.8 million. The Company expects to make further
purchases during 1997, but is not committed to purchase a specific number of
shares.
Dividend payments in the 1997 first quarter were $.20 per share, or $5.6
million. Dividends declared for the 1997 second quarter to be paid in June
were also $.20 per share. The debt-to-capitalization ratio (debt divided by
debt plus equity) was 46.3% at March 31, 1997, compared with 45.1% at December
31, 1996.
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. Under the terms of the
program the Company may, from time to time, sell up to an aggregate amount of
$150 million of medium-term notes due nine months or more from date of issue.
The medium-term notes may have either a fixed or floating rate of interest.
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 borrowings and, to the extent not so utilized, provide domestic
borrowing capacity. The remaining borrowing capacity under this agreement at
March 31, 1997, was $148 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 available credit lines will be sufficient to meet normal
operating requirements including payment of debt maturing in the near term.
-11-
<PAGE>
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 17, 1997, in Maumee,
Ohio, the shareholders elected directors, approved the change of the
Company name to Aeroquip-Vickers, Inc. and ratified the employment of
Ernst & Young LLP as TRINOVA's independent auditors for 1997. The
following is a tabulation of all votes timely cast in person or by proxy
by shareholders of TRINOVA for the annual meeting:
To elect directors:
WITHHOLD BROKER
NOMINEE FOR AUTHORITY NON-VOTES
Darryl F. Allen 23,742,298 186,349 0
Purdy Crawford 23,744,870 183,777 0
Joseph C. Farrell 23,750,390 178,257 0
David R. Goode 23,747,206 181,441 0
Paul A. Ormond 23,758,176 170,471 0
John P. Reilly 23,749,253 179,394 0
William R. Timken, Jr. 23,750,057 178,590 0
To change the name of the Company from "TRINOVA Corporation" to
"Aeroquip-Vickers, Inc.":
FOR 23,585,718
AGAINST 249,413
ABSTAIN 93,516
BROKER NON-VOTES 0
To ratify the employment of Ernst & Young LLP as TRINOVA's independent
auditors for 1997:
FOR 23,750,452
AGAINST 107,374
ABSTAIN 70,821
BROKER NON-VOTES 0
-12-
<PAGE>
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 exhibits are filed as part of Part II:
Exhibit 3 Articles of Incorporation as amended April 17, 1997
Exhibit (27) Financial Data Schedule
The following exhibits are filed as part of Part II and are
incorporated by reference hereunder:
Exhibit 4.1 Form of Distribution Agreement by and between Morgan
Stanley & Co., Incorporated, J. P. Morgan
Securities, Inc. and Aeroquip-Vickers, Inc. relating
to the sale from time to time by Aeroquip-Vickers,
Inc. of up to $150,000,000 aggregate principle
amount of medium-term notes due nine months or more
from date of issue.
Exhibit 4.2 Form of Fixed Rate Notes
Exhibit 4.3 Form of Floating Rate Notes
Exhibit 4.4 First Supplemental Indenture dated as of April 17,
1997, between Aeroquip-Vickers, Inc. (formerly
TRINOVA Corporation) and the First National Bank of
Chicago (as successor in interest to NBD Bank), as
Trustee
(b) There were no reports on Form 8-K filed for the quarter ended March
31, 1997. On April 25, 1997, the Company filed a Form 8-K reporting
the commencement of its medium-term note program and its name change.
-13-
<PAGE>
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, 1997 Darryl F. Allen
Chairman, President and
Chief Executive Officer
(Principal Executive Officer)
By /S/ DAVID M. RISLEY
May 8, 1997 -----------------------------------------
David M. Risley
Vice President - Finance and
Chief Financial Officer
(Principal Financial Officer)
-14-
EXHIBIT INDEX
Exhibit No. Page No.
3 Articles of Incorporation as amended April 17, 16
1997
4.1 Form of Distribution Agreement by and between Incorporated
Morgan Stanley & Co., Incorporated, J. P. Morgan by Reference
Securities, Inc. and Aeroquip-Vickers, Inc. to Exhibit
relating to the sale from time to time by (4)-2(a) to
Aeroquip-Vickers, Inc. of up to $150,000,000 Form 8-K filed
aggregate principle amount of medium-term notes on April 25,
due nine months or more from date of issue. 1997
4.2 Form of Fixed Rate Notes Incorporated
by Reference
to Exhibit
(4)-1(a) to
Form 8-K filed
April 25, 1997
4.3 Form of Floating Rate Notes Incorporated
by Reference
to Exhibit
(4)-1(b) to
Form 8-K filed
April 25, 1997
4.4 First Supplemental Indenture dated as of Incorporated
April 17, 1997, between Aeroquip-Vickers, Inc. by Reference
(formerly TRINOVA Corporation) and the First to Exhibit
National Bank of Chicago (as successor in (4)-2(b) to
interest to NBD Bank), as Trustee Form 8-K filed
April 25, 1997
(11) Statement re: Computation of Per Share Earnings 32
(12) Statement re: Computation of Ratios 33
(27) Financial Data Schedule 34
-15-
EXHIBIT 3
AMENDED ARTICLES OF INCORPORATION
(AMENDED APRIL 17, 1997)
FIRST: The name of the Corporation is Aeroquip-Vickers, Inc.
