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 September 30, 1997 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 October 31, 1997: Common stock, $1.00 Par Value - 43,633,863 shares
Part I - Financial Information Item 1. Financial Statements <TABLE> Crane Co. and Subsidiaries Consolidated Statements of Income (in thousands, except per share amounts) (unaudited) <CAPTION> Periods Ended September 30, Three Months Nine Months 1997 1996 1997 1996 <S> <C> <C> Net Sales $534,818 $481,116 $1,520,915 $1,383,810 Operating Costs and Expenses: Cost of sales 391,023 352,632 1,104,977 1,012,219 Selling, general and administrative 75,351 71,246 228,072 212,731 Depreciation and amortization 14,175 12,226 41,351 36,298 480,549 436,104 1,374,400 1,261,248 Operating Profit 54,269 45,012 146,515 122,562 Other Income (Deductions): Interest income 729 639 1,809 1,819 Interest expense (6,046) (5,911) (17,989) (17,541) Miscellaneous - net (56) 2,394 177 (207) (5,373) (2,878) (16,003) (15,929) Income Before Taxes 48,896 42,134 130,512 106,633 Provision for Income Taxes 17,496 15,245 47,244 39,432 Net Income $ 31,400 $ 26,889 $ 83,268 $ 67,201 Net Income Per Share $ .67 $ .59 $ 1.79 $ 1.47 Average Shares Outstanding 46,878 45,597 46,623 45,746 Dividends Per Share $ .125 $ .125 $ .375 $ .375 <FN> See Notes to Consolidated Financial Statements </TABLE> - - - 2 -
<TABLE> Part I - Financial Information Crane Co. and Subsidiaries Consolidated Balance Sheets (in thousands) <CAPTION> September 30, December 31, 1997 1996 1996 (Unaudited) Assets <S> <C> <C> <C> Current Assets: Cash and cash equivalents $ 21,863 $ 28,241 $ 11,579 Accounts receivable, net of allowance 298,415 268,938 253,729 Inventories: Finished goods 110,069 119,638 124,490 Finished parts and subassemblies 45,940 34,618 35,507 Work in process 45,003 31,287 43,894 Raw materials 71,243 56,146 63,383 272,255 241,689 267,274 Other current assets 6,911 7,232 7,432 Total Current Assets 599,444 546,100 540,014 Property, Plant and Equipment: Cost 574,943 530,701 547,566 Less accumulated depreciation 309,813 281,402 289,219 265,130 249,299 258,347 Other Assets 29,669 27,381 29,879 Intangibles 52,961 56,649 55,862 Cost in excess of net assets acquired 216,497 165,995 204,753 $ 1,163,701 $ 1,045,424 $ 1,088,855 <FN> See Notes to Consolidated Financial Statements - 3 - </TABLE>
<TABLE> Part I - Financial Information <CAPTION> September 30, December 31, 1997 1996 1996 (Unaudited) Liabilities and Shareholders' Equity <S> <C> <C> <C> Current Liabilities: Current maturities of long-term debt $ 1,063 $ 736 $ 1,251 Loans payable 16,296 22,743 23,937 Accounts payable 125,232 112,330 105,082 Accrued liabilities 117,502 115,827 116,488 U.S. and foreign taxes on income 8,986 17,003 7,095 Total Current Liabilities 269,079 268,639 253,853 Long-Term Debt 266,916 265,179 267,795 Deferred Income Taxes 30,990 27,346 29,774 Other Liabilities 26,551 21,714 25,126 Accrued Postretirement Benefits 42,106 43,204 43,155 Accrued Pension Liability 6,202 8,397 6,483 Preferred Shares, Par Value $.01 Authorized - 5,000 Shares - - - Common Shareholders' Equity: Common shares 45,879 44,840 45,660 Capital surplus 31,396 2,636 29,756 Retained earnings 458,963 374,349 394,621 Currency translation adjustment (14,381) (10,880) (7,368) Total Common Shareholders' Equity 521,857 410,945 462,669 $ 1,163,701 $ 1,045,424 $ 1,088,855 <FN> See Notes to Consolidated Financial Statements - 4 - </TABLE>
<TABLE> Part I - Financial Information (Cont'd.) Crane Co. and Subsidiaries Consolidated Statements of Cash Flows (in thousands) (unaudited) <CAPTION> Nine Months Ended September 30, 1997 1996 <S> <C> <C> Cash flows from operating activities: Net income $ 83,268 $ 67,201 Depreciation 27,622 25,973 Amortization 13,729 10,711 Deferred taxes (220) (1,159) Cash used for operating working capital (12,250) (5,719) Other (4,310) (4,647) Total from operating activities 107,839 92,360 Cash flows from investing activities: Capital expenditures (31,049) (40,595) Payments for acquisitions (36,107) - Proceeds from divestitures - 1,554 Proceeds from disposition of capital assets 4,457 11,030 Purchase of equity investment - - Total used for investing activities (62,699) (28,011) Cash flows from financing activities: Equity: Dividends paid (17,170) (16,966) Reacquisition of shares (9,240) (20,311) Stock options exercised 6,390 4,492 Net Equity (20,020) (32,785) Debt: Repayments of long-term debt (3,461) (12,013) Net (decrease) increase in short-term debt (10,710) 3,321 Net Debt (14,171) (8,692) Total(used