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, 2001 ----------------------------------------- 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, 2001: Common stock, $1.00 Par Value - 59,666,799 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> Three Months Ended Nine Months Ended September 30, September 30, 2001 2000 2001 2000 ---- ---- ---- ---- <s> <c> <c> <c> <c> Net Sales $426,212 $363,093 $1,214,529 $1,134,850 Operating Costs and Expenses: Cost of sales 282,714 245,043 799,109 749,292 Selling, general and Administrative 79,306 65,995 223,027 203,876 Depreciation and amortization 17,268 14,375 52,947 41,113 -------- -------- -------- -------- 379,288 325,413 1,075,083 994,281 Operating Profit 46,924 37,680 139,446 140,569 Other Income (Expense): Interest income 407 276 880 1,052 Interest expense (5,985) (5,077) (15,915) (16,990) Miscellaneous - net (14,598) 55 (16,522) 24,436 -------- -------- -------- -------- (20,176) (4,746) (31,557) 8,498 Income Before Taxes 26,748 32,934 107,889 149,067 Provision for Income Taxes 8,879 11,525 37,278 52,173 -------- -------- -------- -------- Net Income $17,869 $21,409 $70,611 $96,894 ========= ========= ========= ======== Basic Net Income Per Share: Net Income $.30 $.35 $1.18 $1.59 ====== ====== ======= ====== Average Basic Shares Outstanding 59,656 60,674 59,868 61,077 Diluted Net Income Per Share: Net Income $.30 $.35 $1.17 $1.57 ====== ====== ======= ====== Average Diluted Shares Outstanding 60,475 61,168 60,306 61,540 Dividends Per Share $.10 $.10 $.30 $.30 See Notes to Consolidated Financial Statements </TABLE> -2-
<TABLE> Part I - Financial Information Item 1. Financial Statements Crane Co. and Subsidiaries Consolidated Balance Sheets (In Thousands, Except Share and Per Share Amounts) (Unaudited) <CAPTION> September 30, December 31, 2001 2000 2000 ---- ---- ---- Assets <s> <c> <c> <c> Current Assets Cash and cash equivalents $ 20,927 $ 2,609 $ 10,926 Accounts receivable 281,728 224,849 209,817 Inventories: Finished goods 82,742 84,013 87,118 Finished parts and subassemblies 52,064 52,612 53,361 Work in process 34,755 28,489 24,749 Raw materials 91,761 69,933 71,101 -------- -------- -------- 263,322 235,047 236,329 Other Current Assets 59,976 38,827 43,080 -------- -------- -------- Total Current Assets 625,953 501,332 500,152 Property, Plant and Equipment: Cost 635,539 587,688 589,433 Less accumulated depreciation 378,537 343,286 343,322 --------- --------- -------- 257,002 244,402 246,111 Other Assets 64,268 37,579 39,116 Intangibles 34,546 40,486 39,599 Cost in excess of net assets acquired 398,034 322,593 318,873 --------- --------- -------- $1,379,803 $1,146,392 $1,143,851 ============ ============ ========== See Notes to Consolidated Financial Statements </TABLE> -3-
<TABLE> Part I - Financial Information Item 1. Financial Statements Crane Co. and Subsidiaries Consolidated Balance Sheets (In Thousands, Except Share and Per Share Amounts) (Unaudited) <CAPTION> September 30, December 31, 2001 2000 2000 ---- ---- ---- Liabilities and Shareholders Equity <s> <c> <c> <c> Current Liabilities Current maturities of long-term debt $ 375 $ 328 $ 326 Loans payable 9,376 7,841 14,532 Accounts payable 99,288 90,059 92,249 Accrued liabilities 144,310 108,258 104,361 U.S. and foreign taxes on income 36,499 14,924 20,509 -------- -------- -------- Total Current Liabilities 289,848 221,410 231,977 Long-Term Debt 352,289 252,784 213,790 Deferred Income Taxes 28,377 26,528 28,386 Other Liabilities 23,019 24,924 22,746 Accrued Postretirement Benefits 27,989 30,537 29,653 Accrued Pension Liability 18,574 11,054 10,536 Preferred Shares, par value $.01 - - - 5,000,000 shares authorized Common Shareholders' Equity: Common stock, par value $1.00 72,426 72,426 72,426 200,000,000 shares authorized, 72,426,139 shares issued Capital surplus 101,144 98,289 101,144 Retained earnings 776,220 699,940 720,864 Accumulated other comprehensive loss (30,043) (33,671) (31,096) Common stock held in treasury (280,040) (257,829) (256,575) --------- --------- --------- Total Common Shareholders' Equity 639,707 579,155 606,763 --------- --------- -------- $1,379,803 $1,146,392 $1,143,851 =========== =========== ========== Common Stock Issued 72,426 72,426 72,426 Less Common Stock held in Treasury (12,759) (12,075) (12,000) -------- -------- -------- Common Stock Outstanding 59,667 60,351 60,426 =========== ========== ========== See Notes to Consolidated Financial Statements </TABLE> -4-