SECOND: The principal office of the Corporation is located in the City
of Maumee, Lucas County, Ohio.
THIRD: The purposes of the Corporation are:
(a) To manufacture, develop, process, produce, fabricate, design, hold,
buy, sell, exchange, export, import, lease, transport, store, manage, and deal
in and with, and patent, and receive and grant licenses with respect to the
use, sale and manufacture of, machinery, equipment, apparatus, devices,
transportation, facilities, tools, chemicals, and goods, wares, merchandise,
processes, patents, formulae, choses in action and other tangible or
intangible personal property of every kind and description;
(b) To acquire, own, construct, rebuild, repair, use, lease, operate,
manage, sell, mine, quarry and otherwise dispose of and deal in and with any
real estate, natural resources, laboratories, buildings and other structures,
or any interests therein;
(c) To acquire, hold, guarantee, sell, assign, exchange and otherwise
dispose of or deal in and with shares of stock and other securities of
whatever nature issued by other corporations, governments, firms, trusts or
individuals;
(d) To carry on any one or more of the activities aforesaid on its own
behalf or for others, and to transact any and all business incidental to any
of the foregoing purposes.
The purposes of the Corporation may from time to time be changed by
amendment of these Articles.
FOURTH: The number of shares which the Corporation is authorized to have
outstanding is 104,000,000, consisting of 4,000,000 shares of Serial Preferred
Stock without par value (hereinafter called "Serial Preferred Stock") and
100,000,000 Common Shares of the par value of $5 per share (hereinafter called
"Common Shares").
The shares of such classes shall have the following express terms:
Paragraph 1. Express Terms of the Serial Preferred Stock
-16-
<PAGE>
EXHIBIT 3 - Continued
Section 1. The Serial Preferred Stock may be issued from time to time in
one or more series. All shares of Serial Preferred Stock shall be of equal
rank and shall be identical, except in respect of the matters that may be
fixed by the Board of Directors as hereinafter provided and each share of each
series shall be identical with all other shares of such series, except as to
the date from which dividends are cumulative. Subject to the provisions of
Sections 2 to 8, both inclusive, of this Paragraph, which provisions shall
apply to all Serial Preferred Stock, the Board of Directors hereby is
authorized to cause such shares to be issued in one or more series and with
respect to each such series prior to the issuance thereof to fix:
(a) The designation of the series, which may be by distinguishing
number, letter or title.
(b) The number of shares of the series, which number the Board of
Directors may (except where otherwise provided in the creation of
the series) increase or decrease (but not below the number of
shares thereof then outstanding).
(c) The annual dividend rate of the series.
(d) The dates at which dividends, if declared, shall be payable, and
the dates from which dividends shall be cumulative.
(e) The redemption rights and price or prices, if any, for shares of
the series.
(f) The terms and amount of any sinking fund provided for the purchase
or redemption of shares of the series.
(g) The amounts payable on shares of the series in the event of any
voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Corporation.
(h) Whether the shares of the series shall be convertible into Common
Shares and, if so, the conversion rate or rates, any adjustments
thereof, and all other terms and conditions upon which such
conversion may be made.
(i) Restrictions (in addition to those set forth in Section 6(b) and
6(c) of this Paragraph) on the issuance of shares of the same
series or of any other class or series.
The Board of Directors is authorized to adopt, from time to time,
amendments to the Articles of Incorporation fixing, with respect to each such
series, the matters described in clauses (a) to (i), both inclusive, of this
Section 1.
-17-
<PAGE>
EXHIBIT 3 - Continued
Section 2. The holders of Serial Preferred Stock of each series, in
preference to the holders of Common Shares and of any other class of shares
ranking junior to the Serial Preferred Stock, shall be entitled to receive out
of any funds legally available and when and as declared by the Board of
Directors dividends in cash at the rate for such series fixed in accordance
with the provisions of Section 1 of this Paragraph and no more, payable
quarterly on the dates fixed for such series. Such dividends shall be
cumulative, in the case of shares of each particular series, from and after
the date or dates fixed with respect to such series. No dividends may be paid
upon or declared or set apart for any of the Serial Preferred Stock for any
quarterly dividend period unless at the same time a like proportionate
dividend for the same quarterly dividend period, ratably in proportion to the
respective annual dividend rates fixed therefor, shall be paid upon or
declared or set apart for all Serial Preferred Stock of all series then issued
and outstanding and entitled to receive such dividend.
Section 3. In no event so long as any Serial Preferred Stock shall be
outstanding shall any dividend, except a dividend payable in Common Shares or
other shares ranking junior to the Serial Preferred Stock, be paid or declared
or any distribution be made except as aforesaid on the Common Shares or any
other shares ranking junior to the Serial Preferred Stock, nor shall any
Common Shares or any other shares ranking junior to the Serial Preferred Stock
be purchased, retired or otherwise acquired by the Corporation:
(a) Unless all accrued and unpaid dividends on Serial Preferred Stock,
including the full dividends for the current quarterly dividend
period, shall have been declared and paid or a sum sufficient for
payment thereof set apart; and
(b) Unless there shall be no arrearages with respect to the redemption
of Serial Preferred Stock of any series from any sinking fund
provided for shares of such series in accordance with the
provisions of Section 1 of this Paragraph.
Section 4.
