SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 11-K
ANNUAL REPORT PURSUANT TO SECTION 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
Commission File No. 1-924
A. Full title of the plan:
AEROQUIP INOAC COMPANY
RETIREMENT SAVINGS AND PROFIT-SHARING PLAN
B. Name of issuer of securities
held pursuant to the plan and
the address of its principal
executive office:
AEROQUIP-VICKERS, INC.
3000 STRAYER ROAD
P.O. BOX 50
MAUMEE, OH 43537-0050
<PAGE>
REQUIRED INFORMATION
The following financial statements are furnished for the Aeroquip Inoac
Company Retirement Savings and Profit-Sharing Plan:
Page
Report of Independent Auditors 4
Statements of Assets Available for Plan Benefits 5
Statement of Changes in Assets Available for Plan 6
Benefits
Notes to Financial Statement 7
Item 27a - Schedule of Assets Held for Investment 17
Purposes
Item 27d - Schedule of Reportable Transactions 18
Exhibit
The following exhibit is filed herewith:
Exhibit No.
(23) Consent of Independent Auditors 20
SIGNATURE
The Plan. Pursuant to the requirements of the Securities Exchange Act of
1934, the trustees (or other persons who administer the employee benefit plan)
have duly caused this annual report to be signed on its behalf by the
undersigned hereunto duly authorized.
AEROQUIP INOAC COMPANY
RETIREMENT SAVINGS AND PROFIT-
SHARING PLAN
By: Benefit Committee
Date: June 29, 1998 /S/ MICHAEL J. BEEBE
Michael J. Beebe
Committee Member
Date: June 29, 1998 /S/ EDWARD G. BROWNLEE
Edward G. Brownlee
Committee Member
Date: June 29, 1998 /S/ JAN HUGHETT
Jan Hughett
Committee Member
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<PAGE>
Aeroquip Inoac Company
Retirement Savings and Profit Sharing Plan
Financial Statements
and Supplemental Schedules
Years ended December 31, 1997 and 1996
Contents
Report of Independent Auditors 4
Audited Financial Statements
Statements of Assets Available for Plan Benefits 5
Statement of Changes in Assets Available for Plan Benefits 6
Notes to Financial Statements 7
Supplemental Schedules
Item 27a--Schedule of Assets Held for Investment Purposes 17
Item 27d--Schedule of Reportable Transactions 18
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<PAGE>
Report of Independent Auditors
Administrative Committee
Aeroquip Inoac Company Retirement Savings
and Profit Sharing Plan
We have audited the accompanying statements of assets available for plan
benefits of the Aeroquip Inoac Company Retirement Savings and Profit Sharing
Plan as of December 31, 1997 and 1996, and the related statement of changes in
assets available for plan benefits for the year ended December 31, 1997. These
financial statements are the responsibility of the Plan's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the assets available for benefits of the Plan at
December 31, 1997 and 1996, and the changes in assets available for plan
benefits for the year ended December 31, 1997, in conformity with generally
accepted accounting principles.
Our audits were performed for the purpose of forming an opinion on the
financial statements taken as a whole. The accompanying supplemental schedules
of assets held for investment purposes as of December 31, 1997, and reportable
transactions for the year then ended, are presented for purposes of complying
with the Department of Labor's Rules and Regulations for Reporting and
Disclosure under the Employee Retirement Income Security Act of 1974, and are
not a required part of the financial statements. The supplemental schedules
have been subjected to the auditing procedures applied in our audits of the
financial statements and, in our opinion, are fairly stated in all material
respects in relation to the financial statements taken as a whole.
April 24, 1998
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<PAGE>
Aeroquip Inoac Company Retirement Savings
and Profit Sharing Plan
Statements of Assets Available for Plan Benefits
December 31
1997 1996
Assets (Note 1):
Investments (Notes 3 and 4):
Vanguard Funds $17,669,813 $10,059,188
Aeroquip-Vickers Stock Fund 889,619 10,415
Loans receivable from plan participants 1,200,854 399,875
19,760,286 10,469,478
Contributions receivable from employees 42,096 25,984
Contributions receivable from employer 2,286,256 1,517,566
Total assets available for plan benefits $22,088,638 $12,013,028
See accompanying notes.