<TABLE> Part I - Financial Information (Cont'd.) Item 1. Financial Statements Crane Co. and Subsidiaries Consolidated Statements of Cash Flows (In Thousands) (Unaudited) <CAPTION> Nine Months Ended September 30, 2001 2000 ---- ---- <s> <c> <c> Operating activities: Net income $70,611 $96,894 Gain on sale of investments - (26,646) Depreciation and amortization 51,783 41,113 Non-cash special charges - stock based retirement costs 6,132 - Deferred income taxes 1,670 719 Cash provided from (used for) operating working capital 12,882 (14,036) Other 1,197 (4,382) ------- ------- Total provided from Operating activities 144,275 93,662 Investing activities: Capital expenditures (27,168) (20,599) Payments for acquisitions (181,483) (8,500) Equity investment in joint venture (12,000) - Proceeds from sale of investments - 45,556 Proceeds from disposition of capital assets 7,843 434 ------- -------- Total (used for)provided from Investing activities (212,808) 16,891 Financing activities: Equity: Dividends paid (17,950) (18,286) Reacquisition of shares-open market (28,434) (60,633) Reacquisition of shares-stock incentive programs (2,226) (3,711) Stock options exercised 8,610 10,470 ------- -------- Net equity (40,000) (72,160) Debt Proceeds from issuance of long-term debt 186,401 86,200 Repayments of long-term debt (55,127) (115,195) Net decrease in short-term debt (13,422) (9,519) -------- -------- Net debt 117,852 (38,514) -------- -------- Total provided from (used for) Financing activities 77,852 (110,674) Effect of exchange rate on cash and cash equivalents 682 (515) -------- -------- Increase (decrease) in cash and cash equivalents 10,001 (636) Cash and cash equivalents at beginning of period 10,926 3,245 -------- -------- Cash and cash equivalents at end of period $ 20,927 $2,609 ======== ======= Detail of Cash Provided from (Used for) Operating activities Working capital: Accounts receivable $(26,384) $(23,484) Inventories 12,165 19,034 Other current assets 199 (1,381) Accounts payable (4,690) 5,351 Accrued liabilities 15,636 (10,626) U.S. and foreign taxes on income 15,956 (2,930) -------- -------- Total $12,882 $(14,036) ======= ========= Supplemental disclosure of cash flow information: Interest paid $16,247 $17,493 Income taxes paid 19,771 57,951 See Notes to Consolidated Financial Statements </TABLE> -5-
Part I - Financial Information (Cont'd.) Notes to Consolidated Financial Statements (Unaudited) <TABLE> 1. The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial reporting and 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. Certain prior period amounts have been reclassified to conform to the 2001 presentation. Theseinterim 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, 2000. 2. Net Sales, gross profit, operating profit and amortization of goodwill by segment are as follows: <CAPTION> Three Months Ended Nine Months Ended September 30, September 30, 2001 2000 2001 2000 ---- ---- ---- ---- <s> <c> <c> <c> <c> (In Thousands) Net Sales: Engineered Materials $ 75,569 $ 81,378 $233,154 $270,998 Merchandising 55,392 53,917 167,216 167,426 Aerospace 101,437 84,475 305,546 256,027 Fluid Handling 168,696 114,756 425,820 349,309 Crane Controls 25,802 29,363 84,916 93,587 Other - - - - Intersegment Elimination (684) (796) (2,123) (2,497) --------- ---------- ----------- ---------- Total $426,212 $363,093 $1,214,529 $1,134,850 ========= ========== =========== ========== Gross Profit: Engineered Materials $ 16,354 $ 17,740 $ 52,884 $ 66,630 Merchandising 17,229 16,589 53,779 56,365 Aerospace 45,906 36,204 137,002 111,880 Fluid Handling 43,028 25,720 108,695 83,562 Crane Controls 8,217 8,641 27,077 27,715 Other - - - - Corporate (420) 8 (1,349) 64 --------- ---------- ----------- ---------- Total $130,314 $104,902 $378,088 $346,216 ========= ========== =========== ========== Operating Profit: Engineered Materials $8,724 $9,762 $ 28,968 $ 41,244 Merchandising 6,479 6,427 21,642 24,994 Aerospace 25,710 19,402 77,071 61,616 Fluid Handling 11,441 6,348 31,146 23,780 Crane Controls 27 (932) 1,079 (1,231) Other - - - - Corporate (5,457) (3,327) (20,460) (9,834) --------- ---------- ----------- ---------- Total $46,924 $37,680 $139,446 $140,569 ========= ========== =========== ========== </TABLE> -6-
