FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended June 30, 1996 Commission File Number 1-1657 CRANE CO. (Exact name of registrant as specified in its charter) Delaware 13-1952290 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 100 First Stamford Place, Stamford, Ct. 06902 (Address of principal executive office) (Zip Code) (203) 363-7300 (Registrant's telephone number, including area code) (Not Applicable) (Former name, former address and former fiscal year, 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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No The number of shares outstanding of the issuer's classes of common stock, as of July 31, 1996: Common stock, $1.00 Par Value - 29,965,809 shares
Part I - Financial Information Item 1. Financial Statements <TABLE> Crane Co. Consolidated Statements of Income (in thousands except per share amounts) (unaudited) <CAPTION> Periods Ended June 30, Three Months Six Months 1996 1995 1996 1995 <S> <C> <C> <C> <C> Net Sales $ 466,231 $ 451,479 $ 902,694 $ 884,057 Operating Costs and Expenses: Cost of sales 339,605 332,763 659,587 656,221 Selling, general and administrative 70,999 67,875 141,485 136,472 Depreciation & amortization 12,050 11,942 24,072 23,846 422,654 412,580 825,144 816,539 Operating Profit 43,577 38,899 77,550 67,518 Other Income (Deductions): Interest income 647 255 1,180 623 Interest expense (5,768) (7,037) (11,630) (14,030) Miscellaneous - net (3,437) 463 (2,601) 366 (8,558) (6,319) (13,051) (13,041) Income Before Taxes 35,019 32,580 64,499 54,477 Provision for Income Taxes 12,915 12,463 24,187 21,085 Net Income $ 22,104 $ 20,117 $ 40,312 $ 33,392 Net Income Per Share $.72 $.66 $1.32 $1.10 Average Shares Outstanding 30,645 30,622 30,586 30,459 Dividends Per Share $.1875 $.1875 $.3750 $.3750 <FN> See Notes to Consolidated Financial Statements </TABLE> -2-
<TABLE> Part I - Financial Information Item 1. Financial Statements (Cont'd) Crane Co. Consolidated Balance Sheets (in thousands) <CAPTION> June 30, December 31, 1996 1995 1995 (unaudited) Assets <S> <C> <C> <C> Current Assets: Cash and cash equivalents $ 22,494 $ 661 $ 5,476 Accounts receivable 255,184 252,894 240,787 Inventories: Finished goods 121,805 122,910 117,060 Finished parts and subassemblies 35,199 32,886 37,915 Work in process 33,791 39,549 35,364 Raw materials 55,435 53,223 54,662 246,230 248,568 245,001 Other current assets 7,091 7,861 6,774 Total Current Assets 530,999 509,984 498,038 Property, Plant and Equipment: Cost 521,344 520,126 512,985 Less accumulated depreciation 280,478 263,636 269,047 240,866 256,490 243,938 Other Assets 27,080 37,100 26,874 Intangibles 57,359 61,358 58,894 Cost in excess of net assets acquired 167,601 170,941 170,667 $ 1,023,905 $ 1,035,873 $ 998,411 <FN> See Notes to Consolidated Financial Statements -3- </TABLE>
<TABLE> Part I - Financial Information Item 1. Financial Statements (Cont'd) Crane Co. Consolidated Balance Sheets (Cont'd) (in thousands) <CAPTION> June 30, December 31, 1996 1995 1995 (unaudited) Liabilities and Shareholders' Equity <S> <C> <C> <C> Current Liabilities: Current maturities of long-term debt $ 760 $ 1,196 $ 771 Loans payable 18,115 20,428 15,359 Accounts payable 101,040 101,229 96,873 Accrued liabilities 116,559 118,071 115,530 U.S. and foreign taxes on income 14,143 8,256 12,743 Total Current Liabilities 250,617 249,180 241,276 Long-Term Debt 265,180 326,258 281,093 Deferred Income Taxes 27,609 32,306 27,993 Other Liabilities 21,876 19,059 21,977 Accrued Postretirement Benefits 43,153 43,172 43,071 Accrued Pension Liability 8,382 8,725 8,272 Preferred Shares, Par Value $.01 Authorized - 5,000 Shares - - - Common Shareholders' Equity: Common shares 30,364 30,506 30,125 Capital surplus 19,947 24,871 12,283 Retained earnings 367,819 309,746 342,330 Currency translation adjustment (11,042) (7,950) (10,009) Total Common Shareholders' Equity 407,088 357,173 374,729 $ 1,023,905 $ 1,035,873 $ 998,411 <FN> See Notes to Consolidated Financial Statements -4- </TABLE>
<TABLE> Part I - Financial Information Item 1. Financial Statements (Cont'd) Crane Co. Consolidated Statements of Cash Flows (in thousands) (unaudited) <CAPTION> Six Months Ended June 30, 1996 1995 <S> <C> <C> Cash flows from operating activities: Net income $ 40,311 $ 33,392 Depreciation 17,279 17,915 Amortization 6,793 5,931 Deferred taxes (833) (697) Cash used for operating working capital (10,227) (22,181) Other (659) (3,020) Total from operating activities 52,664 31,340 Cash flows from investing activities: Capital expenditures (16,710) (13,609) Payments for acquisitions - (1,879) Proceeds from divestitures 1,554 - Proceeds from disposition of capital assets 1,391 3,120 Purchase of equity investment - (5,038) Total used for investing activities (13,765) (17,406) Cash flows from financing activities: Equity: Dividends paid (11,356) (11,365) Reacquisition of shares (1,522) (3,115) Stock options exercised 4,160 7,323 Net Equity (8,718) (7,157) Debt: Proceeds from issuance of long-term debt - - Repayments of long-term debt (11,905) (7,934) Net decrease in short-term debt (1,237) (311) Net Debt (13,142) (8,245) Total used for financing activities (21,860) (15,402) Effect of exchange rate on cash and cash equivalents (21) 57 Increase (decrease) in cash and cash equivalents 17,018 (1,411) Cash and cash equivalents at beginning of period 5,476 2,072 Cash and cash equivalents at end of period $ 22,494 $ 661 Detail of Cash (Used for) Provided From Operating Working Capital: Accounts receivable $ (15,569) $ (15,379) Inventories (1,877) (8,441) Other current assets (353) (1,379) Accounts payable 4,830 4,406 Accrued liabilities 1,343 (2,191) U.S. and foreign taxes on income 1,399 803 Total $ (10,227) $ (22,181) Supplemental disclosure of cash flow information: Interest paid $ 11,418 $ 13,876 Income taxes paid 22,530 19,279 See Notes to Consolidated Financial Statements -5- </TABLE>
Part I - Financial Information Item 1. Financial Statements (Cont'd) Notes to Consolidated Financial Statements 1. The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim period presented. <TABLE> 2. Sales and operating profit by segment are as follows: <CAPTION> Three Months Ended Six Months Ended June 30, June 30, 1996 1995 1996 1995 <S> <C> <C> <C> <C> (In thousands) Net Sales: Fluid Handling $ 91,974 $ 83,397 $ 184,204 $ 162,257 Aerospace 57,168 53,440 115,489 104,489 Engineered Materials 53,166 50,026 103,904 103,964 Crane Controls 32,457 34,195 66,240 67,267 Merchandising Systems 47,410 51,984 91,482 99,607 Wholesale Distribution 186,528 179,580 345,948 348,686 Other 1,892 3,190 4,472 6,318 Intersegment Elimination (4,364) (4,333) (9,045) (8,531) Total $ 466,231 $ 451,479 $ 902,694 $ 884,057 Operating Profit (Loss): Fluid Handling $ 5,726 $ 4,990 $ 10,764 $ 7,233 Aerospace 16,426 14,344 31,709 26,252 Engineered Materials 7,671 5,345 12,911 12,020 Crane Controls 2,619 3,170 6,096 6,058 Merchandising Systems 7,251 8,780 13,117 15,396 Wholesale Distribution 8,297 5,921 11,857 7,749 Other (38) (179) 13 42 Corporate (4,475) (3,610) (9,047) (7,310) Intersegment Elimination 100 138 130 78 Total $ 43,577 $ 38,899 $ 77,550 $ 67,518 -6- </TABLE>
Part I - Financial Information Item 1. Financial Statements (Cont'd) Notes to Consolidated Financial Statements (Cont'd) 3. Accounts Receivable Receivables are carried at net realizable value. The allowance for doubtful accounts was $3,904,000 at June 30, 1996, $3,980,000 at June 30, 1995, and $3,598,000 at December 31, 1995. 4. Inventories Inventories are stated at the lower of cost or market, principally on the last-in, first-out (LIFO) method of inventory valuation. Replacement cost would be higher by $52,377,000 at June 30, 1996, $53,114,000 at June 30, 1995, and $49,460,000 at December 31, 1995. 5. Intangibles Intangible assets are amortized on a straight-line basis over their estimated useful lives which range from five to twenty years. Accumulated amortization was $13,064,000 at June 30, 1996, $8,851,000 at June 30, 1995, and $11,020,000 at December 31, 1995. 6. Cost in Excess of Net Assets Acquired Cost in excess of net assets acquired is amortized on a straight- line basis principally over 15 to 40 years. Accumulated amortization was $25,318,000 at June 30,1996, $19,569,000 on June 30, 1995, and $22,482,000 on December 31, 1995. -7-
Part I - Financial Information (Cont'd) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Three and Six Months Ended June 30, 1996 and 1995 [CAPTION] Results From Operations: Second Quarter of 1996 Compared to Second Quarter of 1995: Net income for the quarter ended June 30, 1996 was $22.1 million, or $.72 per share, after a $4 million pretax charge ($2.5 million after tax), or $.08 per share, in connection with the successful defense of the False Claims Act case related to the CF&I Steel Corporation spin-off in 1985. The net income result represents a 10% increase from the $20.1 million, or $.66 per share, reported for the 1995 second quarter. Operating profit for the second quarter increased 12% to $43.6 million on a sales increase of 3% to $466.2 million. Fluid Handling sales were up 10% and operating profit increased 15% in the quarter compared to the prior year. Sales gains were experienced in both the valves and pumps businesses. In Valves, sales gains were primarily in the international operations. Crane U.K. had strong export sales while Crane Australia benefited from its successful efforts to expand markets to Asia and from significant improvements in domestic demand from the depressed levels of a year ago. Pumps sales increased due to new products, Chempump's NC Series diagnostic sealless pump and Barnes' pressure sewer pump systems, and the impact of the Process Systems acquisition completed in the fourth quarter of last year. Operating profit improved due to the strong sales at Crane Australia and the pumps businesses as well as profitable results at Cochrane's water treatment