(a) Subject to the express terms of each series and to the provisions
of Section 6(b)(iii) of this Paragraph 1, the Corporation may from
time to time redeem all or any part of the Serial Preferred Stock
of any series at the time outstanding (i) at the option of the
Board of Directors at the applicable redemption price for such
series fixed in accordance with the provisions of Section 1 of
this Paragraph, or (ii) in fulfillment of the requirements of any
sinking fund provided for shares of such series at the applicable
sinking fund redemption price, fixed in accordance with the
provisions of Section 1 of this Paragraph, together in each case
with accrued and unpaid dividends to the redemption date.
-18-
<PAGE>
EXHIBIT 3 - Continued
(b) Notice of every such redemption shall be mailed, postage prepaid,
to the holders of record of the Serial Preferred Stock to be
redeemed at their respective addresses then appearing on the books
of the Corporation, not less than thirty (30) days nor more than
sixty (60) days prior to the date fixed for such redemption. At
any time before or after notice has been given as above provided,
the Corporation may deposit the aggregate redemption price of the
shares of Serial Preferred Stock to be redeemed with any bank or
trust company in Toledo, Ohio, or New York, New York, having
capital and surplus of more than Five Million Dollars
($5,000,000), named in such notice, directed to be paid to the
respective holders of the shares of Serial Preferred Stock so to
be redeemed, in amounts equal to the redemption price of all
shares of Serial Preferred Stock so to be redeemed, on surrender
of the stock certificate or certificates held by such holders, and
upon the making of such deposit such holders shall cease to be
shareholders with respect to such shares, and after such notice
shall have been given and such deposit shall have been made such
holders shall have no interest in or claim against the Corporation
with respect to such shares except only to receive such money from
such bank or trust company without interest or the right to
exercise, before the redemption date, any unexpired privileges of
conversion. In case less than all of the outstanding shares of
Serial Preferred Stock are to be redeemed, the Corporation shall
select by lot the shares so to be redeemed in such manner as shall
be prescribed by its Board of Directors.
If the holders of shares of Serial Preferred Stock which shall
have been called for redemption shall not, within ten years after
such deposit, claim the amount deposited for the redemption
thereof, any such bank or trust company shall, upon demand, pay
over to the Corporation such unclaimed amounts and thereupon such
bank or trust company and the Corporation shall be relieved of all
responsibility in respect thereof and to such holders.
(c) Any shares of Serial Preferred Stock which are redeemed by the
Corporation pursuant to the provisions of this Section 4 and any
shares of Serial Preferred Stock which are purchased and delivered
in satisfaction of any sinking fund requirements provided for
shares of such series and any shares of Serial Preferred Stock
which are converted in accordance with the express terms thereof
shall be cancelled and not reissued. Any shares of Serial
Preferred Stock otherwise acquired by the Corporation shall resume
the status of authorized and unissued shares of Serial Preferred
Stock without serial designation.
-19-
<PAGE>
EXHIBIT 3 - Continued
Section 5.
(a) The holders of Serial Preferred Stock of any series shall, in case
of liquidation, dissolution or winding up of the affairs of the
Corporation, be entitled to receive in full out of the assets of
the Corporation, including its capital, before any amount shall be
paid or distributed among the holders of the Common Shares or any
other shares ranking junior to the Serial Preferred Stock, the
amounts fixed with respect to shares of such series in accordance
with Section 1 of this Paragraph, plus in either event an amount
equal to all dividends accrued and unpaid thereon to the date of
payment of the amount due pursuant to such liquidation,
dissolution or winding up of the affairs of the Corporation. In
case the net assets of the Corporation legally available therefor
are insufficient to permit the payment upon all outstanding shares
of Serial Preferred Stock of the full preferential amount to which
they are respectively entitled, then such net assets shall be
distributed ratably upon outstanding shares of Serial Preferred
Stock in proportion to the full preferential amount to which each
such share is entitled.
After payment to holders of Serial Preferred Stock of the full
preferential amounts as aforesaid, holders of Serial Preferred
Stock as such shall have no right or claim to any of the remaining
assets of the Corporation.
(b) The merger or consolidation of the Corporation into or with any
other corporation, or the merger of any other corporation into it,
or the sale, lease or conveyance of all or substantially all the
property or business of the Corporation, shall not be deemed to be
a dissolution, liquidation or winding up, voluntary or
involuntary, for the purposes of this Section 5.
Section 6.
(a) The holders of Serial Preferred Stock shall be entitled to one
vote for each share of such stock upon all matters presented to
the shareholders; and, except as otherwise provided herein or
required by law, the holders of Serial Preferred Stock and the
holders of Common Shares shall vote together as one class on all
matters.
If, and so often as, the Corporation shall be in default in the
payment of six (6) full quarterly dividends (whether or not
consecutive) on any series of Serial Preferred Stock at the time
outstanding, whether or not earned or declared, the holders of
Serial Preferred Stock of all series, voting separately as a class
and in addition to all other rights to vote for Directors, shall
be entitled to elect, as herein provided, two (2) members of the
Board of Directors of the Corporation; provided, however, that the
holders of shares of Serial Preferred Stock shall not have or
exercise such special class voting rights except at meetings of
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<PAGE>
EXHIBIT 3 - Continued
the shareholders for the election of Directors at which the
holders of not less than thirty-five per cent (35%) of the
outstanding shares of Serial Preferred Stock of all series then
outstanding are present in person or by proxy; and provided
further that the special class voting rights provided for herein
when the same shall have become vested shall remain so vested
until all accrued and unpaid dividends on the Serial Preferred
Stock of all series then outstanding shall have been paid,
whereupon the holders of Serial Preferred Stock shall be divested
of their special class voting rights in respect of subsequent
elections of Directors, subject to the revesting of such special
class voting rights in the event hereinabove specified in this
paragraph.