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<PAGE>
Aeroquip Inoac Company Retirement Savings
and Profit Sharing Plan
Statement of Changes in Assets Available for Plan Benefits
Year ended December 31, 1997
Additions:
Assets transferred in from other plans (Note 1) $ 4,535,717
Contributions:
Employees 915,536
Employer 2,712,355
3,627,891
Net investment income:
Interest 71,681
Dividends 854,856
926,537
Realized and unrealized gains on investments 1,906,162
2,832,699
Total additions 10,996,307
Deductions - Benefits paid to participants 920,697
Net additions 10,075,610
Assets available for plan benefits at beginning of year 12,013,028
Assets available for plan benefits at end of year $22,088,638
See accompanying notes.
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<PAGE>
Aeroquip Inoac Company Retirement Savings
and Profit Sharing Plan
Notes to Financial Statements
December 31, 1997
1. Description of Plan
The following description of the Aeroquip Inoac Company Retirement Savings and
Profit Sharing Plan (the Plan) provides only general information. Participants
should refer to the Summary Plan Description for a more complete description
of the Plan's provisions.
General
The Plan is a defined contribution plan covering all full-time employees and
part-time employees with 1,000 hours of service with the Aeroquip Inoac
Company (the Company), the Plan sponsor. It is subject to the provisions of
the Employee Retirement Income Security Act of 1974 (ERISA).
Assets Transferred
On July 25, 1997, the Company's partners, Aeroquip Corporation (Aeroquip) and
Inoac USA (Inoac), contributed their ownership interests (51% and 49%,
respectively) in two manufacturing facilities to the Company. The two
manufacturing facilities employees' retirement funds were transferred into the
Plan in September 1997 and such participants became eligible for participation
in the Plan as of the date of transfer.
Contributions
Participants may contribute up to 15 percent of their compensation to the Plan
in increments of 1 percent. The Company matches the first 2 percent of
employees' voluntary salary deferral contributions and 50 percent of any
contributions in excess of 2 percent with a maximum matching percentage of 3
percent. The Company also contributes a yearly profit-sharing amount to the
Plan to be not less than 1 percent of social security taxable wages and 1.5
percent of compensation in excess of the social security taxable wage base.
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<PAGE>
Notes to Financial Statements (Continued)
1. Description of Plan (continued)
Participant Accounts
Each participant's account is credited with the participant's contribution,
Company match, profit-sharing allocation and plan earnings. The profit-sharing
and plan earnings allocations are based on employees' compensation and account
balances, respectively.
Administrative Expenses
All expenses of the Plan are paid by the Plan sponsor, except for loan fees
which are borne by the participant requesting the loan.
Vesting
Participants are immediately vested in their voluntary contributions, Company
match, and roll-in amounts plus actual earnings thereon. Vesting in the profit-
sharing contribution is based on years of continuous service, with full
vesting occurring after four years of credited service. Forfeitures are used
to reduce future employer profit-sharing contributions.
The Company has the right, at any time, to terminate the Plan. Upon such
termination the entire interest of each participant's account becomes fully
vested.
Investment Funds
Each participant individually directs his or her contributions and Aeroquip
Inoac Company's contributions into one or more of the following investment
funds (in multiples of 1 percent).
1. Aeroquip-Vickers Stock Fund is invested in Aeroquip-Vickers, Inc. common
stock with a small amount in cash. Cash dividends paid on shares are used
to purchase additional shares for participant accounts. Aeroquip-Vickers,
Inc. common stock is acquired in open market purchases at fair market
value.
2. Vanguard Funds are managed by The Vanguard Group of Investment Companies.
There are eight individual funds in which participants may invest:
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<PAGE>
Notes to Financial Statements (Continued)
1. Description of Plan (continued)
a. Vanguard Retirement Savings Trust (Retirement Savings Trust):
Retirement Savings Trust invests in investment contracts issued by
financial institutions and in contracts backed by high-quality bonds
and bond mutual funds. This diversification helps to protect the
Trust against potential credit losses.
b. Vanguard/Morgan Growth Fund (Morgan Growth Fund): Money in the Morgan
Growth Fund is invested primarily in stocks of "established growth"
companies. The companies normally are medium and larger size
companies with above-average growth in sales and earnings over
extended periods.
c. Vanguard Fixed Income Fund - Long-term Corporate Portfolio (Fixed
Income Fund): Money in the Fixed Income Fund is invested in a
diversified portfolio of long-term investment grade bonds and seeks
to provide a high and sustainable level of current income consistent
with the maintenance of principal and liquidity.
d. Vanguard Index Trust - 500 Portfolio (Index Portfolio): Money in the
Index Fund is invested in stocks of the companies which make up the
Standard & Poor's 500 Composite Stock Price Index. The objective of
the Index Trust - 500 Portfolio Fund is to match the performance of
the Standard & Poor's 500 index.
e. Vanguard Treasury Money Market Portfolio (Money Market Portfolio):
Money in the Money Market Portfolio is 100 percent invested in
securities backed by the full faith and credit of the U.S.
