-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, F586wV18lZictIHV50/cCHcmbShWfiiR1TTwmEeNjA9hfisFZ3tlPDH+7VDyyMaw fradhWpCncDCw/Q6+1NYxg== 0000950130-97-001012.txt : 19970317 0000950130-97-001012.hdr.sgml : 19970317 ACCESSION NUMBER: 0000950130-97-001012 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970314 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CRANE CO /DE/ CENTRAL INDEX KEY: 0000025445 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-LUMBER, PLYWOOD, MILLWORK & WOOD PANELS [5031] IRS NUMBER: 131952290 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-01657 FILM NUMBER: 97556420 BUSINESS ADDRESS: STREET 1: 100 FIRST STAMFORD PLACE CITY: STAMFORD STATE: CT ZIP: 06902 BUSINESS PHONE: 2033637300 10-K405 1 FORM 10-K FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 (x) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1996 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ---------------- --------------- 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 offices) (Zip Code) Registrant's telephone number, including area code (203) 363-7300 -------------- Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered ------------------- ----------------------- Common shares, par value $1.00 New York Stock Exchange Preferred Share Purchase Rights New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: 7 1/4% senior notes due June, 1999 8 1/2% senior notes due March, 2004 ------------------------------------ (Title of Class) 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 ---- ---- Indicate by check mark if the disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (X) Based on the average stock price of $32.94 on January 31, 1997 the aggregate market value of the voting stock held by nonaffiliates of the registrant was $1,224,688,745. The number of shares outstanding of the registrant's common stock, $1.00 par value was 45,537,559 at January 31, 1997. DOCUMENTS INCORPORATED BY REFERENCE ----------------------------------- Portions of the annual shareholders report for the year ended December 31, 1996 are incorporated by reference into Parts I, II and IV. Portions of the proxy statement for the annual shareholders meeting April 21, 1997 are incorporated by reference into Parts I and III. PART I Item 1. Business -------- Crane is a diversified manufacturer of engineered industrial products and the nation's largest American distributor of doors, windows and millwork. Founded in 1855, Crane employs over 10,000 people in North America, Europe, Asia and Australia. STRATEGY The company's strategy is to grow the earnings of niche businesses with high market share, build an aggressive and committed management team whose interests are directly aligned to those of the shareholders, and maintain a focused, efficient corporate structure. ACQUISITIONS In the past five years, the company has completed 14 acquisitions. During 1996, the company acquired two companies. In mid October, the company acquired Interpoint Corporation in a tax-free merger in which the company issued 1,094,312 shares of Crane Co. common stock and assumed $26 million in debt. Interpoint is a leader in the design and manufacture of standard and custom miniature DC-to-DC power converters with applications in aerospace and medical technology industries. In late October the company acquired Grenson Electronics Ltd. of Daventry, England for a cash payment of $2.7 million. Grenson Electronics produces low voltage power conversion electronics for aerospace, defense and industrial markets. During 1995, the company completed three acquisitions at a cost of $9.4 million. In February the company, through its Barksdale subsidiary, acquired Unimess GmbH, a German-based manufacturer of a full line of solid state pressure switches and transducers, level switches and indicating systems, and flow measurement and control components for specialized instrumentation requirements in numerous industrial processes. In the fourth quarter, the company acquired Process Systems, Inc. based in Michigan. Process Systems is a manufacturer of vertical turbine pumps and accessories for industrial applications. In November 1995, the company acquired Kessel PTE Ltd., a fluoropolymer plastic lined pipe manufacturer with facilities in Singapore and Thailand. The company completed three acquisitions in 1994 at a total cost of $240 million. The company, through its wholly-owned subsidiary Huttig Sash & Door Company, acquired a molding and millwork manufacturing operation in Prineville, Oregon in May 1994. In April, 1994, the company purchased Mark Controls Corporation, a manufacturer of automatic and manually operated valves, and specialized instruments and controls, for commercial and industrial customers. The company acquired ELDEC Corporation in March 1994. ELDEC's products are used worldwide on all major commercial and business aircraft and include: position indication and control systems, proximity switches and components, true mass fuel flowmeters, and power conversion components and systems. In 1993, the company completed five acquisitions at a total cost of $106 million. In December, the company acquired Burks Pumps, Inc., which has manufacturing facilities in Piqua, Ohio and Decatur, Illinois and provides engineered pumps for an array of specialized commercial, industrial and municipal fluid handling applications. The products are marketed under the Barnes, Burks, Weinman and Prosser brand names. Also included was a line of tank cleaning equipment sold under the Sellers brand name for the industrial cleaning place market. This acquisition substantially increased Crane's involvement in niche pump markets. In October 1993, the company acquired Filon, a manufacturer of fiberglass-reinforced plastic (FRP) panels. Filon was integrated with the company's Kemlite unit in the fourth quarter of 1993. The Filon acquisition significantly expanded Kemlite's position as a supplier of FRP panels to the recreational vehicle market. /1 PART I (continued) Item 1. Business (continued) -------- In April and May 1993 Huttig Sash & Door Company expanded its nationwide millwork distribution by acquiring Rondel's Inc., a millwork distributor serving the eastern Washington/western Idaho region, and the Whittier-Ruhle Millwork Company, serving the Mid-Atlantic region. Perflow Instruments, Ltd., a British manufacturer of pressure and flow measurement equipment, was added to Crane Ltd. in 1993. In 1992, certain assets of Jenkins Canada, Inc., a manufacturer of bronze and iron valves, were acquired as an addition to the company's North American valve unit. DIVESTITURES In the past five years, the company has divested four businesses. In March of 1996, the company sold Empire Foundry. In December 1994, Huttig sold its window manufacturing business for $2.4 million. The transaction excluded real estate and receivables. In July 1994, the company sold Modulinc, the fiber optic channel product line of ELDEC. In April 1993, the company sold its precision ordnance business, UniDynamics/Phoenix for approximately $6 million. LONG-TERM FINANCING In June 1994 the company sold $150,000,000 of 7 1/4% notes that will mature on June 15, 1999. During March 1992 the company sold $100,000,000 of 8 1/2% notes that will mature on March 15, 2004. BUSINESS SEGMENTS See pages 26 and 27 of the Annual Report to Shareholders for sales, operating profit and assets employed of each business segment. FLUID HANDLING The Fluid Handling segment consists of valve, pump and water treatment businesses. The Crane Valve business with five manufacturing facilities in North America, as well as plants in the United Kingdom, Australia, Norway, China and Indonesia, sells a wide variety of commodity and special purpose valves and fluid control products for the chemical and hydrocarbon processing, power generation, marine, general industrial and commercial construction industries. Products are sold under the Crane, Jenkins, Pacific, Westad, Flowseal and Center Line brands. Crane Pumps has six manufacturing facilities in the United States located in Ohio, Illinois, Pennsylvania, West Virginia and Michigan. Pumps are manufactured under the Deming, Weinman, Chempump, Burks, Chem/Meter, Barnes, Sellers and Process Systems brand names. Pumps are sold to a broad customer base, which includes chemical and hydrocarbon process industries, automotive, municipal, industrial and commercial wastewater, power generation, commercial heating, ventilation and air-conditioning industries and original equipment manufacturers. The water treatment business has a manufacturing facility in Pennsylvania and serves the water and wastewater treatment market. Its products are sold under the Cochrane name. This group employs 3,000 people and had assets of $255.1 million at December 31, 1996. Fluid Handling order backlog totaled $88.6 million, a $2 million decline from the prior year. Products in this group are sold directly to end users through Crane's sales organization and through independent distributors and manufacturers representatives. /2 PART I (continued) Item 1. Business (continued) -------- AEROSPACE The Aerospace segment consists of ELDEC, Hydro-Aire, Lear Romec and Interpoint. The group employs 2,300 people and had assets of $251.7 million at year end. The order backlog totaled $269 million at December 31, 1996, an increase of 28% from the prior year. This increase was attributable mainly to Interpoint. ELDEC designs, manufactures and markets custom position indication and control systems, proximity sensors and components, true mass fuel flowmeters, power