In the event of default entitling the holders of Serial Preferred
Stock to elect two (2) Directors as above specified, a special
meeting of the shareholders for the purpose of electing such
Directors shall be called by the Secretary of the Corporation upon
written request of, or may be called by, the holders of record of
at least ten per cent (10%) of the shares of Serial Preferred
Stock of all series at the time outstanding, and notice thereof
shall be given in the same manner as that required for the annual
meeting of shareholders; provided, however, that the Corporation
shall not be required to call such special meeting if the annual
meeting of shareholders shall be held within ninety (90) days
after the date of receipt of the foregoing written request from
the holders of Serial Preferred Stock. At any meeting at which
the holders of Serial Preferred Stock shall be entitled to elect
Directors, the holders of thirty-five per cent (35%) of the then
outstanding shares of Serial Preferred Stock of all series,
present in person or by proxy, shall be sufficient to constitute a
quorum, and the vote of the holders of a majority of such shares
so present at any such meeting at which there shall be such a
quorum shall be sufficient to elect the members of the Board of
Directors which the holders of Serial Preferred Stock are entitled
to elect as hereinabove provided.
(b) The affirmative vote of the holders of at least two-thirds of the
shares of Serial Preferred Stock at the time outstanding, given in
person or by proxy at a meeting called for the purpose at which
the holders of Serial Preferred Stock shall vote separately as a
class, shall be necessary to effect any one or more of the
following (but so far as the holders of Serial Preferred Stock are
concerned, such action may be effected with such vote):
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<PAGE>
EXHIBIT 3 - Continued
(i) Any amendment, alteration or repeal of any of the provisions
of the Articles of Incorporation or of the Regulations of
the Corporation which affects adversely the voting powers,
rights or preferences of the holders of Serial Preferred
Stock; provided, however, that, for the purpose of this
clause (i) only, neither the amendment of the Articles of
Incorporation so as to authorize or create, or to increase
the authorized or outstanding amount of, Serial Preferred
Stock or of any shares of any class ranking on a parity with
or junior to the Serial Preferred Stock, nor the amendment
of the provisions of the Regulations so as to increase the
number of Directors of the Corporation shall be deemed to
affect adversely the voting powers, rights or preferences of
the holders of Serial Preferred Stock; and provided further,
that if such amendment, alteration or repeal affects
adversely the rights or preferences of one or more but not
all series of Serial Preferred Stock at the time
outstanding, only the affirmative vote of the holders of at
least two-thirds of the number of the shares at the time
outstanding of the series so affected shall be required;
(ii) The authorization or creation of, or the increase in the
authorized amount of, any shares of any class, or any
security convertible into shares of any class, ranking prior
to the Serial Preferred Stock; or
(iii) The purchase or redemption (for sinking fund purposes or
otherwise) of less than all of the Serial Preferred Stock
then outstanding except in accordance with a stock purchase
offer made to all holders of record of Serial Preferred
Stock, unless all dividends upon all Serial Preferred Stock
then outstanding for all previous quarterly dividend periods
shall have been declared and paid or funds therefor set
apart and all accrued sinking fund obligations applicable
thereto shall have been complied with.
(c) The affirmative vote of the holders of at least a majority of the
shares of Serial Preferred Stock at the time outstanding, given in
person or by proxy at a meeting called for the purpose at which
the holders of Serial Preferred Stock shall vote separately as a
class, shall be necessary to effect any one or more of the
following (but so far as the holders of Serial Preferred Stock are
concerned, such action may be effected with such vote):
(i) The sale, lease or conveyance by the Corporation of all or
substantially all of its property or business, or its
consolidation with or merger into any other corporation
unless the corporation resulting from such consolidation or
merger will have after such consolidation or merger no class
of shares either authorized or outstanding ranking prior to
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<PAGE>
EXHIBIT 3 - Continued
or on a parity with the Serial Preferred Stock except the
same number of shares ranking prior to or on a parity with
the Serial Preferred Stock and having the same rights and
preferences as the shares of the Corporation authorized and
outstanding immediately preceding such consolidation or
merger, and each holder of Serial Preferred Stock
immediately preceding such consolidation or merger shall
receive the same number of shares, with the same rights and
preferences, of the resulting corporation; or
(ii) The authorization of any shares ranking on a parity with the
Serial Preferred Stock or an increase in the authorized
number of shares of Serial Preferred Stock.
Section 7. The holders of Serial Preferred Stock shall have no
pre-emptive right to purchase or have offered to them for purchase any shares
or other securities of the Corporation, whether now or hereafter authorized.