Government. It seeks the maximum current income that is consistent
with the preservation of capital and liquidity. Average maturities
for the securities held by the Money Market Portfolio are normally
maintained in the range of 30 - 60 days and no longer than one year.
f. Vanguard STAR Portfolio (Star Portfolio): Money in the STAR Portfolio
is invested in a portfolio of Vanguard mutual funds that emphasizes
either equity, fixed income or money market securities. It is
designed as a balanced "fund of funds" for long-term investors.
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<PAGE>
Notes to Financial Statements (Continued)
1. Description of Plan (continued)
g. Vanguard/Windsor II (Windsor II): Money in the Windsor II is invested
in stocks which, in the opinion of the Fund's investment advisor, are
undervalued in the marketplace. The stocks held in the Windsor II
tend to offer above average price-to-earnings ratios and below-
average price-to-book value ratios relative to the stock market in
general.
h. Vanguard International Growth Portfolio (International Growth
Portfolio): Money in the International Growth Portfolio is invested
in non-U.S. stocks that have been selected for their growth
potential. The International Growth Portfolio tends to be widely
diversified both geographically and in terms of size of companies.
i. Vanguard LifeStrategy Portfolios - Conservative Growth (LifeStrategy
Conservative Growth Portfolio): Money in the LifeStrategy
Conservative Growth Portfolio is invested in five Vanguard funds: a
domestic stock fund, an international stock fund, two bond funds, and
an asset allocation fund. The objective of the LifeStrategy
Conservative Growth Portfolio is to provide a high level of income
and moderate long-term growth of capital and income.
j. Vanguard LifeStrategy Portfolios - Growth Portfolio (LifeStrategy
Growth Portfolio): Money in the LifeStrategy Growth Portfolio is
invested in four Vanguard funds: a domestic stock fund, an
international stock fund, a bond fund, and an asset allocation fund.
The objective of the LifeStrategy Growth Portfolio is to provide long-
term growth of capital.
Payment of Benefits
A participant is entitled to the benefit provided by the contributions and
income thereon allocated to the participant's account. Upon termination of
employment due to retirement, total and permanent disability or death, a
participant or their beneficiary will be entitled to receive a distribution of
his or her entire account without regard to the Plan's vesting rules: (i) in
one lump sum amount; or (ii) in monthly installments of a fixed amount or over
a specified period of time in an amount of at least $100 per month. If the
value of a participant's account is less than $3,500, the Plan Administrator
will distribute the participant's entire interest in one lump sum payment.
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<PAGE>
Notes to Financial Statements (Continued)
1. Description of Plan (continued)
Withdrawals of tax deferred contributions during a participant's employment
are not permitted prior to age 59-1/2, unless he or she can show financial
hardship for medical expenses, expenses connected with a death in the
participant's immediate family, educational expenses, purchase or renovation
of a principal residence, payments necessary to avoid eviction, or a
foreclosure on the mortgage of a principal residence.
2. Significant Accounting Policies
Basis of Accounting
The accounting records of the Plan are maintained on the accrual basis.
Investment Valuation and Income Recognition
Mutual funds are stated at the net asset value on the last business day of the
plan year. The difference between fair value and the cost of investments is
reflected in the statement of changes in assets available for plan benefits as
unrealized gains (losses) on investments.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of additions and deductions during the
reporting period. Actual results could differ from those estimates.