for)provided from financing activities (34,191) (41,477) Effect of exchange rate on cash and cash equivalents (665) (107) Decrease in cash and cash equivalents 10,284 22,765 Cash and cash equivalents at beginning of period 11,579 5,476 Cash and cash equivalents at end of period $ 21,863 $ 28,241 Detail of Cash (Used for) Provided From Operating Working Capital: Accounts receivable $ (34,055) $ (28,947) Inventories (1,650) 2,852 Other current assets 1,488 (483) Accounts payable 19,747 10,450 Accrued liabilities 105 6,179 U.S. and foreign taxes on income 2,115 4,230 Total $ (12,250) $ (5,719) Supplemental disclosure of cash flow information: Interest paid $ 16,963 $ 16,550 Income taxes paid 39,876 34,882 See Notes to Consolidated Financial Statements - - - 5 - </TABLE>
Part I - Financial Information (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. These interim consolidated financial statements should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements in the company's Annual Report on Form 10-K for the year ended December 31, 1996. 2. Sales and operating profit by segment are as follows: <TABLE> <CAPTION> Three Months Ended Nine Months Ended September 30, September 30, 1997 1996 1997 1996 <S> <C> <C> <C> <C> (in thousands) Net Sales: Fluid Handling $ 100,460 $ 91,606 $ 290,734 $ 275,810 Aerospace 85,866 61,267 252,878 176,756 Engineered Materials 56,841 54,358 171,817 158,262 Crane Controls 32,821 31,933 98,149 98,173 Merchandising Systems 44,271 40,931 137,095 132,413 Wholesale Distribution 213,743 202,280 568,885 548,228 Other 3,675 2,756 10,071 7,228 Intersegment Elimination (2,859) (4,015) (8,714) (13,060) Total $ 534,818 $ 481,116 $ 1,520,915 $ 1,383,810 Operating Profit (Loss): Fluid Handling $ 8,927 $ 6,685 $ 22,454 $ 17,449 Aerospace 22,903 16,979 64,596 48,688 Engineered Materials 7,993 7,355 22,689 20,266 Crane Controls 3,353 2,501 8,560 8,597 Merchandising Systems 6,577 5,292 24,445 18,409 Wholesale Distribution 9,015 10,456 18,868 22,313 Other 230 70 753 83 Corporate (4,724) (4,346) (15,998) (13,393) Intersegment Elimination (5) 20 148 150 Total $ 54,269 $ 45,012 $ 146,515 $ 122,562 </TABLE> - - - 6 -
Part I - Financial Information (Cont'd.) Notes to Consolidated Financial Statements 3. Restatements Share and per share data for the three and nine months ending September 30, 1996 has been restated to reflect the three-for-two stock split effected on December 12, 1996. 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 $52,095,000 at September 30, 1997, $51,706,000 at September 30, 1996, and $49,260,000 at December 31, 1996. 5. Earning Per Share The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 128, Earnings Per Share, (SFAS128). The company plans to adopt SFAS128 for both interim and annual periods after December 15, 1997, as required by the statement. Pro forma amounts as if the statement had been adopted for the third quarter of 1997 are as follows: <TABLE> Three Months Ended Nine Months Ended September 30, September 30, <S> <C> <C> <C> <C> 1997 1996 1997 1996 Basic Earnings Per Share $ .68 $ .60 $1.82 $1.49 Fully Diluted Earnings Per Share $ .67 $ .59 $1.79 $1.47 </TABLE> - - - 7 -
Part I - Financial Information (Cont'd) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Three and Nine Months Ended September 30, 1997 and 1996 [CAPTION] Results From Operations: Third Quarter of 1997 Compared to Third Quarter of 1996: Net income for the quarter ended September 30, 1997 set a quarterly record of $31.4 million, or $.67 per share. This represents a 17 percent increase from the $26.9 million, or $.59 per share, reported for the 1996 third quarter. Operating profit for the third quarter increased from $45 million to $54.3 million, a 21 percent increase. Sales increased from $481.1 million to $534.8 million, an 11 percent increase. Fluid Handling sales rose 10 percent and operating profit increased 34 percent in the quarter compared with the prior year. North American valve operations made significant contributions to both the sales and earnings growth. MOVATS, which was acquired in April, contributed $7.6 million in sales in the quarter. Additionally, shipments of cast steel and quarter turn valves were higher. The increased sales volume coupled with manufacturing efficiencies and reduced selling expenses led to the improved results. This improvement was tempered, however, by adverse product mix in the U.K. valve operation. Profit margins improved to 8.9 percent of sales from 7.3 percent. Aerospace sales increased 40 percent, or $25 million, in the