Part I - Financial Information (Cont'd.) Three Nine Months Months Ended Ended 9/30/2001 9/30/2001 (In Thousands) Goodwill Amortization: Engineered Materials $ 1,602 $ 4,803 Merchandising 710 2,129 Aerospace 685 2,057 Fluid Handling 1,099 2,918 Crane Controls 475 1,422 ------- ------- Total $4,571 $13,329 ======= ======= Notes to Consolidated Financial Statements (Unaudited) ------------------------------------------------------ 3. 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 $20.3 million at September 30, 2001, $22.3 million at September 30, 2000, and $21.4 million at December 31, 2000. 4. 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 $23.4 million at September 30, 2001, $25.8 million at September 30, 2000 and $25.4 million at December 31, 2000. At September 30, 2001 $5.0 million of intangible assets were written off as part of the sale of Powers Process Controls. 5. 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 $82.8 million at September 30, 2001, $66.2 million at September 30, 2000 and $69.5 million at December 31, 2000. In February of 2001, Ventech Controls, Inc and Laminated Profiles Ltd. were acquired. In April and June 2001, the Industrial Flow Group of Alfa Laval AB and Xomox valve business, respectively, were acquired. Preliminary estimates of cost in excess of net assets acquired recorded relating to these 2001 acquisitions totaled approximately $90 million. 6. Total comprehensive income for the three-month and nine-month period ended September 30, 2001 and 2000 was as follows: <TABLE> <CAPTION> (In thousands) Three Months Ended Nine Months Ended September 30, September 30, 2001 2000 2001 2000 ---- ---- ---- ---- <s> <c> <c> <c> <c> Net Income $17,869 $21,409 $70,611 $96,894 Foreign currency translation adjustments 9,610 (5,126) 1,053 (11,190) ------- ------- ------- ------- Comprehensive Income $27,479 $16,283 $71,664 $85,704 ======= ======= ======= ======= </TABLE> -7-
Part I - Financial Information (Cont'd.) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Three Months Ended September 30, 2001 This 10-Q may contain forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. These statements present management's expectations, beliefs, plans and objectives regarding future financial performance, and assumptions or judgments concerning such performance. Any discussions contained in this 10-Q, except to the extent that they contain historical facts, are forward-looking and accordingly involve estimates, assumptions, judgments and uncertainties. There are a number of factors that could cause actual results or outcomes to differ materially from those addressed in the forward-looking statements. Such factors are detailed in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000 filed with the Securities and Exchange Commission. Results from Operations Third Quarter of 2001 Compared to Third Quarter of 2000 Net income for the third quarter of 2001 was $26.4 million or $.44 per share (excluding a loss on disposal of a business of $8.5 million or $.14 per share), compared with $21.4 million or $.35 per share for the third quarter of 2000. Operating profit for the third quarter of 2001 increased 25% to $46.9 million on sales of $426.2 million compared with $37.7 million on sales of $363.1 million for the third quarter of 2000. Operating profit margins were 11.0% for the third quarter of 2001 compared with 10.4% for the third quarter of 2000. Business Disposals On September 28, 2001 the Company sold Powers Process Controls for its carrying value. The Company has also sold its Canadian Crane Plumbing business recording an after-tax loss of approximately $8.5 million from this transaction in the third quarter 2001. Other current assets include $20.5 million of assets held for disposition because this transaction was not closed until October 2001. Both Powers Process Controls and Crane Plumbing were not considered strategic core businesses. Joint Venture During the third quarter of 2001, Emerson Electric Co. and Crane announced the formation of a joint venture involving Emerson's Commercial Cam unit and Crane's Ferguson business unit. Emerson and Crane contributed their respective operations into a new company, Industrial Motion Control Holdings, LLC. Crane also contributed $12 million of cash into the venture. The new company will continue to go to market under the CAMCO and Ferguson brand names. The Ferguson/Camco joint venture will be accounted for on the equity basis. Acquisitions During the third quarter of 2001 the Company acquired Resistoflex GmbH and the aerospace hose product line of Teleflex Fluid Systems in transactions totaling approximately $11 million. Resistoflex GmbH is a manufacturer of Teflon-lined piping products serving the chemical and pharmaceutical markets in Europe. The hose product line will be integrated into Crane Resistoflex's Jacksonville, Florida facility during the fourth quarter of 2001. -8-