conversion components and systems for the commercial, business and military aerospace industries, and military marine and telecommunications markets. These products are custom designed for specific aircraft to meet technically demanding requirements of the aerospace industry. Grenson Electronics of Daventry, England, which the company acquired in the fourth quarter of 1996, has been integrated with ELDEC. Grenson produces low voltage power conversion electronics for aerospace, defense and industrial markets. ELDEC also has a $5.0 million 47% equity investment in Powec A/S, a Norwegian manufacturer of power conditioning products and systems, whose products are complementary to the products and complex power systems engineering capabilities at ELDEC. This accelerates the transfer of our Aerospace power conversion technology to the commercial wireless telecommunications market. Hydro-Aire designs, manufactures and sells anti-skid and automatic braking systems, fuel and hydraulic pumps, and coolant pumps and systems, hydraulic and pneumatic valves and regulators, actuators and solid state components for the commercial, business and military aerospace industries as original equipment. In addition, the company designs and manufactures systems similar to those above for the retrofit of aircraft with improved systems and manufactures replacement parts for systems installed as original equipment by the aircraft manufacturer. All of these products are largely proprietary to the company and, to some extent, are custom designed to the requirements and specifications of the aircraft manufacturer or program contractor. These systems and replacement parts are sold directly to airlines, governments, and aircraft maintenance and overhaul companies. Lear Romec designs, manufactures and sells lubrication and fuel pumps for aircraft, aircraft engines and radar cooling systems for the commercial and military aerospace industries. Lear Romec has a leading share of the non-captive market for turbine engine lube and scavenge oil pumps. Lear Romec also manufactures fuel boost and transfer pumps for commuter and business aircraft. Interpoint designs, manufactures and sells thick-film hybrid DC-to-DC power converters, custom microcircuits and accessory products for applications in commercial and military aerospace and space industries and in the medical technology industry. /3 PART I (continued) Item 1. Business (continued) -------- ENGINEERED MATERIALS The Engineered Materials segment consists of five businesses: Kemlite, Cor Tec, Resistoflex, Polyflon and Crane Plumbing. This group had assets of $102 million at December 31, 1996 and employed 1,100 people. Order backlog at year end 1996 was strong at $22.6 million, a slight increase from the prior year. Kemlite manufactures fiberglass-reinforced plastic panels for use principally by the transportation industry in refrigeration and dry van truck trailers and recreational vehicles. Kemlite products are also sold to the commercial construction industry for food processing, fast food restaurant and supermarket applications, and to institutions where fire rated materials with low smoke generation and minimum toxicity are required. Kemlite sells its products directly to the truck trailer and recreational vehicle manufacturers. Kemlite uses distributors to serve its commercial construction market and some segments of the recreational vehicle market. Cor Tec manufactures fiberglass-reinforced laminated panels serving the truck and truck trailer segment of the transportation industry. Cor Tec markets its products directly to the truck and truck trailer manufacturers. Resistoflex is engaged in the design, manufacture and sale of corrosion- resistant, plastic-lined steel pipes, fittings, tanks, valves, expansion joints and hose used primarily by the pharmaceutical, chemical processing, pulp and paper, petroleum distribution, ultra pure water and waste management industries. It also manufactures high-performance, separable fittings for operating pressures to 8,000 PSI used primarily in the aerospace industry. Resistoflex sells its industrial products through distributors who provide stocking and fabrication services to industrial users in the United States. Its aerospace products are sold directly to the aerospace industry. Resistoflex also manufactures plastic-lined pipe products at its Singapore plant serving the rapidly expanding Asian chemical processing industry as well as the Asian pharmaceutical industry. Polyflon manufactures radio frequency and microwave components, capacitors, circuit processing, and antennas for commercial and aerospace uses. Crane Plumbing manufactures plumbing fixtures in Canada. Its products are sold through distributors in Canada and it has a large share of the Canadian plumbing fixtures market. /4 PART I (continued) Item 1. Business (continued) -------- CRANE CONTROLS This segment includes five businesses: Barksdale, Powers Process Controls, Dynalco Controls, Azonix, and Ferguson. The companies in this segment design, manufacture and market industrial and commercial products that control flows and processes in various industries including the petroleum, chemical, construction, food and beverage, power generation industries and transportation. Crane Controls had assets of $125.4 million at December 31, 1996, and employs 860 people. On December 31, 1996, Crane Controls had a backlog of $25 million, a 4% decline from the prior year level. Barksdale manufactures solid state and electromechanical pressure and vacuum switches, pressure transducers, temperature switches, and directional control valves which serve a broad range of commercial and industrial applications. It has manufacturing and marketing facilities in the United States and Germany. The February 1995 acquisition of Unimess GmbH brought a full line of solid state switches, transducers and indicating systems to Barksdale, complementing existing German and United States product lines and market channels. Powers Process Controls designs, manufactures and markets microprocessor-based process controllers and instrumentation, pneumatic actuated control valves, self-contained temperature regulators, water mixing and thermal shock protection shower valves and plumbing brass for industrial applications and the institutional construction industry. Dynalco Controls designs and manufactures rotational speed sensors, monitoring instruments, and ignition and air to fuel control systems. Dynalco's products are used worldwide by industries in a variety of applications, including stationary natural gas engines, power generation, oil and gas production and transmissions, and agriculture equipment. Azonix manufactures high precision data acquisition, control systems and operator interfaces for a wide range of industries which require equipment to withstand harsh environments. Ferguson designs and manufactures in the United States and through Ferguson Machine S.A. in Europe, precision index and transfer systems for use on and with machines which perform automatic forming, assembly, metal cutting, testing and inspection operations. Products include index drives and tables, mechanical parts handlers, in line transfer machines, rotary tables, press feeds and custom cams. The products in this segment are sold directly to end users, and engineering contractors through the company's own sales forces and cooperatively with sales representatives, stocking specialists and industrial distributors. MERCHANDISING SYSTEMS The Merchandising Systems segment has two operating units: National Vendors, the industry leader in the design and manufacture of a complete line of vending merchandisers for the food/service vending market; and NRI, which manufactures electronic coin validators in Buxtehude, Germany for the automated merchandising and gambling/amusement markets in Europe. National Vendors products include electronic vending merchandisers for refrigerated and frozen foods, hot and cold beverages, snack foods, single cup individually brewed hot drinks and combination vendors/merchandisers, designed to vend both snack foods and /5 PART I (continued) Item 1. Business (continued) -------- MERCHANDISING SYSTEMS (continued) hot/cold drinks, or snacks and refrigerated/frozen foods in one machine. National Vendors manufactures its products in a 463,000 sq. ft. state of the art facility in Bridgeton, Missouri. National Vendors' products are marketed directly to customers in the United States and Europe by company sales and marketing personnel, and in other international markets through independent distributors. Merchandising Systems employs 1,000 people and had assets of $91.5 million at year end 1996. Order backlog totaled $18.6 million at December 31, 1996, compared to $14.7 million at December 31, 1995. WHOLESALE DISTRIBUTION The company distributes millwork products through its wholly owned subsidiary, Huttig Sash & Door Company ("Huttig"). These products include doors, windows, moldings and related building products. Huttig assembles certain of these products to customer specification prior to distribution. Its principal customers are building material dealers, building contractors and home remodelers that service the new construction and remodeling markets. Wholesale operations are conducted nationally through forty-four distribution centers throughout the United States, in both major and medium-sized cities. Huttig's sales are made on both a direct shipment and out-of-warehouse basis entirely through its own sales force. Huttig also manufactures specialty