business compared to a loss in 1995. Crane U.K. profits were lower because of the lower margins on export sales. Aerospace sales increased 7% in the quarter due to continued increases in shipments to airframe manufacturers and the overhaul and repair markets. Operating profit rose 15% due to the increased sales volume and greater focus on the higher-margin overhaul and repair market. Orders in the commercial air transportation market remained strong. Engineered Materials sales and operating profit increased 6% and 44%, respectively, compared to the 1995 second quarter. Higher shipments and operating margins at Kemlite, Resistoflex and Crane Plumbing more than offset lower results at Cor Tec where sales decreased significantly due to a 25% decline in the truck trailer transportation market in the United States. Kemlite sales rose 11% as fiberglass-reinforced plastic panels continued to displace aluminum in the recreational vehicle market. Resistoflex shipments were higher across all product lines with the company capturing significant orders in the Southeast Asia market as a result of its acquisition of Kessel PTE., Ltd. in the fourth quarter of last year. -8-
Part I - Financial Information (Cont'd) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Three and Six Months Ended June 30, 1996 and 1995 [CAPTION] Results From Operations: Crane Controls sales and operating profit were down 5% and 17%, respectively, compared to the second quarter 1995. The lower results were due primarily to lower shipments of Ferguson's motion control products in the United States and Europe. Total sales and operating profit for the remaining operations were essentially flat. Merchandising Systems sales declined 9% and operating profit declined 17% in the quarter compared to the prior year. National Vendors vending merchandiser sales in the United States fell due to the completion of the United States Postal Service contract in 1995 as well as reduced purchases by national accounts. Unit shipments to independent operators, National Vendors' core business, increased 6%, but sales revenues were lower due to a shift in product mix towards smaller merchandisers. In addition, sales efforts in Europe were hampered by weak demand in Germany and France. National Vendors anticipates favorable results for the second half of 1996 due to the cost benefits of completing the plant modernization program. Operating profit for NRI improved due to increased sales and the continued benefit of costs reduction programs. Wholesale Distribution sales increased 4% and operating profit rose 40%. Sales gains at Huttig were partially offset by sales declines at Valve Systems and Controls and Crane Supply. Profit improvements were attributable to the increased sales, improved results in Huttig's manufacturing business and higher margins at Crane Supply due to continued emphasis on costs controls. Interest expense in the quarter decreased $1.7 million compared to the prior year due to reduced debt levels. In the 1996 second quarter, the company recorded miscellaneous expense of $3.4 million which included the $4 million litigation charge, compared to miscellaneous income of $.5 million in the 1995 second quarter. The company's effective tax rate in the second quarter improved to 36.9% from 38.3% because in 1996 the company was able to recognize the tax benefits on certain foreign tax loss carryforwards. -9-
Part I - Financial Information (Cont'd) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Three and Six Months Ended June 30, 1996 and 1995 [CAPTION] Results From Operations: Six Months Ended June 30, 1996 Compared to Six Months Ended June 30 , 1995: Net income for the first six months was up 21% to $40.3 million, or $1.32 per share, compared to $33.4 million, or $1.10 per share, last year. Operating income for the first six months was up 15% to $77.6 million on a sales increase of 2% to $902.7 million. Fluid Handling sales were up 14% and operating profit rose 49% compared to 1995. In the United States, sales increased due to the acquisition of Process Systems in the fourth quarter of 1995, strong demand for new products in the pumps line and higher shipments at Pacific Valves. Internationally, sales increased due to higher export sales at Crane U.K., and successful expansion to new markets and an improved domestic market at Crane Australia. Operating profit improved due to the sales increase as well as profitable results at Cochrane's water treatment business compared to a loss in the first half of 1995. Aerospace sales increased 11% for the first six months as all three businesses experienced sales gains. Operating profit rose 21% due to the sales gains and increased penetration of the higher-margin aftermarket. Lear Romec's profits nearly doubled on a sales increase of 22% due to higher aftermarket and OEM sales. Engineered Materials sales were essentially flat and operating profit improved 7%. At Resistoflex, higher shipments across all