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<PAGE>
<TABLE>
Aeroquip Inoac Company Retirement Savings
and Profit Sharing Plan
Notes to Financial Statements (continued)
3. Changes in Assets by Investment Option
<CAPTION>
Aeroquip-
Vanguard Vickers Contributions Loan
Funds Stock Receivable Fund Total
<S> <C> <C> <C> <C> <C>
Assets available for plan benefits at December 31, 1996 $10,059,188$ 10,415 $1,543,550 $ 399,875 $12,013,028
Additions:
Assets transferred in from other plans 3,745,702 496,090 293,925 4,535,717
Contributions:
Employees 879,032 20,392 16,112 915,536
Employer 1,932,224 11,441 768,690 2,712,355
2,811,256 31,833 784,802 3,627,891
Net investment income:
Interest 71,681 71,681
Dividends 850,656 4,200 854,856
850,656 4,200 71,681 926,537
Realized and unrealized gains 1,655,034 251,128 1,906,162
Total additions 9,062,648 783,251 784,802 365,606 10,996,307
Deductions - benefits paid to participants 827,518 49,264 43,915 920,697
Net additions prior to transfers 8,235,130 733,987 784,802 321,691 10,075,610
Net transfers among investment funds (624,505) 145,217 479,288
7,610,625 879,204 784,802 800,979 10,075,610
Assets available for plan benefits at December 31, 1997 $17,669,813 $889,619 $2,328,352 $1,200,854 $22,088,638
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</TABLE>
<PAGE>
<TABLE>
Aeroquip Inoac Company Retirement Savings
and Profit Sharing Plan
Notes to Financial Statements (continued)
4. Vanguard Funds
A summary of the activity within the separate Vanguard Fund options for the
year ended December 31, 1997 is as follows:
<CAPTION>
Retirement Morgan Fixed Money
Savings Growth Income Index Market STAR
Trust Fund Fund Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C> <C> <C>
Assets available for plan
benefits at December 31, 1996 $1,992,975 $ 195,488 $2,224,080 $4,260,273 $861,608 134,869
Additions:
Assets transferred in from
other plans 1,559,603 104,793 11,147 545,388 48,049 1,137,424
Contributions:
Employees 159,268 38,532 139,336 316,037 66,620 51,938
Employer 394,632 47,862 445,847 654,644 215,165 54,935
553,900 86,394 585,183 970,681 281,785 106,873
Dividends 166,475 67,825 179,218 136,886 45,774 134,982
Realized and unrealized
gains (losses) 24,233 120,079 1,409,863 (20,589)
Total additions 2,279,978 283,245 895,627 3,062,818 375,608 1,358,690
Deductions - benefits paid to
participants 193,088 3,590 170,893 253,657 91,562 40,554
Net additions prior to transfers 2,086,890 279,655 724,734 2,809,161 284,046 1,318,136
Net transfers among investment
funds (313,902) 52,376 (549,718) (292,048) (188,010) 155,986
1,772,988 332,031 175,016 2,517,113 96,036 1,474,122
Assets available for plan benefits
at December 31, 1997 $3,765,963 $ 527,519 $2,399,096 $6,777,386 $ 957,644 1,608,991
</TABLE>
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<PAGE>
<TABLE>
Aeroquip Inoac Company Retirement Savings
and Profit Sharing Plan
Notes to Financial Statements (continued)
4. Vanguard Funds (continued)
<CAPTION>
LifeStrategy
International Conservative LifeStrategy Total
Growth Growth Growth Vanguard
Windsor II Portfolio Portfolio Portfolio Funds
<S> <C> <C> <C> <C> <C>
Assets available for plan
benefits at December 31, 1996 $ 312,854 $ 77,041 $ - $ - $10,059,188
Additions:
Assets transferred in from
other plans 292,799 43,517 745 2,237 3,745,702
Contributions:
Employees 65,751 25,745 6,493 9,312 879,032
Employer 71,737 28,368 7,240 11,794 1,932,224
137,488 54,113 13,733 21,106 2,811,256
Dividends 101,191 7,976 4,088 6,241 850,656
Realized and unrealized
gains (losses) 109,126 (2,216) 4,001 10,537 1,655,034
Total additions 640,604 103,390 22,567 40,121 9,062,648
Deductions - benefits paid to
participants 48,214 24,556 842 562 827,518
Net additions prior to transfers 592,390 78,834 21,725 39,559 8,235,130
Net transfers among investment
funds 279,515 31,335 70,134 129,827 (624,505)
871,905 110,169 91,859 169,386 7,610,625
Assets available for plan benefits
at December 31, 1997 $1,184,759 $ 187,210 $91,859 $169,386 $17,669,813
</TABLE>
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<PAGE>
Notes to Financial Statements (Continued)
5. Income Tax Status
The Plan has received a favorable determination letter from the Internal
Revenue Service (IRS), in its form prior to amendment, stating that the Plan
is qualified under Section 401(a) of the Internal Revenue Code of 1986 (the
"Code"). The IRS has not ruled on the Plan as amended, however, the pension
advisory committee represents that the Plan is qualified and, therefore, the
related trust is exempt from taxation. Once qualified, the Plan is required to
operate in conformity with the Code and ERISA to maintain its tax exempt
status. The plan administrator is not aware of any course of action or series
of events that have occurred that might adversely affect the Plan's qualified
status.