molding and millwork products at its Prineville, Oregon facility. The majority of the molding products are sold to third parties but Huttig is the single largest customer. In 1996, Huttig closed its manufacturing plant in Montana, where it produced certain of the above products and other finished lumber. Valve Systems & Controls is a value-added industrial distributor providing power operated valves and flow control systems to the petroleum, chemical, power and general processing industries. It services its customers through facilities in Texas and Louisiana. Crane Supply, a distributor of plumbing supplies, valves and piping in Canada, maintains thirty-five branches throughout Canada and distributes Crane manufactured products in that country. Crane Supply also distributes products which are both complementary to and partly competitive with Crane's own manufactured products. OTHER The other segment consists of Crane Defense Systems, which is the only Crane business focused on defense industry products. Crane Defense Systems is engaged in the development and manufacture of specialized handling systems, elevators, winches, ground support equipment, cranes and associated electronics. These products are sold directly to the government and defense contractors and represent less than 1% of 1996 sales. /6 PART I (continued) Item 1. Business (continued) -------- COMPETITIVE CONDITIONS The company's lines of business are conducted under actively competitive conditions in each of the geographic and product areas they serve. Because of the diversity of the classes of products manufactured and sold, they do not compete with the same companies in all geographic or product areas. Accordingly, it is not possible to estimate the precise number of competitors or to identify the principal methods of competition. Although reliable statistics are not available, the company believes that it is an important supplier to a number of market niches and geographic areas. The company's products have primary application in the industrial, construction, aerospace, automated merchandising, transportation, and fluid handling industries. As such, they are dependent upon numerous unpredictable factors, including changes in market demand, general economic conditions, residential and commercial building starts, and capital spending. Because these products are also sold in a wide variety of markets and applications, the company does not believe it can reliably quantify or predict the possible effects upon its business resulting from such changes. Seasonality is a factor in Huttig and the Canadian operations. The company's engineering and product development activities are directed primarily toward improvement of existing products and adaptation of existing products to particular customer requirements. While the company owns numerous patents and licenses, none are of such importance that termination would materially affect its business. Product development and engineering costs totaled approximately $52,000,000 in 1996, $51,900,000 in 1995, and $46,400,000 in 1994 Included in these amounts were approximately $10,300,000, $12,600,000 and $9,500,000 received by the company in 1996, 1995 and 1994, respectively, for customer sponsored research and development. The company is not dependent on any single customer nor are there any issues at this time regarding available raw materials for inventory. /7 PART I (continued) Item 1. Business (continued) -------- Costs of compliance with federal, state and local laws and regulations involving the discharge of materials into the environment or otherwise relating to the protection of the environment are not expected to have a material effect upon the company's capital expenditures, earnings or competitive position. Item 2. Properties ---------- MANUFACTURING FACILITIES* NUMBER AREA Fluid Handling United States 13 1,283,000 sq. ft. Canada 2 140,000 sq. ft. International 7 910,000 sq. ft. Aerospace United States 6 614,000 sq. ft. International 3 35,000 sq. ft. Engineered Materials United States 7 710,000 sq. ft. Canada 3 601,000 sq. ft. International 1 10,000 sq. ft. Crane Controls United States 7 423,000 sq. ft. International 2 53,000 sq. ft. Merchandising Systems United States 1 463,000 sq. ft. Other International 1 77,000 sq. ft. Wholesale Distribution 1 577,000 sq. ft. Other 1 113,000 sq. ft. - ------------------------ *Includes plants under lease agreements. Leased Leases Manufacturing Expiring Facilities Number Area Through ------------- ------ ---- --------- United States 9 463,000 sq. ft. 2006 Canada 1 12,000 sq. ft. 2000 Other International 5 67,000 sq. ft. 2013 Fluid Handling operates six valve service centers in the United States, of which four are owned, and one distribution center in the United States. This segment operates internationally eight distribution and seven service centers. /8 PART I (continued) Item 2. Properties (continued) ---------- Crane Controls operates two distribution centers internationally. Merchandising Systems operates eight distribution centers in the United States and six internationally. Wholesale Distribution has forty-four Huttig branch warehouses in the United States, of which twenty-seven are owned. The Canadian wholesale operation maintains thirty-five distribution branch warehouses in Canada, of which fifteen are owned. Valve Systems & Controls operates two leased distribution facilities in the United States. In the opinion of management, properties have been well maintained, are in sound operating condition, and contain all necessary equipment and facilities for their intended purposes. /9 PART I (continued) Item 3. 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. The two actions have been consolidated by the court (Civil Actions Nos. 91-0429-C-1 and 4:92CVOO5144JCH). 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 has been returned to the District court to further proceedings. 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. The lawsuit was dismissed in May 1996 upon the company's motions for summary judgment and for judgment on the pleadings. While the relator has appealed this dismissal, the company believes that the dismissal will be upheld on appeal and, accordingly, that the proceeding is not likely to have a material effect on the company's results of operations or financial condition. 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. In a letter dated October 15, 1992 the office of the Attorney General of the State of Ohio advised Cor Tec, a division of Dyrotech Industries, Inc. which is a subsidiary of the company, that Cor Tec's plant facility in Washington Court House, Ohio, had operated numerous air contaminant sources in its manufacturing process which emitted air pollutants for an extended period of time without the required state permits and in some instances in amounts exceeding the limits allegedly allowed under applicable rules. The Ohio Attorney General's office also alleged that certain contaminant sources at the Cor Tec facility were installed without obtaining permits to install. The main air contaminant in question is styrene, a volatile organic compound that is alleged to be a carcinogen. In 1993, in full cooperation with the Ohio EPA, Cor Tec constructed an emission control system in its plant at a cost exceeding $700,000 which included the installation of a hood, vent and incinerator to capture and incinerate the styrene emissions. At a meeting in Columbus, Ohio on March 4, 1993 the Attorney General's office representing the Ohio EPA, proposed that Cor Tec and the company sign a Consent Decree which would include general injunctive relief and civil penalties in the amount of $4.6 million which Cor Tec has refused to do. In a letter dated July 17, 1995 the Attorney General's office of the State of Ohio delivered a draft Complaint to Cor Tec (Court of Common Pleas, Fayette County, Ohio) alleging failure by Cor Tec to obtain various permits to install and to operate sources of contaminants and also alleging violations of air emissions standards, for periods 1974 to 1993. Penalties of $25,000 per day for each violation are demanded in the draft complaint. In a letter dated November 9, 1995, the Attorney General's /10 PART I (continued) Item 3. Legal Proceedings (continued) office presented a reduced civil penalty demand for $1.8 million and, by letter dated December 9, 1996, the Attorney General's office again threatened to commence suit in thirty (30) days (subsequently extended) unless Cor Tec significantly increased its $50,000 offer to settle. Cor Tec has responded in writing that, among other things, (i) the rule upon which the state's demands are based was not adopted in accordance with applicable statutory directives and is, therefore, unenforceable, (ii) Cor Tec has nevertheless complied with the rule as it is currently applied by the state, (iii) the state has considerable discretion in penalty calculation and the penalties sought by the state against Cor Tec are wholly out of proportion with the nature of the alleged violations and (iv) more lenient rules have been adopted for much larger VOC emission sources located in more polluted urban areas and thus Cor Tec's competitors have an advantage in the market place. On February 21, 1997, the Attorney General's office on behalf of the Ohio EPA commenced a civil action against Cor Tec in the Court of Common Pleas, Fayette County, Ohio alleging among other things, failure to obtain various permits to install and operate sources of contaminants and also alleging violation of air emission standards, for the period 1974 to 1993. Penalties for $25,000 per day for each day of violation have been demanded in the Complaint. Cor Tec continues to believe it has adequate defenses to the allegations in the Complaint and it plans to vigorously resist paying any damages, fines, or penalties. 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 Compensations 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 (the "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 Site. The company had 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 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 the 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 the 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 seeking information about the company's (and CF&I's) connection to the Roebling Site. On August 26, 1996, the company filed its response to the Section 104 Request and, to date, has received no further communications from the EPA concerning the Roebling Site. Based on the facts and circumstances summarized above, the company does not believe it is responsible for any portion of the Roebling Site clean-up. Item 4. Submission of Matters to a Vote of Security Holders No matters were submitted to a vote of security holders during the fourth quarter of 1996. /11 PART I (continued) EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of the registrant are as follows:
Business Experience Officer Name Position During Past Five Years Age Since - ---- -------- ---------------------- --- ------- Robert S. Evans Chairman and Chief Chairman and Chief 52 1974 Executive Officer Executive Officer of the company since 1985 and previously President of the company L. Hill Clark President and Executive Vice President of 52 1994 Chief Operating the company, previously Officer President of Lear Romec, and previously held various positions within Allied Signal Inc., a diversified manufacturing company Robert J. Muller, Jr. Executive Vice Executive Vice President of 50 1988 President the company, responsible for National Vendors division Augustus I. duPont Vice President, Vice President and General 45 1996 General Counsel Counsel and Secretary of and Secretary the company, previously Vice President, General Counsel and Secretary of Reeves Industries, Inc., a manufacturer of apparel textiles and industrial coated fabrics, from May 1994 to December 1995; Vice President, General Counsel and Secretary of Sprague Technologies, Inc., a manufacturer of electronic components, from May 1987 to December 1993 Anthony D. Pantaleoni Vice President Vice President - Environment, 42 1989 Environment, Health & Safety of the Health & Safety company Richard B. Phillips Vice President Vice President - Human 53 1987 Human Resources Resources of the company David S. Smith Vice President- Vice President - Finance 39 1991 Finance and and Chief Financial Officer Chief Financial of the company, previously Officer Vice President - Corporate Development of the company Michael L. Raithel Controller Controller of the company 49 1985 Gil A. Dickoff Treasurer Treasurer of the company, 35 1992 previously Assistant Treasurer of the company
/12 PART II The information required by Items 5 through 8 is hereby incorporated by reference to Pages 14 through 35 of the Annual Report to Shareholders. ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by Item 10 is incorporated by reference to the definitive proxy statement which the company will file with the Commission pursuant to Regulation l4A except that such information with respect to Executive Officers of the Registrant is included, pursuant to Instruction 3, paragraph (b) of Item 401 of Regulation S-K, under Part I. ITEM 11. EXECUTIVE COMPENSATION The information required by Item 11 is incorporated by reference to the definitive proxy statement which the company will file with the Commission pursuant to Regulation l4A. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by Item 12 is incorporated by reference to the definitive proxy statement which the company will file with the Commission pursuant to Regulation 14A. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by Item 13 is incorporated by reference to the definitive proxy statement which the company will file with the Commission pursuant to Regulation 14A. /13 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K Page ---- (a) Financial Statements and Schedule: --- ---------------------------------- Independent Auditors' Report 17 Schedule VIII Valuation and Qualifying Accounts 18 The consolidated balance sheets of Crane Co. and subsidiaries as of December 31, 1996 and 1995 and the related consolidated statements of income, changes in common shareholders' equity and cash flows for the years ended December 31, 1996, 1995 and 1994 and the financial review, appearing on Pages 14 through 35 of Crane Co.'s Annual Report to Shareholders which will be furnished with the company's proxy statement as required by Regulation 14A, Rule 14a-3(c), are incorporated herein by reference and are supplemented by the schedule on Page 16 of this report. All other statements and schedules for which provision is made in the applicable regulation of the Securities and Exchange Commission have been omitted because they are not required under related instructions or are inapplicable, or the information is shown in the financial statements and related notes. (b) Reports on Form 8-K: No reports on Form 8-K were filed during the quarter ended December 31, 1996. (c) Exhibits to Form 10-K: (3) There is incorporated by reference herein: (a) The company's Certificate of Incorporation contained in Exhibit D (Certificate of Designation) to the company's Annual Report on Form 10-K for the fiscal year ended December 31, 1987. (b) The company's By-laws contained in Exhibit A to the company's Annual Report on Form 10-K for the fiscal years ended December 31, 1995. (4) Instruments Defining the Rights of Security Holders, including Indentures: (a) There is incorporated by reference herein: (1) Preferred Share Purchase Rights Agreement contained in Exhibit 1 to the company's Report on Form 8-K filed with the Commission on July 12, 1988. (2) Amendment to Preferred Share Purchase Rights Agreement contained in Exhibit 1 to the company's Report on Form 8-K filed with the Commission on June 29, 1990. /14 PART IV (CONTINUED) ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (CONTINUED) (b) There is incorporated by reference herein: 1) Indenture dated as of April 1,1991 between the Registrant and the Bank of New York contained in Exhibit 4 to Registration Statement No. 33-39658. (10) Material Contracts: (iii)Compensatory Plans There is incorporated by reference herein: (a) The Crane Co. Restricted Stock Award Plan as amended through May 6, 1996, contained in Exhibit A to the company's Form 10-Q for the quarter ended March 31, 1996. (b) The forms of Employment/Severance Agreement between the company company and the executive officers (form I) and (form II) which provide for the continuation of certain employee benefits upon a change of control as contained in Exhibit C of the company's annual report on Form 10-K for the fiscal year ended December 31, 1994. (c) The E.V.A. incentive compensation plan for executive officers contained in Exhibit B to the company's annual report on Form 10-K for the fiscal year December 31, 1994. (d) The Crane Co. Non-Employee Directors Restricted Stock Award Plan as amended through May 10, 1993 contained in Exhibit B to the company's annual report on Form 10-K for the fiscal year ended December 31, 1994. (e) The indemnification agreements entered into with each director and executive officer of the company, the form of which is contained in Exhibit C to the company's definitive proxy statement filed with the Commission in connection with the company's April 27, 1987 Annual Meeting. (f) The Crane Co. Retirement Plan for Non-Employee Directors contained in Exhibit E to the company's Annual Report on Form 10-K for the fiscal year ended December 31, 1988. (g) The Crane Co. Stock Option Plan as amended as of February 27, 1995 contained in Exhibit 4(a) to the company's Registration Statement No. 33-59389 on Form S-8 filed with the Commission on May 17, 1995 . (11) Statement re computation of per share earnings: Exhibit A: Computation of net income per share. (13) Annual report to security holders: Exhibit B: Annual Report to shareholders for the year ended December 31, 1996. (21) Subsidiaries of the Registrant: Exhibit C: Subsidiaries of the Registrant. (23) Consent of Experts and Counsel Exhibit D: Independent auditors' consent. All other exhibits are omitted because they are not applicable or the required information is shown elsewhere in this Annual Report on Form 10-K. /15 SIGNATURES Pursuant to the requirements of Section l3 or l5(d) of the Securities Exchange Act of l934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CRANE CO. ------------------- (Registrant) ------------- By / s/ D. S. Smith ------------------------- D. S. Smith Vice President-Finance and Chief Financial Officer Date 2/24/97 ------- Pursuant to the requirements of the Securities Exchange Act of l934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. OFFICERS /s/ R. S. Evans ------------------------- R. S. Evans Chairman, Chief Executive Officer and Director Date 2/24/97 ------- /s/ D. S. Smith /s/ M. L. Raithel ------------------------------- ----------------------------- D. S. Smith M. L. Raithel Vice President-Finance and Controller Chief Financial Officer (Principal Accounting Officer) (Principal Financial Officer) Date 2/24/97 ------- Date 2/24/97 ------- DIRECTORS /s/ M. Anathan, III /s/ E. T. Bigelow, Jr. /s/ R.S. Forte - ----------------------- -------------------------- -------------- M. Anathan, III E. T. Bigelow, Jr. R.S. Forte Date 2/24/97 Date 2/24/97 Date 2/24/97 ------- ------- ------- /s/ D.R. Gardner /s/ J. Gaulin /s/ D. C. Minton - ----------------------- --------------------------- ------------------- D.R. Gardner J. Gaulin D.C. Minton Date 2/24/97 Date 2/24/97 Date 2/24/97 ------- ------- ------- /s/ C.J. Queenan, Jr. /s/ B. Yavitz ---------------------- ----------------------------- C.J. Queenan, Jr. B. Yavitz Date 2/24/97 Date 2/24/97 ------- ------- /16 INDEPENDENT AUDITORS' REPORT TO THE SHAREHOLDERS OF CRANE CO.: We have audited the consolidated financial statements of Crane Co. and subsidiaries as of December 31, 1996 and 1995, and for each of the three years in the period ended December 31, 1996 and have issued our report thereon dated January 27, 1997; such financial statements and report are included in your 1996 Annual Report to Shareholders and are incorporated herein by reference. Our audits also included the consolidated financial statement schedule of Crane Co., listed in Item 14. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP Stamford, Connecticut January 27, 1997 /17 CRANE CO. AND SUBSIDIARIES SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS (In Thousands)