product lines resulted in a sales increase of 20% and an operating profit increase of 38%. A significant decline in the truck trailer transportation market negatively impacted results at Cor Tec. For Kemlite, this decline was offset with an increased demand in the recreational vehicle market. Crane Plumbing's results benefited from operating efficiencies. Crane Controls sales declined slightly and operating profit was essentially flat. Results were negatively impacted by lower shipments of Ferguson's motion control products in the United States and Europe. This was partially offset by increased sales and operating profit at Powers Process Controls and Barksdale Germany. Profit improvements at Ferguson Europe were due to efficiency gains attributable to the plant consolidation completed in 1995. Merchandising Systems sales decreased 8% and operating profit declined 15% compared to the first half of 1995. Vending merchandiser sales in the United States were down due to the completion of the United States Postal Service contract in 1995 and reduced purchases by national accounts. Operating profit at NRI improved significantly on a sales gain of 10% due to the benefits of its cost reduction program. -10-
Part I - Financial Information (Cont'd) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Three and Six Months Ended June 30, 1995 and 1994 [CAPTION] Results From Operations: Six Months Ended June 30, 1995 Compared to Six Months Ended June 30 , 1994: Wholesale Distribution operating profit improved 53% on slightly lower sales. This was the result of significant improvements in Huttig's manufacturing business along with a 10% increase in profits in its distribution business. Higher margins at Crane Supply due to cost controls also contributed to the profit improvement. Net interest expense declined to $10.5 million compared to $13.4 million a year earlier due to lower debt levels. The effective tax rate was 37.5% compared to 38.7% in 1995. [CAPTION] Liquidity and Capital Resources: During the first half of 1996 the company generated $52.7 million of cash from operating activities compared to $31.3 million in 1995. Net debt totaled 39.1 percent of capital at June 30, 1996. The current ratio increased to 2.1 with working capital totaling $280.4 million at June 30, 1996 compared to $260.8 million at June 30, 1995. Due to seasonality, the company's working capital requirements peak at midyear. As discussed further in Part II, Item 5 of this Form 10-Q, the company has signed a definitive agreement to acquire the microelectronics business of Interpoint Corporation. This acquisition will be financed through the issuance of stock. -11-
Part II - Other Information Item 1. Legal Proceedings Neither the company nor any subsidiary of the company has become a party to, nor has any of their property become the subject of, any material legal proceedings, other than ordinary routine litigation incidental to their businesses, except for the following. On February 28, 1991, the company was served with a complaint filed in the U.S. District Court for the Eastern District of Missouri naming the company and its former subsidiary, CF&I Steel Corporation ("CF&I"), as defendants and alleging violations of the federal False Claims Act in connection with the distribution of the company's shares of CF&I to the company's shareholders in 1985. A subsequent complaint with substantially similar allegations was served on the company on September 22, 1992 and the two actions were consolidated by the Court. The case was brought in the name of the U.S. Government by a private individual (the "relator") and involves allegations of a conspiracy between the company and CF&I to cause the Pension Benefit Guaranty Corporation ("PBGC") to assume certain unfunded liabilities under a CF&I pension plan (alleged to have been approximately $270 million), to prevent the PBGC from obtaining any reimbursement from the company and to publish and file misleading information in furtherance of those alleged objectives. The suit seeks treble damages and attorney's fees. On June 1,1993 the District Court dismissed the case for lack of subject matter jurisdiction under the False Claims Act and the plaintiff appealed. On November 16, 1994, the U.S. Court of Appeals for the Eighth Circuit reinstated the action. The company's petition for a writ of certiorari to the U.S. Supreme Court was denied on or about June 16, 1995 and the case was returned to the District Court to further proceedings. The company filed motions for summary judgment and judgment on the pleadings, and on May 30, 1996, the District Court entered an order dismissing all counts of the complaint. The relator has asked the District Court to reconsider its decision. That request is still pending. In addition, the relator has filed a notice of his intention to appeal the decision of the District Court to the United States Court of Appeals for the Eighth Circuit. The company is firmly convinced that the allegations made by the relator are without merit and that the actions of the District Court are correct. The company has vigorously defended itself in the litigation and will continue to do so, and is confident that it will ultimately prevail. The following proceedings are not considered by the company to be material to its business or financial condition and are reported herein because of the requirements of the Securities and Exchange Commission with respect to the descriptions of administrative or judicial proceedings by governmental authorities arising under federal, state or local provisions regulating the discharge of materials into the environment or otherwise relating to the protection of the environment. -12-