Section 8. For the purpose of this Paragraph 1:
Whenever reference is made to shares "ranking prior to the Serial
Preferred Stock" or "on a parity with the Serial Preferred Stock," such
reference shall mean and include all shares of the Corporation in respect of
which the rights of the holders thereof as to the payment of dividends or as
to distributions in the event of a voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation are given
preference over, or rank on an equality with (as the case may be) the rights
of the holders of Serial Preferred Stock; and whenever reference is made to
shares "ranking junior to the Serial Preferred Stock," such reference shall
mean and include all shares of the Corporation in respect of which the rights
of the holders thereof as to the payment of dividends and as to distributions
in the event of a voluntary or involuntary liquidation, dissolution or winding
up of the affairs of the Corporation are junior and subordinate to the rights
of the holders of Serial Preferred Stock.
Paragraph 1(a). Express Terms of the $4.75 Cumulative Convertible Preferred
Stock, Series A.
There is hereby established a first series of Serial Preferred Stock to
which the following provisions shall be applicable:
Section 1. Designation of Series. The series shall be designated
"$4.75 Cumulative Convertible Preferred Stock, Series A" (hereinafter called
"Series A Preferred Stock").
Section 2. Number of Shares. The number of shares of Series A
Preferred Stock is 1,357,100, which number the Board of Directors may increase
or decrease (but not below the number of shares of the series then
outstanding).
-23-
<PAGE>
EXHIBIT 3 - Continued
Section 3. Dividend Rate. The dividend rate for Series A Preferred
Stock is $4.75 per share per annum.
Section 4. Dividend Payment Dates; Cumulation Dates. The dates at
which dividends on the Series A Preferred Stock shall be payable are March 10,
June 10, September 10 and December 10 of each year. Dividends on Series A
Preferred Stock shall be cumulative from and after the date of issuance
thereof.
Section 5. Redemption Prices. The Series A Preferred Stock shall not
be redeemable by the Corporation prior to January 1, 1974. Thereafter the
redemption prices for the Series A Preferred Stock shall be as follows:
If the Redemption
Date Is During the
12-Month Period Redemption
Beginning January 1 Price
1974 $104.75
1975 103.75
1976 102.75
1977 101.75
1978 100.75
Thereafter 100.00
Section 6. Liquidation Rights. The amount payable on Series A
Preferred Stock in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation shall be an amount
equal to $100.00 per share.
Section 7. Conversion Rights.
(a) Subject to the provisions for adjustment hereinafter set forth,
shares of the Series A Preferred Stock shall be convertible at any
time at the option of the holder thereof, upon surrender to any
transfer agent for such series of the certificate or certificates
evidencing the shares so to be converted, into fully paid and
non-assessable Common Shares of the Corporation at the initial
rate of one and one-half (1-1/2) Common Shares for each share of
the Series A Preferred Stock so surrendered for conversion. The
right to convert shares of the Series A Preferred Stock shall
terminate with respect to shares called for redemption on the
third business day prior to the date fixed for redemption. Upon
conversion, no payment or adjustment shall be made for dividends
on the shares of the Series A Preferred Stock so converted.
(b) The number of Common Shares and the number of shares of other
classes of the Corporation, if any, into which each share of the
Series A Preferred Stock is convertible shall be subject to
adjustment from time to time only as follows:
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<PAGE>
EXHIBIT 3 - Continued
(i) In case the Corporation shall (A) establish a record date
for the determination of the holders of its Common Shares
who are entitled to receive a dividend declared payable in
Common Shares of the Corporation, (B) subdivide its Common
Shares, (C) combine its outstanding Common Shares into a
smaller number of shares or (D) issue by reclassification of
its Common Shares any shares of the Corporation, the holder
of each share of the Series A Preferred Stock shall
thereafter be entitled to receive upon the conversion of
such share the number of shares of the Corporation which he
would have owned or have been entitled to receive after the
happening of any of the events described above had such
share of the Series A Preferred Stock been converted
immediately prior to the happening of such event, such
adjustment to become effective immediately after the opening
of business on the day following such record date or the day
upon which such subdivision, combination or reclassification
becomes effective.
(ii) In case of any consolidation or merger of the Corporation
with or into another corporation, or in case of any sale or
conveyance to another corporation of all or substantially
all the property of the Corporation, the holder of each
share of the Series A Preferred Stock then outstanding shall
have the right thereafter, so long as his conversion right
hereunder shall exist, to convert such share into the kind
and amount of shares of stock or other securities or
property receivable upon such consolidation, merger, sale or
conveyance by a holder of the number of Common Shares of the
Corporation into which such share might have been converted
immediately prior to such consolidation, merger, sale or
conveyance, and shall have no other conversion rights under
these provisions; in any such event, effective provision
shall be made, in the articles or certificate of
incorporation of the resulting or surviving corporation or
otherwise, so that the provisions set forth herein for the
protection of the conversion rights of the shares of the
Series A Preferred Stock shall thereafter be applicable, as
nearly as reasonably may be, to any such other shares of
stock, other securities or property deliverable upon
conversion of the shares of the Series A Preferred Stock
remaining outstanding, and any such resulting or surviving
corporation shall expressly assume the obligation to
deliver, upon the exercise of the conversion privilege, such
shares, securities or property as the holders of the shares
of the Series A Preferred Stock remaining outstanding shall
be entitled to receive pursuant to the provisions hereof,
and to make provision for the protection of the conversion
right as above provided.