Balance at Additions Balance Beginning Charged to at End Description of Year Cost & Expenses Deductions of Year - ---------------------------------- ---------- --------------- ---------- ------- Year Ended December 31, 1996: Allowance for doubtful accounts $ 4,003 $ 3,173 $ 1,905 $5,271 Allowance for cash discounts, returns and allowances 1,433 14,931 15,072 1,292 ------- ------- ------- ------- $ 5,43 $18,104 $16,977 $ 6,563 ======== ======= ======= ======= Year Ended December 31, 1995: Allowance for doubtful accounts $ 4,977 $ 2,810 $ 3,784 $4,003 Allowance for cash discounts, returns and allowances 1,847 13,799 14,213 1,433 ------- ------- ------- ------- $ 6,824 $16,609 $17,997 $ 5,436 ======= ======= ======= ======= Year Ended December 31, 1994: Allowance for doubtful accounts $ 7,289 $ 4,949 $ 7,261 $4,977 Allowance for cash discounts, returns and allowances 1,143 17,307 16,603 1,847 ------- ------- ------- ------- $ 8,432 $22,256 $23,864 $ 6,824 ======= ======= ======= =======
/18 EX-11 2 STATEMENT PER SHARE EARNINGS Exhibit 11 CRANE CO. AND SUBSIDIARIES EXHIBIT A TO FORM 10-K ANNUAL REPORT FOR THE YEAR ENDED DECEMBER 31, 1996 Computation of Net Income Per Share* (In Thousands Except Per Share Data)
Primary 1996 1995 1994 1993 1992 - ------- -------- -------- -------- -------- -------- Net Income $92,110 $76,337 $55,933 $48,893 $24,286 ======= ======= ======= ======= ======= Net income per share $ 2.01 $ 1.67 $ 1.24 $ 1.08 $ .53 ======= ======= ======= ======= ======= Average number of primary shares 45,930 45,816 45,219 45,325 46,268 Fully Diluted Net Income $92,110 $76,337 $55,933 $48,893 $24,286 Conversion of debentures: Add back interest, net of income tax - - - 25 30 ------- ------- ------- ------- ------- Net income - assuming conversion of debentures $92,110 $76,337 $55,933 $48,918 $24,316 ======= ======= ======= ======= ======= Net income per share $ 2.00 $ 1.66 $ 1.23 $ 1.07 $ .52 ======= ======= ======= ======= ======= Average number of primary shares.. 45,930 45,816 45,219 45,325 46,268 Add: Adjustment to primary shares for dilutive stock options (ending market price higher than average market price) 154 119 21 - 27 Shares reserved for conversion of debentures - - 135 281 325 ------- ------- ------- ------- ------- Total average number of shares 46,084 45,935 45,375 45,606 46,620 ======= ======= ======= ======= =======
* On December 12, 1996, the company effected a three-for-two split of common stock. All share and per share data prior to the split have been restated. EX-13 3 ANNUAL REPORT 1996 CRANE CO. ANNUAL REPORT 1996 Table of Contents Financial Highlights 1 Letter to Shareholders 3 Crane at a Glance 6 Crane's Market Leaders 10 Consolidated Financial Statements 14 Notes to Consolidated Financial Statements 18 Management's Responsibility for Financial Reporting 28 Independent Auditors' Report 28 Management's Discussion and Analysis of Operations 29 Shareholder Information 36 Directors and Officers Back Cover
FINANCIAL HIGHLIGHTS ($ and shares in thousands except per share data) 1996 1995 % Change ---- ---- -------- Summary of Operations Net Sales $1,847,732 $1,782,310 3.7% EBITDA(a) 215,555 191,713 12.4% Operating Profit 166,153 142,948 16.2% Income Before Taxes 145,020 121,468 19.4% Net Income 92,110 76,337 20.7% Cash Flow(b) 141,512 125,102 13.1% Per Share Data(c) Net Income $ 2.01 $ 1.67 20.4% Cash Flow 3.08 2.73 12.8% Dividends .50 .50 -- Average Primary Shares 45,930 45,816 -- Financial Position at December 31, Assets $1,088,855 $ 998,411 9.1% Net Debt 281,404 291,747 (3.5)% Shareholders' Equity 462,669 374,729 23.5% Market Value of Equity(d) 1,324,136 1,110,869 19.2% Market Capitalization(d) 1,605,540 1,402,616 14.5% Key Statistics Sales per Employee $ 177 $ 169 Operating Profit as a % of Sales 9.0% 8.0% Net Income as a % of Sales 5.0% 4.3% Return on Average Assets 8.9% 7.5% Return on Average Shareholders' Equity 22.6% 21.6% Net Debt to Capital 37.8% 43.8%
(a) EBITDA is earnings before interest, taxes, depreciation and amortization. (b) Cash flow is net income plus depreciation and amortization. (c) On December 12, 1996, the company effected a three-for-two split of common stock. All share and per share data prior to the split have been restated. (d) Market value of equity is number of shares of common stock times closing stock price. Market capitalization is market value of equity plus net debt. EBITDA (In millions) [GRAPHIC] 1992 1993 1994 1995 1996 - ---- ---- ---- ---- ---- 74 115 155 192 216 Net Income (In millions) [GRAPHIC] 1992 1993 1994 1995 1996 - ---- ---- ---- ---- ---- 24 49 56 76 92 1 CRANE(R) We strive for a dominant presence in niche markets. We generate solid rates of return on invested capital and high levels of cash flow. We use our cash effectively to grow and strengthen our existing businesses, and to acquire new businesses We acquire businesses that fit with our existing businesses and strengthen our position in niche markets. We maintain an incentive compensation plan specifically designed to align the interests of management and shareholders. We do this with one goal in mind: To build shareholder value. 2 LETTER TO SHAREHOLDERS R. S. Evans, Chairman and Chief Executive Officer [PHOTO APPEARS HERE] CASH FLOW (Net income plus depreciation and amortization) (In millions) [GRAPHIC] 1992 1993 1994 1995 1996 - ---- ---- ---- ---- ---- 53 78 101 125 142 TO OUR SHAREHOLDERS: Crane Co. turned in an excellent performance in 1996, with record sales and profits for the second straight year, and solid indications of more to come as the developing boom in aerospace takes shape. Net income was a record $92.1 million, or $2.01 per share, a 21% gain. Operating income also set a record, at $166.2 million, an increase of 16%, on sales of $1.8 billion, up 4% from 1995. Operating margins gained a full percentage point. A majority of our companies improved their results in 1996, and most made manufacturing or other improvements that should increase sales and earnings in 1997. AEROSPACE DRIVES GROWTH Aerospace, the company's most profitable business segment, enjoyed increased sales, margins and operating profits as the industry began its expected expansion. Our aerospace businesses were an important driver of Crane's vigorous growth in 1996, and will be even more so in 1997. The aerospace industry itself is driven by the airlines' increased profitability, which has led them to step up their investments in spare parts and overhaul activities, and to order new aircraft to modernize their fleets. In 1996, Crane's aerospace companies benefited from increased repair and spare parts activities. In 1997 and for the next several years, their results--and Crane's earnings--will be significantly enhanced by the increased production of new commercial aircraft, particularly at Boeing but also including Airbus and McDonnell Douglas. We do not expect Boeing's proposed acquisition of McDonnell Douglas to change this outlook. Crane is well positioned to benefit from the aerospace expansion. Our ELDEC division provides power conversion devices and proximity sensing systems on all Boeing, McDonnell Douglas and Airbus aircraft, and also supplies fuel flowmeters to most. Our Hydro-Aire division serves most of the world's principal aircraft manufacturers, making anti-skid braking systems for all Boeing and most Douglas aircraft, most commuter and business aircraft, and many military aircraft. It also provides fuel, coolant and hydraulic pumps, pneumatic regulators, actuators and solid state components. Lear Romec supplies lubrication and fuel pumps for aircraft, aircraft engines and radar cooling systems. All three units cut costs and emphasized their repair and overhaul business in 1996, enhancing their profits. Our ELDEC and Hydro-Aire businesses are described in greater detail later in this report. 