6. Year 2000 Issue (Unaudited)
The Plan Sponsor has developed a plan to modify its internal information
technology to be ready for the year 2000 and has begun converting critical
data processing systems. The project also includes determining whether third
party service providers have reasonable plans in place to become year 2000
compliant. The Plan Sponsor currently expects the project to be substantially
complete by early 1999. The Plan Sponsor does not expect this project to have
a significant effect on plan operations.
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<PAGE>
Supplemental Schedules
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<PAGE>
<TABLE>
Aeroquip Inoac Company Retirement Savings
and Profit Savings Plan
Employer Identification No. 38-2788802
Plan No. 001
Item 27a--Schedule of Assets Held for Investment Purposes
December 31, 1997
<CAPTION>
Identity of Issue,
Borrower, Lessor or Description of Fair Cost of Proceeds of
Similar Party Investment Shares Cost Value Acquisition Dispositions
<S> <C> <C> <C> <C> <C> <C>
Mutual funds:
*The Vanguard Group
of Investment Companies:
Vanguard Index Trust Portfolio 75,246 $ 5,106,307 $6,777,386
Vanguard Retirement Savings Trust 3,765,963 3,765,963 3,765,963
Vanguard Fixed Income Fund -
Long-Term Corporate Portfolio 259,082 2,253,765 2,399,096
Vanguard STAR Portfolio 92,577 1,634,876 1,608,991
Vanguard/Windsor II 41,396 1,097,410 1,184,759
Vanguard Treasury Money Market
Portfolio 957,644 957,644 957,644
Vanguard/Morgan Growth Fund 30,075 511,196 527,519
Vanguard International Growth
Portfolio 11,422 197,041 187,210
Vanguard LifeStrategy Growth
Portfolio 10,560 161,985 169,386
Vanguard LifeStrategy Portfolio -
Conservative Growth 6,855 89,496 91,859
Total $15,775,683 $17,669,813
*Aeroquip-Vickers, Inc. Aeroquip-Vickers Common Stock 54,645 $ 664,275 $ 889,619
*Participant Loans 7% to 10.5% $ 1,200,854 $ 1,200,854 $ $
<FN>
* - Party-in-interest
</FN>
</TABLE>
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<PAGE>
<TABLE>
Aeroquip Inoac Company Retirement Savings
and Profit Sharing Plan
Employer Identification No. 38-2788802
Plan No. 001
Item 27d--Schedule of Reportable Transactions
Year ended December 31, 1997
<CAPTION> Fair
Identity of Purchase Selling Cost of Value of
Party Involved Description of Assets Price Price Asset Asset Gain
<S> <C> <C> <C> <C> <C> <C>
Aeroquip-Vickers, Inc. Aeroquip-Vickers Common Stock:
Purchase transactions $ 752,504 $ 752,504 $ 752,504
Sales transactions $ 124,429 98,196 124,429 $26,233
The Vanguard Group Vanguard/Morgan Growth Fund:
Purchase transactions 613,892 613,892 613,892
Sales transactions 306,092 299,111 306,092 6,981
Vanguard Fixed Income Fund Long-
term Corporate Portfolio:
Purchase transactions 947,555 947,555 947,555
Sales transactions 892,581 880,256 892,581 12,325
Vanguard Index Trust-500 Portfolio:
Purchase transactions 2,252,844 2,252,844 2,252,844
Sales transactions 1,145,596 951,330 1,145,596 194,266
Vanguard Treasury Money Market
Portfolio:
Purchase transactions 547,597 547,597 547,597
Sales transactions 458,416 458,416 458,416
Vanguard STAR Portfolio:
Purchase transactions 1,602,540 1,602,540 1,602,540
Sales transactions 107,830 102,337 107,830 5,493
Vanguard/Windsor II:
Purchase transactions 1,080,069 1,080,079 1,080,079
Sales transactions 317,300 290,341 317,300 26,959
Vanguard Retirement Savings Trust:
Purchase transactions 2,827,970 2,827,970 2,827,970
Sales transactions 1,054,983 1,054,983 1,054,983
</TABLE>
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EXHIBIT INDEX
Exhibit Page
Exhibit 23 Consent of Independent Auditors 20
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Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement
(Forms S-8) pertaining to the Aeroquip Inoac Company Retirement Savings and
Profit Sharing plan of our report dated April 24, 1997, with respect to the
financial statements and schedules of the Aeroquip Inoac Company Retirement
Savings and Profit Sharing Plan included in this Annual Report (Form 11-K) for
the year ended December 31, 1997.
Toledo, Ohio
June 29, 1998
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