-25-
<PAGE>
EXHIBIT 3 - Continued
(iii) No fractional Common Share shall be issued upon any
conversion but, in lieu thereof, there shall be paid to the
holder of the shares of the Series A Preferred Stock
surrendered for conversion as soon as practicable after the
date such shares are surrendered for conversion an amount in
cash equal to the same fraction of the market value of a
full Common Share, unless the Board of Directors of the
Corporation shall determine to adjust fractional shares by
the issue of fractional scrip certificates or in some other
manner. For such purpose, the market value of a Common
Share shall be the last sales price of 100 shares or more on
the day immediately preceding the date upon which such
shares are surrendered for conversion, or, in case no such
sale takes place on such day, the average of the closing bid
and asked prices on such day, in either case as officially
quoted by the New York Stock Exchange.
(iv) No adjustment in the number of Common Shares into which each
share of the Series A Preferred Stock is convertible shall
be required unless such adjustment would require an increase
or decrease of at least 1/100th of a share in the number of
Common Shares into which such share is then convertible;
provided, however, that any adjustments which by reason of
this clause (iv) are not required to be made shall be
carried forward and taken into account in any subsequent
adjustment.
(v) Whenever any adjustment is required in the Common Shares
into which each share of the Series A Preferred Stock is
convertible, the Corporation shall forthwith (A) file with
the transfer agent or transfer agents for the shares of the
Series A Preferred Stock a statement describing in
reasonable detail the adjustment and the method of
calculation used and (B) shall instruct the said transfer
agent or agents to exhibit the same from time to time to any
holder of Series A Preferred Stock desiring an inspection
thereof.
(c) The Corporation shall at all times reserve and keep available out
of its authorized but unissued Common Shares the full number of
shares into which all shares of the Series A Preferred Stock from
time to time outstanding are convertible, but Common Shares held
in the treasury of the Corporation may be delivered upon any
conversion of shares of the Series A Preferred Stock in the
Corporation's discretion.
-26-
<PAGE>
EXHIBIT 3 - Continued
(d) The Corporation will pay any and all issue and other taxes that
may be payable in respect of any issue or delivery of Common
Shares on conversion of shares of the Series A Preferred Stock
pursuant hereto. The Corporation shall not, however, be required
to pay any tax which may be payable in respect of any transfer
involved in the issue and delivery of shares in a name other than
that in which the shares of the Series A Preferred Stock so
converted were registered and no such issue or delivery shall be
made unless and until the person requesting such issue has paid to
the Corporation the amount of any such tax or has established, to
the satisfaction of the Corporation, that such tax has been paid.
(e) In the event the Corporation shall offer securities of the
Corporation or of any other corporation to the holders of its
Common Shares, the Corporation shall make the same offer to the
holders of shares of the Series A Preferred Stock, giving to each
such holder the right to purchase at the offer price the amount of
such securities which such holder would have been entitled to
purchase had he converted each share of the Series A Preferred
Stock held by him immediately prior to the taking of a record of
the holders of Common Shares for the purpose of entitling them to
receive such offer, such offer to the holders of shares of the
Series A Preferred Stock to be made to those holders who are such
of record on the books of the Corporation on the same date as is
used for the taking of a record of the holders of Common Shares
for such offer.
(f) Upon conversion of Series A Preferred Stock, the stated capital of
the Common Shares issued upon such conversion shall be the
aggregate par value thereof, and the stated capital of the
Corporation shall be correspondingly increased or reduced to
reflect the difference between the stated capital of the Series A
Preferred Stock so converted and the stated capital of the Common
Shares issued upon conversion.
Paragraph 1(b). Express Terms of the Cumulative Redeemable Preferred Stock.
There is hereby established a series of Serial Preferred Stock to which
the following provisions shall be applicable:
Section 1. Designation of Series. The series shall be designated
"Cumulative Redeemable Serial Preferred Stock" (hereinafter sometimes called
this "Series" or the "Cumulative Redeemable Preferred Shares").
Section 2. Number of Shares. The number of shares of this Series shall
be 1,000,000.
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<PAGE>
EXHIBIT 3 - Continued
Section 3. Dividends.
(a) The holders of record of Cumulative Redeemable Preferred Shares
shall be entitled to receive, when and as declared by the Board of
Directors in accordance with the terms hereof, out of funds
legally available for the purpose, cumulative quarterly dividends
payable in cash on the first day of January, April, July and
October in each year (each such date being referred to herein as a
"Quarterly Dividend Payment Date"), commencing on the first
Quarterly Dividend Payment Date after the first issuance of a
Cumulative Redeemable Preferred Share or fraction of a Cumulative
Redeemable Preferred Share in an amount per share (rounded to the
nearest cent) equal to the lesser of (i) $500 per share or (ii)
subject to the provision for adjustment hereinafter set forth, 100
times the aggregate per share amount of all cash dividends, and
100 times the aggregate per share amount (payable in cash) of all
non-cash dividends or other distributions (other than a dividend
payable in Common Shares, or a subdivision of the outstanding
Common Shares (by reclassification or otherwise)), declared on the
Common Shares since the immediately preceding Quarterly Dividend
Payment Date, or, with respect to the first Quarterly Dividend
Payment Date, since the first issuance of any Cumulative
Redeemable Preferred Share or fraction of a Cumulative Redeemable
Preferred Share. In the event the Corporation shall at any time
declare or pay any dividend on the Common Shares payable in Common
Shares, or effect a subdivision or combination or consolidation of
the outstanding Common Shares (by reclassification or otherwise
than by payment of a dividend in Common Shares) into a greater or
lesser number of Common Shares, then in each such case the amount
to which holders of Cumulative Redeemable Preferred Shares were
entitled immediately prior to such event under clause (ii) of the
preceding sentence shall be adjusted by multiplying such amount by
a fraction the numerator of which is the number of Common Shares
outstanding immediately after such event and the denominator of
which is the number of Common Shares that were outstanding
immediately prior to such event.