3 LETTER TO SHAREHOLDERS continued OUR AEROSPACE BUSINESSES WERE AN IMPORTANT DRIVER OF CRANE'S VIGOROUS GROWTH IN 1996, AND WILL BE EVEN MORE SO IN 1997. Other Segments Gain Our Fluid Handling segment, which includes our pump and valve businesses, also did well in 1996, with a large increase in earnings on a modest sales gain. Sales and earnings at Crane Pumps & Systems, Inc., were boosted by cost-cutting, by a full year's results from Process Systems, a maker of industrial line shaft turbine pumps acquired in late 1995, and by increased sealless pump sales at Chempump. Our valve business, comprising three companies in North America plus companies in the United Kingdom, Norway and Australia, performed moderately well in 1996. Our new joint ventures in Indonesia and China began manufacturing valves during the year and are both profitable. Indonesia in particular should be a big market for us. The Engineered Materials segment made modest gains in sales and profits on strong showings by two of its businesses --Kemlite and Resistoflex. With a decline in the truck market hurting its sales of fiberglass-reinforced panels for the interiors of trucks, Kemlite successfully focused on the recreational vehicle market, promoting its panels as a substitute for aluminum. Resistoflex, which makes corrosion-resistant, plastic-lined pipe, fittings, tanks, valves, expansion joints and hose assemblies, gained from its new access to Asian markets. This resulted from the late-1995 acquisition of Kessel PTE, Ltd., a plastic-lined pipe manufacturer with facilities in Thailand and Singapore. Resistoflex also benefited from a turnaround in its business in titanium fittings for aerospace uses. Crane Controls, the company's newest business segment, had modestly lower sales and operating profits in 1996 after a strong 1995 showing, although operating margins improved slightly. The Merchandising Systems segment was able to improve profits in spite of a slight decline in sales stemming largely from National Vendors' completion in 1995 of a major contract to supply vending machines to the U.S. Post Office, and smaller purchases by national accounts. A full year of the efficiency gains generated by National Vendors' expanded plant in St. Louis and a continuing turnaround at National Rejectors, Inc., GmbH in Germany resulted in improved margins and higher operating earnings. Huttig Sash & Door boosted its sales and operating profits in 1996 on the strength of increased single-family housing starts in the U.S. market, stronger residential repair and remodeling activity, and improved results at its wood molding manufacturing operation. This, along with improved margins at Crane Supply in Canada, produced a strong result for our Wholesale Distribution segment. TWO AEROSPACE ACQUISITIONS Crane acquired two companies during the year, both in October, and both within the aerospace segment. We acquired the microelectronics business of Interpoint Corporation, expanding ELDEC's ability to provide power conversion products to the aircraft and space markets and potentially opening the door for expansion into the medical device market. We also acquired Grenson Electronics, of Daventry, U.K., a designer and producer of custom low-voltage power conversion devices for the aerospace, defense and industrial markets. Grenson will provide ELDEC with a local base from which to serve its European customers. STRONG FINANCIAL POSITION Our strong operating results reflect a consistent, company wide effort to make businesses not only bigger but better-- 4 OUR STRONG OPERATING RESULTS REFLECT A CONSISTENT, COMPANY WIDE EFFORT TO MAKE BUSINESSES NOT ONLY BIGGER BUT BETTER. by investing in more efficient equipment, by streamlining processes and by constantly looking for ways to reduce costs and increase our financial strength. Our success in this effort is evident in a number of measures. We have continued to improve our working capital-to-sales ratio, from 23.4 percent in 1995 to 22.8 percent in 1996. Return on assets, 7.5 percent in 1995, improved to 8.9 percent in 1996. Our net debt-to-total capital ratio continued to decline, from 52 percent in 1994 to 43.8 percent in 1995 and to 37.8 percent in 1996. And our cash flow from operations rose from $106.6 million in 1995 to $122.1 million, providing funds for acquisitions, plant investments, dividends and share repurchases. The company invested $50 million in capital equipment and returned $49 million to shareholders through dividends and share repurchases. We bought back 1,009,000 shares in open market transactions during the year at a cost of $26,452,000, an average price of $26.22 per share. PROVIDING POWERFUL INCENTIVES While it is the people involved who initiated and implemented the improvements that have improved our financial ratios, our EVA incentive program should surely get some of the credit. Since we established it in 1990, the EVA (Economic Value Added) program has aligned the interests of our managers with those of our shareholders. The EVA program rewards executives for improving actual results, not for reaching arbitrary targets. It encourages long-term thinking and binds successful managers to the company. STOCK SPLIT DECLARED In October, the Board of Directors voted to split Crane's common stock three-for-two, effective December 12, 1996 for shareholders of record as of December 4. The split is intended to broaden the market for Crane shares. The board also declared a regular quarterly dividend of $.1875 per share, continuing our previous $.75 annual dividend rate. On the split shares, the annual rate will be $.50 per share. We believe that the timely repurchase of stock is more effective than dividends as a way of increasing shareholder returns. A POSITIVE OUTLOOK Crane's prospects for 1997 are very positive. Our companies in the Aerospace segment will benefit even more than in 1996 from the continuing expansion in production of commercial airliners, and the buildup seems likely to continue for several more years. Our spare parts, maintenance and overhaul work is also increasing. We also look for an improving year for our Engineered Materials and Fluid Handling segments. Similarly, our Merchandising Systems and Wholesale Distribution segments are positioned for strong 1997 results. Crane's solid earnings performance in 1996, on the heels of an exceptionally strong 1995, suggests that our decentralized but watchful approach to managing our companies works well, particularly when coupled with a powerful and well-targeted incentive program. Our shareholders have benefited, and will continue to do so as 1997 unfolds. I am grateful for the dedication of our employees, the wise counsel of our directors, and the continuing support of our shareholders as we face the new challenges that 1997 will bring. Sincerely, /s/ Robert S. Evans Robert S. Evans Chairman and Chief Executive Officer February 10, 1997 5 Crane at a Glance
Business Unit Products Markets Served Business Highlights Business Outlook - ----------------------------------------------------------------------------------------------------------------------------------- Fluid Handling - ----------------------------------------------------------------------------------------------------------------------------------- Crane Valves Gate, globe, check and ball Hydrocarbon processing: Gained market share in Improving sales and North America valves made from bronze, cast- refining, petrochemical Asia through a joint profits due to: Crane iron, steel, stainless steel, oil and gas production venture in Indonesia. . continued market Pacific titanium and special corrosion- and distribution and Increased export sales expansion in Asia Flowseal resilient alloys chemical processing at Crane Ltd. . strong market for Jenkins HF acid valves Power generation Introduced new valve for Westad's cryogenic Center Line High performance, resilient including nuclear liquid natural gas (LNG) valves for LNG - ------------------- seat and composite butterfly applications market and penetrated new applications Crane Ltd. valves Industrial, municipal, markets at Westad. . growth of quarter Ipswich, U.K. Cryogenic valves commercial and Reduced costs by sourcing turn butterfly valve - ------------------- Repair, contract maintenance institutional products through joint products Westad Industri A/S and "in-line" services construction, venture in China. . cost reductions Geithus, Norway Pipe fittings water and sewage, Modernized bronze foundry at Brantford - ------------------- building and and valve facility in facility Crane Australia Pty. engineering services Brantford, Ontario. . expansion of Ltd. Pulp and paper Reorganized management at global sourcing. Sydney, Australia Commercial heating, Crane Valves by product - ------------------- ventilation and air line. conditioning (HVAC) Marine, cryogenic applications - ------------------------------------------------------------------------------------------------------------------------------------ Crane Pumps Submersible wastewater and Municipal, industrial Solidified market Sales and profit & Systems, Inc. dewatering centrifugal, self- and commercial water position in auto- growth due to: Piqua, OH priming centrifugal, and wastewater and motive industry by . continued market Barnes Pumps regenerative turbine, specialty industrial successfully in- share gains for Burks Pumps horizontal and vertical markets tegrating the Pro- pressure sewer Deming Pump turbine, sealed and sealless Original equipment cess Systems products Weinman end suction and in-line manufacturers acquisition. . new product Chempump centrifugal, split case, (OEM), power and Gained share of introductions for Chem/Meter air operated diaphragm and construction, growing market the specialty Process Systems metering pumps and pumping government contracts, for alternative automotive market Sellers systems commercial HVAC, sewage collection and in the Barnes Rotary tank cleaners, chemical processing, systems with new small sewage pump steam injectors pharmaceutical, pulp low-pressure sewer line and paper and pump products. . introduction of hydrocarbon processing Strengthened market existing products position in the into new niche specialty industrial markets, e.g., OEM market. expansion of the Expanded NC Series range of applications of NC pumps into larger Series self-diagnos- flow applications. tic sealless pump technology to include heat transfer and re- frigeration. - ------------------------------------------------------------------------------------------------------------------------------------ Cochrane Inc. Water and wastewater Power generation, Introduced new closed Higher sales and King of Prussia, PA treatment products pharmaceutical, condensate return profits dues to - ------------------- chemical and system for medium geographical market petroleum industries pressure applications. expansion