Part I - Financial Information (Cont'd) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Three Months Ended September 30, 2001 Aerospace sales increased $17.0 million or 20% to $101.4 million for the third quarter of 2001 compared with the third quarter of 2000. Operating profit increased $6.3 million or 33% to $25.7 million in the third quarter of 2001 versus $19.4 million in the third quarter of 2000. Operating profit margins were 25.3% in the third quarter of 2001 compared with 23.0% in the third quarter of 2000 due to increased high margin aftermarket sales. Interpoint benefited from increased higher-margin power product sales. Engineered Materials sales decreased $5.8 million or 7% to $75.6 million for the third quarter of 2001 compared with the third quarter of 2000 primarily due to the soft transportation market for Kemlite and the weak chemical processing market for Resistoflex. Segment operating profit decreased $1.1 million, or 11%, to $8.7 million in the third quarter of 2001 versus $9.8 million in the third quarter of 2000. Operating profit margins were 11.5% compared with 12.0% in the third quarter of 2000. Kemlite's operating profit remained flat on a 5% decline in sales as strict cost controls and material cost reductions resulted in improved operating margins. Results at Resistoflex were negatively affected by lower shipments to the chemical process industry, lowering operating profit by $.6 million compared to the same quarter in 2000. Crane Plumbing's sales were down $2.7 million compared with the third quarter of 2000 resulting in an operating loss for the third quarter of 2001. Merchandising Systems sales increased $1.5 million or 3% to $55.4 million for the third quarter of 2001 compared with the third quarter of 2000. Segment operating profit was equal to the $6.5 million in the third quarter of 2001 as continued strong results at NRI were offset by lower results at National Vendors. Operating profit margins were 11.7% in the third quarter of 2001 compared with 11.9% in the third quarter of 2000. National Vendors sales were off 23% from the comparable 2000 results. The unit operated at a loss in the quarter as it aggressively took actions to rationalize its product offerings, reduce inventory and bring its production level in line with the current economic environment. NRI's sales increased $11.8 million to $21.2 million and operating profit more than tripled from the prior year level due to strong demand in anticipation of the conversion to the euro in January 2002. Fluid Handling sales increased $53.9 million, or 47%, to $168.7 million for the third quarter of 2001 compared with the third quarter of 2000. Operating profit increased $5.1 million to $11.4 million in the third quarter of 2001 versus $6.3 million in the third quarter of 2000. Operating profit margins were 6.8% in the third quarter of 2001 compared with 5.5% in the third quarter of 2000. Crane's valve businesses increased sales by $58.9 million and operating profit by $6.7 million of which $4.0 million was contributed by the 2001 acquisitions of Xomox and the Industial Flow Group of Alfa Laval and the remainder was improved performance at the existing valve business units. -9-
Part I - Financial Information (Cont'd) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Three Months Ended September 30, 2001 Controls sales decreased $3.6 million or 12% to $25.8 million for the third quarter of 2001 compared with the third quarter of 2000. Operating profit increased $1.0 million to breakeven in the third quarter of 2001 versus a loss in the third quarter of 2000, principally as a result of increased shipments to the oil and gas market by Azonix. Ferguson and Powers Process Controls combined for an operating loss of $.9 million for the third quarter 2001. Results from Operations Nine Months Ended September 30, 2001 Compared to Nine Months Ended September 30,2000 For the nine months ended September 30, 2001, net income (excluding a non-cash special charge and a loss on disposal of a business aggregating $12.5 million or $.21 per share) was $83.1 million or $1.38 per share an increase of 5% over the $1.31 per share for the nine months ended September 30, 2000 ($96.9 million or $1.57 per share including non-operating gains). The special charge relates to the retirement of R. S. Evans as the Company's Chief Executive Officer and represents stock-based retirement costs that previously were being amortized to an anticipated retirement at age 65. The loss on disposal of a business relates to the disposal of the Crane Plumbing business in Canada. During the nine months ended September 30, 2000, a minority investment in a telecommunications power supply venture was sold, generating a non-operating gain of $16.2 million or $.26 per share. Operating profit for the nine months ended September 30, 2001 was $145.6 million (excluding the special charge) on sales of $1.2 billion compared with $140.6 million on sales of $1.1 billion in 2000. Operating