quarter with Interpoint, the high density power converter business acquired in October of 1996, contributing $16 million of the increase. Excluding the acquisition, sales rose 15 percent because of continued high aircraft production levels and airline utilization rates. Operating profit improved 35 percent because of the higher sales volume, and excluding Interpoint, margins improved even though product development costs were $1.8 million higher in the 1997 third quarter compared with the 1996 third quarter. Interpoint's margins are historically lower than the other aerospace businesses. Engineered Materials sales and operating profit increased 5 percent and 9 percent, respectively, compared with the 1996 third quarter. Kemlite improved sales due to higher demand in the truck trailer market and an increased market share. Its translucent fiberglass reinforced plastic roof panels continued to displace aluminum on dry freight vans. Sales and operating profit declined at Resistoflex compared with an exceptionally strong 1996 due to lower large project business, particularly in Southeast Asia. Crane Plumbing was profitable in the third quarter compared to a loss in 1996 because of higher shipments and successful cost reduction initiatives. - - - 8 -
Part I - Financial Information (Cont'd) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Three and Nine Months Ended September 30, 1997 and 1996 Crane Controls operating profit was up 34 percent on a sales increase of 3 percent compared with the third quarter 1996. This reflects the strong performance by Azonix, which gained market share in the oil and gas exploration industry with its man machine interface (MMI) products. Cost controls allowed Ferguson and Ferguson Europe to improve results from the prior year. Merchandising Systems sales were up 8 percent in the quarter compared with last year. The 1997 Polyvend acquisition contributed $3.7 million in sales. While National Vendors increased its sales in the U.S., exclusive of Polyvend, its European sales comparisons were adversely affected by lower demand and unfavorable currency translations. Operating profit for the group increased 24 percent as a result of productivity gains and cost reductions. Wholesale Distribution sales increased 6 percent as a result of the MALLCO Lumber & Building Materials Inc. acquisition on July 1, 1997. Without the acquisition, sales would have decreased 2 percent due to lower housing starts in the key regions served by Huttig along with lower demand for its value added wood moulding products. Operating profits declined 14 percent because of higher raw material costs at Huttig's manufacturing business. The third quarter 1996 results included $2.4 million from gain on sale of capital assets. Nine Months Ended September 30, 1997 Compared to Nine Months Ended September 30, 1996: For the nine months ended September 30, 1997, net income increased 24 percent to $83.3 million, or $1.79 per share, from the $67.2 million, or $1.47 per share, in the comparable 1996 period. Operating profit for the nine months increased from $122.6 million to $146.5 million, a 20 percent increase. Sales increased from $1.39 billion to $1.52 billion, an increase of 10 percent. Fluid Handling sales were up 5 percent and operating profit was up 29 percent. The sales increase was attributable to the MOVATS acquisition and strong shipments, in the first half of the year, at the company's Australian valves operation. These gains were partially offset by lower shipments in the cast steel valve line in the earlier part of the year. Operating profit improved as the North American valves operation benefited from the MOVATS acquisition and productivity gains in the manufacture of bronze and quarter turn valves. - - - 9 -
Part I - Financial Information (Cont'd) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Three and Nine Months Ended September 30, 1997 and 1996 Aerospace sales were up 43 percent in the first nine months with Interpoint and Grenson, acquired in the fourth quarter of 1996, contributing more than 60 percent of the increase. Excluding the acquisitions, sales increased 16 percent on the continued strength of aircraft production and utilization levels. Operating profit increased 33 percent because of the higher sales. Profit margins, however, declined to 25.5 percent of sales compared to 27.5 percent last year due to the inclusion of Interpoint. Profit margins would have been slightly higher without Interpoint even though product development costs were $6.2 million higher than the