6
Business Unit Products Markets Served Business Highlights Business Outlook - ------------------------------------------------------------------------------------------------------------------------------------ Aerospace - ------------------------------------------------------------------------------------------------------------------------------------ ELDEC Corporation Position indication and Commercial, business Expanded market posi- Significantly stronger Lynnwood, WA control systems, proximity and military aero- tion, product offer- results in 1997 due to: - ------------------ sensors, pressure sensors, space, military ings and world-wide . increased production mass fuel flowmeters, power marine, telecom- distribution network rates by major aircraft conversion systems munications for standard hybrid builders DC-to-DC power con- . continued focus on - ---------------------------------------------------------------------------- verters with the ac- improving manufacturing Hydro-Aire Anti-skid and automatic Commercial, bus- quisition of Interpoint. and business processes Burbank, CA braking systems, fuel iness, space and Expanded market posi- . rapid growth in the - ------------------ and hydraulic pumps, military aerospace tion in the U.K. power wireless telecommunication coolant pumps and conversion systems market in conjunction with systems, hydraulic and market with the acqui- its European partner, Powec pneumatic valves, sition of Grenson A/S regulators and actuators Electronics, Ltd. . strong market position Increased customer in full range of power - ---------------------------------------------------------------------------- base in the telecom- conversion products Lear Romec Lubrication and fuel Commercial and munications market and . full-year results of Elyria, OH pumps for aircraft, military aerospace, licensed Powec techno- Interpoint and Grenson - ------------------ aircraft engines and defense industry logy to manufacture Electronics. radar cooling systems advanced technology products in the U.S. - ---------------------------------------------------------------------------- ELDEC secured con- Interpoint Standard and custom Commercial, business, tracts for the re- Redmond, WA miniature DC-to-DC space and military placement battery - ------------------ power converters aerospace, defense system for 737, 747, and custom miniature industry, medical 757, 767 aircraft electronic circuits industries including and the proximity implantable medical sensing system devices on McDonnell Douglas MD-95 aircraft. Hydro-Aire captured brake control systems contracts for the Raytheon Premier I business jet, the Lockheed/Martin Joint Strike Fighter and the prototype for the next generation of the space shuttle. Lear Romec secured the lube and scavenger pump contract for the joint venture Canadair/ RJX regional jet. Strengthened market position in European proximity sensor market by entering into agree- ment with Ultra Elec- tronics, a large elec- tronics manufacturer in the U.K. Experienced strong growth in aftermarket and repair and overhaul at all operating units.
7 Crane at a Glance
Business Unit Products Markets Served Business Highlights Business Outlook - ------------------------------------------------------------------------------------------------------------------------------------ Engineered Materials - ------------------------------------------------------------------------------------------------------------------------------------ Kemlite Company, Fiberglass-reinforced Recreational vehicle, Continued to gain mar- Increasing market share Inc. plastic (frp) panels trailer and ket share in recreat- as frp panels continue Joliet, IL used as sidewalls and commercial construction tional vehicle market to displace aluminum in - ------------------- roofs for recreational as Kemlite's smooth the recreational vehicle vehicles, interior wall sidewalls continued to and trailer markets. liners and roofs for displace aluminum. Increasing market share truck trailers, and Achieved record market in Asia with the opening wall and ceiling systems share in the lined pipe of lined pipe fabrication for commercial construc- and fitting segment due and sales facilities in tion to introduction of new Indonesia and China in - --------------------------------------------------------------------------- products and services at 1997. Cor Tec Fiberglass-reinforced Trucks and truck Resistoflex. Continuing market share Washington Court laminated composite trailers, special- Established solid market gains for Cor Tec's House, OH panels for transporta- purpose trailers, position in the Asian lightweight foam core - ------------------- tion, construction marine houseboats pharmaceutical and panels. and marine applications and general chemical processing Solid sales and profits construction industries with Resisto- from Resistoflex's new - --------------------------------------------------------------------------- flex's lined pipe products PTFE hose products, Resistoflex Corrosion resistant Pharmaceutical, due to the successful introduced in late 1996. Marion, NC plastic-lined pipe, chemical processing, integration of the 1995 Continuing productivity - ------------------- fittings, tanks, pulp and paper, Kessel acquisition. gains and cost reductions valves, expansion ultra pure water, Successfully introduced at Resistoflex. joints and hose waste management Encor lightweight foam Increasing sales at assemblies, high industries, military core composite panels to Crane Plumbing due to an performance separ- and aerospace specialty trailer market improving Canadian able fittings for contractors at Cor Tec. economy and a greater operating pressures Introduced Lustra panels focus on export to 8,000 psi with improved surface opportunities. - --------------------------------------------------------------------------- characteristics and Tuff- Crane Plumbing Plumbing fixtures Residential, industrial, Shield panels at Cor Tec Montreal, Quebec commercial and institu- aimed at replacing - ------------------- tional construction in plywood truck and trailer Canada liners. - --------------------------------------------------------------------------- Developed NORYLbased Polyflon Radio frequency/ Wireless communi- microwave laminate Norwalk, CT microwave capacitors, cations, magnetic (NorCLAD) at Polyflon, - ------------------- circuit processing, resonance imaging, aimed at commercial wire- microwave materials, radar and microwave less applications. radomes system manufacturers Reduced costs and expanded hose product offerings at Resistoflex due to invest- ments in PTFE vertical ex- trusion equipment. Expanded Crane Plumbing operations to the retail distribution channels in Canada. - ------------------------------------------------------------------------------------------------------------------------------------ Merchandising Systems - ------------------------------------------------------------------------------------------------------------------------------------ National Vendors Electronic vending Automated merchandising Successfully launched mar- Expanding its role Bridgeton, MO merchandisers for keting initiative to as a leading - ------------------- refrigerated and frozen manufacture brand specific manufacturer to the foods, hot and cold snack machines in partner- vending industry beverages, snack foods, ship with prominent snack due to: coin and currency changers and candy companies. . new products aimed - ----------------------------------------------------------------------------- Continued to experience at the mid-to-small National Rejectors, Electronic coin validators Automated merchandising, strong growth of its Cafe population locations Inc. and changers, chip card gambling and amusement System "7". . growth of its GmbH (NRI) cashless payment systems industries Expanded market distribu- snack/drink and Buxtehude, Germany tion channels to include snack/refrigerated - -------------------- warehouse club outlets. food combination Realized anticipated cost merchandiser and the reductions as a result of Twin Drink Center hot its $25 million plant & cold beverage modernization program. merchandiser Increased market penetra- . new Millennia Styling tion in Latin America and of vending equipment, the Pacific Rim. which is expected to be Achieved profitable well received in Europe results at NRI through and Japan. cost reduction efforts. Increasing sales and profits at NRI due to: . new product offerings . higher demand in Europe . increased opportunities in Latin American mass transit market.