Part II - Other Information Item 1. Legal Proceedings (Cont'd) On July 12, 1985 the company received written notice from the United States Environmental Protection Agency (the "EPA") that the EPA believes the company may be a potentially responsible party ("PRP") under the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA") to pay for investigation and corrective measures which may be required to be taken at the Roebling Steel Company site in Florence Township, Burlington County, New Jersey ("Roebling Site") of which its former subsidiary, CF&I Steel Corporation ("CF&I") was a past owner and operator prior to the enactment of CERCLA. The stated grounds for the EPA's position was the EPA's belief that the company had owned and/or operated the Roebling Site. The company has advised the EPA that such was not the case and does not believe that it is responsible for any testing or clean-up at the Roebling Site based on current facts. The EPA has identified sources and areas of contamination at the Roebling Site which must be examined for potential environmental damage. The EPA has disclosed that two surface clean-ups have been performed at a cost in excess of $19 million. In July 1996 the EPA completed a third Focused Feasibility Study which defined the nature of contaminants and evaluated appropriate remedial alternatives, and the EPA estimated the cost of its preferred clean-up alternative at $38 million. On November 7, 1990 CF&I filed a petition for reorganization and protection under Chapter 11 of the United States Bankruptcy Code. In the bankruptcy proceeding of CF&I the EPA was allowed an unsecured claim against CF&I for $27.1 million related to EPA's environmental investigations and remediation at the Roebling Site. In June 1996 the company received a Section 104 Request issued by the EPA under CERCLA requesting information about the company's (and CF&I's) connection to the Roebling Site. The company is currently in the process of responding to this request, but based on the facts and circumstances summarized above, the company does not believe it is responsible for any portion of the clean-up. -13-
Part II - Other Information Item 5. Other Information On July 1, 1996, the company signed a definitive agreement to acquire the microelectronics business of Interpoint Corporation through a tax-free merger in which the company will issue shares of the company's common stock for all of the outstanding shares of Interpoint stock, immediately following the spin-off by Interpoint of its data storage subsidiary. The number of shares of the company's common stock issued will be based on the aggregate purchase price of $59 million less any outstanding debt of Interpoint on the date of the merger, estimated to be $20 million. Approximately 950,000 shares of the company's common stock will be issued as a result of this transaction. The transaction is subject to the approval of Interpoint shareholders. Item 6. Exhibits and Reports on Form 8-K 11.Computation of earnings per share for the quarters and six months ended June 30, 1996 and 1995. 27.Article 5 of Regulation S-X Financial Data Schedule for the second quarter. -14-
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CRANE CO. REGISTRANT Date August 14, 1996 By /s/ D.S. Smith D.S. SMITH Vice President-Finance and Chief Financial Officer Date August 14, 1996 By /s/ M.L. Raithel M.L. RAITHEL Controller -15-
<TABLE> EXHIBIT 11 Crane Co. Computation of Net Income per Common Share (in thousands except per share amounts) <CAPTION> Three Months Six Months Ended Ended June 30, June 30, 1996 1995 1996 1995 <S> <C> <C> <C> <C> Primary Net Income Per Share: Net income available to shareholders $22,104 $ 20,117 $40,312 $33,392 Average primary shares outstanding 30,645 30,622 30,586 30,459 Net Income $ .72 $ .66 $ 1.32 $ 1.10 Fully Diluted - Income Per Share: Net income $22,104 $ 20,117 $40,312 $33,392 Average primary shares outstanding 30,645 30,622 30,586 30,459 Add Adjustment for further dilutive effect of stock options (ending market price higher than average market price used in primary shares calculation) - 14 1 15 Average fully diluted shares outstanding 30,645 30,636 30,587 30,474 Net income $ .72 $ .66 $ 1.32 $ 1.10 </TABLE> -16-