prior year level. Engineered Materials sales and operating profit increased 9 percent and 12 percent, respectively. Sales at Kemlite improved as its fiberglass reinforced plastic panel products continued to displace aluminum in the recreational vehicle and truck trailer market. Additionally, Kemlite benefited from the acquisition of Sequentia transportation product line. For the group as a whole, profit margins improved to 13.2 percent from 12.8 percent with all businesses showing improvement except Kemlite where margins were down slightly due to higher mix of shipments in the transportation market. Crane Controls sales and operating profit were essentially unchanged from the prior year. Sales at Azonix were higher by nearly 16 percent and profit margins were nearly double compared to 1996 because of the success of its man machine interface (MMI) products. At Barksdale, sales and profit comparisons were adversely affected by a weaker German mark. Merchandising Systems operating profit was 33 percent higher on a 4 percent sales increase. The sales gain was the result of the Polyvend acquisition. Excluding Polyvend, total sales were 3 percent lower. Despite this decline, both National Vendors and NRI greatly improved profit margins by increasing operating efficiencies and reducing costs. Wholesale Distribution sales increased 4 percent but operating profit declined 15 percent. Sales improved not only due to the July acquisition of MALLCO but also due to strong housing starts in the first half of 1997. Lower demand for value added wood moulding products and high raw material costs significantly eroded profit margins at Huttig's wood moulding facility. - - - 10 -
Part I - Financial Information (Cont'd) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Three and Nine Months Ended September 30, 1997 and 1996 [CAPTION] Liquidity and Capital Resources: For the first nine months of 1997, the company generated nearly $108 million in cash from operations allowing Crane to reduce net debt $19 million from December 31, 1996 to $262 million at September 30, 1997. As a result, the net debt to capital ratio improved to 33.5 percent from 37.8 percent. Internally generated funds were also used for acquisitions of $36 million (excludes debt assumed), capital expenditures of $31 million and dividends of $17 million. - - - 11 -
Part II - Other Information Item 1. Legal Proceedings: On August 12, 1997, the United States Court of Appeals for the Eighth Circuit issued an opinion affirming the dismissal of a lawsuit filed February 28, 1991 alleging the company violated the federal False Claims Act in connection with the distribution of the company's shares of CF&I Steel Corporation to the company's shareholders in 1985. There have been no material developments in any other legal proceeding described in the company's Annual Report on Form 10-K for the year ended December 31, 1996. Item 5. Other: On October 2, 1997, the company sold its Valve Systems and Controls division for $7.5 million in cash and $1.5 million in convertible preferred stock. No material gain or loss on the sale was recognized. Item 6. Exhibits and Reports on Form 8-K 11. Computation of earnings per share for the quarters and nine months ended September 30, 1997 and 1996. 27. Article 5 of Regulation S-X Financial Data Schedule for the third quarter. - - - 12 -
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 November 12, 1997 By /s/ D.S. Smith D.S. SMITH Vice President-Finance and Chief Financial Officer Date November 12, 1997 By /s/ M.L. Raithel M.L. RAITHEL Controller - 13 -
<TABLE> Crane Co. and Subsidiaries Exhibit 11 to Form 10-Q Computation of Net Income per Common Share Three and Nine Months Ended September 30, 1997 and 1996 (in thousands, except per share amounts) <CAPTION> Three Months Ended Nine Months Ended September 30, September 30, 1997 1996 1997 1996 <S> <C> <C> <C> <C> Primary Net Income Per Share: Net income available to shareholders $ 31,400 $ 26,889 $ 83,268 $ 67,201 Average primary shares outstanding 46,878 45,597 46,623 45,746 Net Income $ .67 $ .59 $ 1.79 $ 1.47 Fully Diluted - Income Per Share: Net income available to shareholders $ 31,400 $ 26,889 $ 83,268 $ 67,201 Average primary shares outstanding 46,878 45,597 46,623 45,746 Add Adjustment for further dilutive effect of stock options (ending market price higher than average market price used in primary shares calculation) 106 120 91 103 Average fully diluted shares outstanding 46,984 45,717 46,714 45,849 Net income $ .67 $ .59 $ 1.78 $ 1.47 </TABLE> - 14 -