(b) Dividends shall begin to accrue and be cumulative on outstanding
Cumulative Redeemable Preferred Shares from the Quarterly Dividend
Payment Date next preceding the date of issue of such Cumulative
Redeemable Preferred Shares, unless the date of issue of such
shares is prior to the record date for the first Quarterly
Dividend Payment Date, in which case dividends on such shares
shall begin to accrue from the date of issue of such shares, or
unless the date of issue is a Quarterly Dividend Payment Date or
is a date after the record date for the determination of holders
of shares of Cumulative Redeemable Preferred Shares entitled to
receive a quarterly dividend and before such Quarterly Dividend
Payment Date, in either of which events such dividends shall begin
to accrue and be cumulative from such Quarterly Dividend Payment
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<PAGE>
EXHIBIT 3 - Continued
Date. Accrued but unpaid dividends shall not bear interest. No
dividends shall be paid upon or declared and set apart for any
Cumulative Redeemable Preferred Shares for any dividend period
unless at the same time a dividend for the same dividend period,
ratably in proportion to the respective annual dividend rates
fixed therefor, shall be paid upon or declared and set apart for
all Serial Preferred Stock of all series then outstanding and
entitled to receive such dividend. The Board of Directors may fix
a record date for the determination of holders of Cumulative
Redeemable Preferred Shares entitled to receive payment of a
dividend or distribution declared thereon, which record date shall
be no more than 40 days prior to the date fixed for the payment
thereof.
Section 4. Redemptions. Subject to the provisions of Section 6(b)(iii)
of Paragraph 1 and in accordance with Section 4 of Paragraph 1, the Cumulative
Redeemable Preferred Shares shall be redeemable from time to time at the
option of the Board of Directors of the Corporation, as a whole or in part, at
any time at a redemption price per share equal to one hundred times the then
applicable Purchase Price as defined in that certain Rights Agreement, dated
as of January 26, 1989 between the Corporation and National Bank of Detroit
(the "Rights Agreement"), as the same may be from time to time amended in
accordance with its terms, which Purchase Price is $125 as of January 26,
1989, subject to adjustment from time to time as provided in the Rights
Agreement. Copies of the Rights Agreement are available from the Corporation
upon request. In case less than all of the outstanding Cumulative Redeemable
Preferred Shares are to be redeemed, the Corporation shall select by lot the
shares so to be redeemed in such manner as shall be prescribed by its Board of
Directors.
Section 5. Liquidations.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation
(hereinafter referred to as a "Liquidation"), no distribution
shall be made to the holders of shares of stock ranking junior
(either as to dividends or upon Liquidation) to the Cumulative
Redeemable Preferred Shares, unless, prior thereto, the holders of
Cumulative Redeemable Preferred Shares shall have received at
least an amount per share equal to one hundred times the then
applicable Purchase Price as defined in the Rights Agreement, as
the same may be from time to time amended in accordance with its
terms (which Purchase Price is $125 as of January 26, 1989),
subject to adjustment from time to time as provided in the Rights
Agreement, plus an amount equal to accrued and unpaid dividends
and distributions thereon, whether or not earned or declared, to
the date of such payment, provided that the holders of shares of
Cumulative Redeemable Preferred Shares shall be entitled to
receive at least an aggregate amount per share, subject to the
provision for adjustment hereinafter set forth, equal to 100 times
the aggregate amount to be distributed per share to holders of
Common Shares (the "Cumulative Redeemable Preferred Shares
Liquidation Preference").
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<PAGE>
EXHIBIT 3 - Continued
(b) In the event, however, that the net assets of the Corporation are
not sufficient to pay in full the amount of the Cumulative
Redeemable Preferred Shares Liquidation Preference and the
liquidation preferences of all other series of Serial Preferred
Stock, if any, which rank on a parity with the Cumulative
Redeemable Preferred Shares as to distribution of assets in
Liquidation, all shares of this Series and of such other series of
Serial Preferred Stock shall share ratably in the distribution of
assets (or proceeds thereof) in Liquidation in proportion to the
full amounts to which they are respectively entitled.
(c) In the event the Corporation shall at any time declare or pay any
dividend on the Common Shares payable in Common Shares, or effect
a subdivision or combination or consolidation of the outstanding
Common Shares (by reclassification or otherwise than by payment of
a dividend in Common Shares) into a greater or lesser number of
Common Shares, then in each such case the amount to which holders
of Cumulative Redeemable Preferred Shares were entitled
immediately prior to such event pursuant to the proviso set forth
in paragraph (a) above, shall be adjusted by multiplying such
amount by a fraction the numerator of which is the number of
Common Shares outstanding immediately after such event and the
denominator of which is the number of Common Shares that were
outstanding immediately prior to such event.