profit margins for the nine months ended September 30, 2001, excluding the special charge, were 12.0% compared with 12.4% for the nine months ended September 30, 2000. Order backlog at September 30, 2001 totaled $518.6 million, an increase of $55.8 million, or 12%, from September 30, 2000 and generally unchanged from the June 30, 2001 level. Net sales from domestic businesses were 72% of the nine months total net sales in 2001 compared with 78% in the same nine-month period of 2000. Operating profit from domestic businesses was 71% and 88% of total operating profit for 2001 and 2000, respectively. Operating profit margins for domestic businesses were 11.8% in 2001 compared with 14.6% in 2000. Operating profit margins for non-US businesses were 12.6% in 2001 versus 7.2% in 2000. -10-
Part I - Financial Information (Cont'd) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Nine Months Ended September 30, 2001 Aerospace sales increased $49.5 million or 19% to $305.5 million for the nine months of 2001 compared with the same period of 2000. Operating profit increased $15.5 million or 25% to $77.1 million in the nine months of 2001. Operating profit margins were 25.2% for the nine months ended September 30, 2001 compared with 24.1% for the nine months ended September 30, 2000. All business units improved lead by Hydro-Aire and ELDEC. Order backlog for the segment was $285.7 million at September 30, 2001, a decrease of $12.1 million, or 4%, from September 30, 2000 and $29.1 million from June 30, 2001. The events of September 11th are having an immediate and severe impact on the commercial aerospace industry. Aftermarket spare orders have been cancelled or deferred by many airlines and commercial and regional aircraft production levels are being reduced. Aggressive actions are being taken to reduce costs, restructure the business and re-size it for this downturn. Operating results are expected to be down approximately 40% in the fourth quarter, including $2.0 million of severance cost, compared with the third quarter results. Engineered Materials sales decreased $37.8 million or 14% to $233.2 million for the nine months of 2001 compared with the nine months of 2000 primarily due to weak transportation, recreational vehicle and chemical processing markets. Segment operating profit decreased $12.3 million, or 30% to $29.0 million for the nine months ended September 30, 2001. Operating profit margins were 12.4% in 2001 compared with 15.2% in 2000 for the nine-month period. Kemlite sales declined $27.3 million to $162.2 million and operating profit declined $8.8 million for the nine months of 2001 compared with the nine months of 2000 as truck trailer and recreational vehicle production decreased compared with the nine months ended September 30, 2000. Results at Resistoflex were affected by lower shipments to the chemical process industry of $3.7 million, lowering operating profit by $2.2 million compared to the same nine-month period in 2000. Order backlog at September 30, 2001 was $14.6 million, a decrease of $4.1 million or 22% from September 30, 2000, and a $.3 million decrease from June 30, 2001. Reduced order rates in the transportation, recreational vehicle and petrochemical markets since September 11th will result in lower fourth quarter earnings of approximately 25% when compared to the prior year level. -11-
Part I - Financial Information (Cont'd) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Nine Months Ended September 30, 2001 Merchandising Systems sales decreased $.2 million to $167.2 million for the nine months of 2001 compared with the nine months of 2000. Segment operating profit decreased $3.4 million or 13% to $21.6 million for the nine months ended September 30, 2001 as continued strong results at NRI were more than offset by lower results at Crane Merchandising Systems. Operating profit margins were 12.9% for the nine months ended September 30, 2001 compared with 14.9% for the nine months ended September 30, 2000. Crane Merchandising Systems' sales declined 20% for the nine months of 2001 compared with the same prior year period which resulted in an operating profit decline of $16.0 million. NRI's sales increased $27.3 million, to $57.5 million and operating profit increased $12.7 million due to the strong demand in anticipation of the conversion to the euro in January 2002. Order backlog at September 30, 2001 was $46.4 million a decrease of $18.2 million from June 30, 2001 as advance orders placed at NRI in anticipation of the introduction of the euro in January 2002 are shipped. Operating profit for the segment is anticipated to be lower in the fourth quarter of 2001 compared with the fourth quarter of 2000 as a further decline in orders experienced in September at National Vendors and additional actions required to reduce costs in the fourth quarter 2001 will more than offset a continued strong performance at NRI. Fluid Handling sales increased $76.5 million or 22% to $425.8 million for the nine months of 2001 compared with the nine months of 2000. Operating profit increased $7.4 million to $31.1 million for the nine months ended September 30, 2001. Operating profit margins were 7.3% for the nine months ended September 30, 2001 compared with 6.8% for the nine months ended September 30, 2000. Crane's valve businesses increased sales by $90.4 million and operating profit by $11.3 million as a result of improved Valve Services market, the Marine markets and the acquisitions of Xomox and Crane Process Flow Technologies. Crane Pumps' operating profit decreased $2.6 million due to a $9.0 million decrease in sales and increased severance costs for the nine months ended September 30, 2001 compared with the same prior year period. Order backlog at September 30, 2001 was $150.6 million, an increase of $62.7 million or 71% from September 30, 2000 due to the addition of the Xomox and the Industrial Flow Group of Alfa Laval backlog of $41.0 million and valve orders from the power generation and marine markets. Fourth quarter results for this segment will be negatively impacted by costs associated with the consolidation of the Crane Pumps Decatur, Illinois facility into the Piqua, Ohio facility which will total $1.2 million and lower orders in the short cycle businesses sold through distribution. Overall segment results should show improvement in the fourth quarter of 2001 over the prior year reflecting a strong order backlog in the marine and power generation markets, higher valve service revenue and the addition of Xomox and the Industrial Flow Group of Alfa Laval. Controls sales decreased $8.7 million or 9% to $84.9 million for the nine months of 2001 compared with the nine months of 2000. Operating profit increased $2.3 million to $1.1 million for the nine months ended September 30, 2001 primarily from the sharp reduction in Ferguson's operating loss. Order backlog at September 30, 2001 was $21.3 million; a decrease of $5.8 million from September 30, 2000 and $2.3 million decrease from June 30, 2001. Controls' operating results are expected to be profitable in the fourth quarter compared to a loss in 2000. -12-
Part I - Financial Information (Cont'd) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Nine Months Ended September 30, 2001 Liquidity and Capital Resources For the nine months ended September 30, 2001, the Company generated $144.3 million of cash from operating activities, versus $93.7 million in 2000. Net debt totaled 34.8% of capital at September 30, 2001 compared with 30.8% at September 30, 2000. The current ratio at September 30, 2001 was 2.2 with working capital totaling $336.1 million compared with 2.3 and $279.9 million at September 30, 2000. The Company had unused credit lines of $333.3 million available at September 30, 2001. During the first nine months of 2001, the Company paid $28.4 million for the repurchase of 1.07 million shares of Crane common stock at an average price of $26.48 per share, $18.0 million for the payment of dividends and $12.0 for the investment in the joint venture. Debt increased by $117.9 million due to the 2001 acquisitions mentioned below. The Company's cash flows and earnings are subject to fluctuations from changes in interest rates and foreign currency exchange rates. The Company manages its exposures to these market risks through internally established policies and procedures and, when deemed appropriate, through the use of interest rate swap agreements and forward exchange contracts. Of the $352.3 million in long-term debt outstanding at September 30 2001, $200 million was at fixed rates of interest ranging from 6.75% to 8.50% while $139 million was at a weighted average rate of 3.26% from the revolving credit agreement. At September 30, 2001, no interest rate swap agreements were outstanding and the amounts outstanding for forward exchange contracts were not material. The Company does not enter into derivatives or other financial instruments for trading or speculative purposes. Acquisitions In the first nine months of 2001, the Company acquired Ventech Controls, Inc., Laminated Profiles, Ltd., the Industrial Flow Group of Alfa Laval AB, the Xomox valve business of Emerson Electric Co., Resistoflex GmbH and the aerospace hose product line of Teleflex Fluid Systems. Total consideration paid in connection with