(d) The merger or consolidation of the Corporation into or with any
other corporation, or the merger of any other corporation into it,
or the sale, lease or conveyance of all or substantially all the
property or business of the Corporation, shall not be deemed to be
a Liquidation for the purposes of this Section 5.
Section 6. Conversions. The Cumulative Redeemable Preferred Shares
shall not be convertible into Common Shares.
Paragraph 2. Express Terms of the Common Shares
The Common Shares shall be subject to the express terms of the Serial
Preferred Stock and any series thereof. Each Common Share shall be equal to
every other Common Shares. The holders of Common Shares shall be entitled to
one vote for each share upon all matters presented to the shareholders. The
holders of Common Shares shall have no pre-emptive rights to purchase or have
offered to them for purchase any Common Shares which the Corporation may from
time to time issue and offer for sale for any purpose, and any such rights
heretofore existing are hereby terminated.
FIFTH: The Corporation by action of its Board of Directors may purchase
any issued shares of the Corporation to the extent not prohibited by law.
-30-
<PAGE>
EXHIBIT 3 - Continued
SIXTH: Notwithstanding any provision of the Revised Code, as now or
hereafter in force, requiring for any purpose the vote, consent, waiver, or
release of the holders of a designated proportion (but less than all) of the
shares of the Corporation, such vote, consent, waiver, or release, unless
otherwise expressly provided by law, may be made or taken by the vote of the
holders of shares entitling them to exercise a majority of the voting power of
the Corporation.
SEVENTH: These Amended Articles of Incorporation supersede and take the
place of the existing Articles.
-31-
EXHIBIT 11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
Aeroquip-Vickers, Inc.
(In thousands, except per share data)
Three Months Ended
March 31
--------------------------
1997 1996
---------- ----------
AVERAGE SHARES OF COMMON STOCK
AND COMMON STOCK EQUIVALENTS
OUTSTANDING (NOTE A)
Average shares outstanding 27,974 28,755
Assumed conversion of the 6%
convertible debentures -- 1,905
Net effect of dilutive stock
options based upon treasury stock
method using average market price 141 47
--------- ----------
Average shares of common stock
and common stock equivalents
outstanding 28,115 30,707
========== ==========
INCOME ATTRIBUTABLE TO COMMON STOCK (NOTE A)
Net income $ 5,694 $ 24,415
After-tax equivalent of interest expense
on the 6% convertible debentures -- 930
---------- ----------
Income attributable to common stock $ 5,694 $ 25,345
========== ==========
Net Income per Share $ .20 $ .83
========== ==========
Note A - Net income per share for the 1996 first quarter was 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 and net income was increased for the after-tax
equivalent of interest expense on the 6% convertible debentures. In the 1997
first quarter, the assumed conversion of the 6% convertible debentures was not
included in average shares outstanding because the effect of the inclusion
would have been anti-dilutive.
-32-
EXHIBIT 12
<TABLE>
STATEMENT RE: COMPUTATION OF RATIOS
Aeroquip-Vickers, Inc.
(In thousands, except per share data)
<CAPTION>
Three Months
Ended Year Ended December 31
March 31, ----------------------------------------
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
RATIO OF EARNINGS TO FIXED
CHARGES
Income before income taxes and
cumulative effect of accounting
change $ 6,594 $153,421 $128,196 $101,255 $ 17,111 $ 24,042
Dividends received, net of equity
in earnings (loss) of
unconsolidated affiliates 382 9,961 (3,704) 1,213 1 (1,931)
Fixed charges 11,800 41,712 31,762 30,249 33,370 34,623
-------- -------- -------- -------- -------- ---------
Income before cumulative effect
of accounting change for
computation purposes $ 18,776 $205,094 $156,254 $132,717 $ 50,482 $ 56,734
======== ======== ======== ======== ======== =========
FIXED CHARGES
Interest expense, including
interest related to corporate
owned life insurance $ 10,066 $ 34,963 $ 24,477 $ 22,582 $ 25,516 $ 26,313
Portion of rent expense
representing interest 1,584 6,288 6,903 7,303 7,490 7,987
Amortization of debt expense and
debt discount 150 461 382 364 364 323
-------- -------- -------- -------- -------- --------
Total fixed charges $ 11,800 $ 41,712 $ 31,762 $ 30,249 $ 33,370 $ 34,623
======== ======== ======== ======== ======== ========
Ratio of Earnings to Fixed Charges 1.6x 4.9x 4.9x 4.4x 1.5x 1.6x
======== ======== ======== ======== ======== ========
<FN>
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.
</FN>
</TABLE>
-33-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 37,277
<SECURITIES> 0
<RECEIVABLES> 384,445
<ALLOWANCES> 14,239
<INVENTORY> 265,213
<CURRENT-ASSETS> 725,575
<PP&E> 985,213
<DEPRECIATION> 554,326
<TOTAL-ASSETS> 1,339,346
<CURRENT-LIABILITIES> 478,551
<BONDS> 258,808
<COMMON> 139,954
0
0
<OTHER-SE> 300,263
<TOTAL-LIABILITY-AND-EQUITY> 1,339,346
<SALES> 538,426
<TOTAL-REVENUES> 538,426
<CGS> 405,951
<TOTAL-COSTS> 405,951
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,371
<INCOME-PRETAX> 6,594
<INCOME-TAX> 900
<INCOME-CONTINUING> 5,694
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,694
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
</TABLE>