these acquisitions was $201 million. All of the acquisitions were accounted for under the purchase method of accounting. Final allocation of the purchase price to the assets acquired and liabilities assumed has not been completed for these acquisitions. Final determination of the fair values to be assigned may result in adjustments to the preliminary values assigned at the dates of acquisition. Preliminary estimates of goodwill recorded for these acquisitions aggregated approximately $90 million. On April 1, 2001, the Company acquired for approximately $37 million plus working capital, the Industrial Flow Group of Alfa Laval Holding AB (renamed Crane Process Flow Technologies) which had annual sales of $77 million in 2000. On June 29, 2001, the Company completed the acquisition of the Xomox valve business from Emerson Electric Co., for a purchase price of $145 million. Xomox, with annual sales of approximately $150 million, is a leading global supplier of sleeved plug valves, quarter-turn valves and actuators under the Tufline and Matryx brand names. During the third quarter of 2001 the Company acquired Resistoflex GmbH and the aerospace hose product line of Teleflex Fluid Systems in transactions totaling approximately $11 million. The hose product line will be integrated into Crane Resistoflex's Jacksonville, Florida facility during the fourth quarter of 2001. Resistoflex GmbH is a manufacturer of Teflon-lined piping products serving the chemical and pharmaceutical markets in Europe. -13-
Part I - Financial Information (Cont'd) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Nine Months Ended September 30, 2001 New Accounting Pronouncements In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 141 ("SFAS 141"), "Business Combinations." SFAS 141 requires the purchase method of accounting for business combinations initiated after June 30, 2001 and eliminates the pooling-of-interests method. The adoption of SFAS 141 will not have a significant impact on the Company financial statements. In July 2001, the FASB issued Statement of Financial Accounting Standards No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets", which is effective January 1, 2002. SFAS 142 requires the discontinuance of goodwill amortization. In addition, the SFAS 142 includes provisions for the reclassification of certain existing recognized intangibles as goodwill, reassessment of the useful lives of existing recognized intangibles, reclassification of certain intangibles out of previously reported goodwill and the identification of reporting units for purposes of assessing potential future impairments of goodwill. SFAS 142 also requires the Company to complete a transitional goodwill impairment test six months from the date of adoption. The Company is currently assessing but has not yet determined the impact of SFAS 142 on its financial position and results of operations. In August 2001, the FASB issued SFAS No. 143 - Accounting for Asset Retirement Obligations. SFAS 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This statement becomes effective for financial statements issued for fiscal years beginning after June 15,2002. The Company is assessing but has not yet determined the impact that the adoption of SFAS 143 will have on its financial position and results of operations. In October 2001, the FASB issued SFAS No. 144 - Accounting for Impairment or Disposal of Long-Lived Assets, which replaces SFAS No. 121 - Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. SFAS No. 144 resolves implementation issues previously experienced under SFAS No. 121 and broadens the reporting of discontinued operations. This statement becomes effective for financial statements issued for fiscal years beginning after December 15, 2001. The Company is currently assessing but has not yet determined the impact that the adoption of SFAS 144 will have on its financial position and results of operations. Part II - Other Information Item 1. Legal Proceedings Therehave been no material developments in any of the legal proceedings described in the Company's Annual Report on Form 10-K for the year ended December 31, 2000. Item 6. Exhibits and Reports on Form 8-K -------------------------------- 1.) 8-K filed July 12, 2001 regarding acquisition of the Xomox valve business from Emerson Electric Co. -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 November 12,2001 By /s/ M. L. Raithel ---------------- --------------------------- M. L. Raithel Vice President and Chief Financial Officer Date November 12,2001 By /s/ T. M. Noonan ---------------- -------------------------- T. M. Noonan Vice President, Controller and Chief Tax Officer -15-