8
Business Unit Products Markets Served Business Highlights Business Outlook - ------------------------------------------------------------------------------------------------------------------------------------ Controls - ------------------------------------------------------------------------------------------------------------------------------------ Barksdale, Inc. Pressure switches Manufacturers of com- Expanded market for Stable results to Los Angeles, CA and transducers, pressors, machine tools, Barksdale's air suspension continue with - ------------------- level switches and trucks, spa heaters, valves to include transit greater focus on continuous level compactors, bailers buses in addition to Class developing new indicators, temper- and heat tracing equipment 8 trucks. applications for ature switches and Established solid market existing products. directional control position in the oil field Increasing global valves services sector for Azonix's market penetration - ---------------------------------------------------------------------------- ProPanel MMI (Man Machine at Barksdale and Powers Process Water mixing and Light commercial and Interface). Ferguson. Controls thermal shock pro- institutional facilities, Continued to penetrate the Continuing cost Skokie, IL tection shower systems, residential plumbing brass, water and wastewater reduction efforts. - ------------------- commercial and residential chemical processing, food treatment market at Powers plumbing brass, correc- processing, pharmaceuticals Process Controls. tional water controllers, and water and wastewater Introduced new products process controllers and treatment at Powers Process Controls instrumentation, process for the correctional control valves and institutions market. temperature regulators Introduced new index drive - ---------------------------------------------------------------------------- at Ferguson. Dynalco Controls Rotational speed sensors, Stationary natural Invested in surface-mount Ft. Lauderdale, FL instruments and control gas engines, pipelines, manufacturing technology - ------------------- systems construction, marine and to improve productivity agriculture equipment and product performance - ---------------------------------------------------------------------------- at Dynalco. Azonix, Inc. Measurement and control Chemical, pharmaceutical, Consolidated two German Billerica, MA systems, ruggedized oil and gas, food proces- operations into single - ------------------- operator interfaces, sing and metal processing location at Barksdale GmbH. intelligent data Placed greater focus acquisition products, on OEM sales at Dynalco. high-precision thermometers and calibrators - ---------------------------------------------------------------------------- Ferguson Index drives and tables, Industrial automation St. Louis, MO pick-and-place robots, machinery, packaging, food - ------------------- synchronous in-line processing, medical and transfer machines, press electronic Wholesale Dis- feeds and custom cams tribution - ------------------------------------------------------------------------------------------------------------------------------------ Wholesale Distributors - ------------------------------------------------------------------------------------------------------------------------------------ Huttig Sash Distributor of doors, Building product re- Posted solid sales Higher profits at & Door Company windows, millwork, tailers, contractors and and profit gains in Huttig despite Chesterfield, MO specialty construction home remodeling Huttig's distribu- anticipated de- - ------------------- materials and related tion sector due to cline in U.S. products strong U.S. housing housing starts due - ---------------------------------------------------------------------------- market. to: Crane Supply Distributor of pipe, Industrial, municipal, Improved profit mar- . improved market Montreal, Quebec valves, fittings and commercial and institu- gins at Huttig's penetration in - ------------------- plumbing fixtures tional construction manufacturing plant key markets - ---------------------------------------------------------------------------- through expense con- . regional Valve Systems Industrial distributor Hydrocarbon processing, oil trol, demand-related strength in new and Controls of automated valves and gas production, chem- price increases and home construction, Houston, TX and integrated control ica; and power industries higher production especially in the - ------------------- systems yields. West and Florida Improved profit mar- . penetration into gins significantly the repair and re- at Crane Supply due modeling market to increased focus . geographic ex- on value-added ser- pansion and new vices. product additions Relocated Valve . elimination of Systems and Con- losses from win- trols' Houston fa- dow sash manu- cility to smaller facturing opera- building, reducing tion closed in 1996. future costs. Improving results at Crane Supply due to expected growth of Canadian econ- omy. - ------------------------------------------------------------------------------------------------------------------------------------ Other - ------------------------------------------------------------------------------------------------------------------------------------ Crane Defense Specialized handling Shipbuilding and military, Achieved stability Stable results in Conroe, TX systems, elevators, commercial and industrial in core shipbuilding core shipbuilding - ------------------ winches, ground support precision fabrication products. products. equipment, cranes and related electronics
9 CRANE'S MARKET LEADERS In this section, we are highlighting eight of Crane's more than 30 businesses that are noteworthy for their outstanding earnings performance, potential for future growth, or overall contribution to Crane's growth. Together they generate more than two-thirds of Crane's profits. - -------------------------------------------------------------------------------- ELDEC Corporation and Hydro-Aire These two companies, which along with Lear Romec and Interpoint comprise our Aerospace segment, will enable Crane to benefit significantly from the accelerating resurgence of the aerospace industry. Lynnwood, Washington-based ELDEC, acquired in 1994, has made power conversion products for aircraft since 1957. All Boeing, McDonnell Douglas and Airbus airliners produced today, and many business and military jets, use ELDEC technology. The company is also a leading supplier of high and low voltage power converters for military and commercial avionics. But ELDEC has also established a market-leading niche in two other critical technologies. It is the world leader in proximity sensing systems based on electromechanical sensing technology, which enable pilot and crew to monitor and control the operation of the landing gear, passenger and cargo doors, thrust reversers and other systems. These rugged, reliable systems are found on all Boeing, McDonnell Douglas and Airbus aircraft currently in production, as well as various business aircraft and the F-15 and F/A-18 fighters. The other technology measures fuel flow in jet engines without the need for motor-driven devices or electric power, a safety feature. ELDEC has about half of the world market. The company is also developing a highly accurate, solid state pressure transducer for measuring altitude, technology that may become the industry standard if new air traffic procedures reduce the required vertical separation between aircraft from 1,000 feet to 500 feet. - -------------------------------------------------------------------------------- Through its industry-leading products and its strong repair, overhaul and spare parts business, ELDEC serves most of the world's aircraft manufacturers and many of the largest airlines and aircraft operators. It is thus well positioned to grow as the aerospace industry expands. - -------------------------------------------------------------------------------- 10 Crane's 1996 acquisition of Interpoint, meanwhile, will enable ELDEC to develop a family of power conversion solutions for avionics uses. Through its industry-leading products and its strong repair, overhaul and spare parts business, ELDEC serves most of the world's aircraft manufacturers and many of the largest airlines and aircraft operators. It is thus well positioned to grow as the aerospace industry expands. ELDEC is also leveraging its power systems capabilities in the fast-growing telecommunications marketplace. Power conversion technology designed by its Norwegian equity partner, Powec, will enable ELDEC to benefit from the explosive growth of wireless communications systems in both developed and developing markets. Hydro-Aire is the leading worldwide provider of anti-skid braking systems, fuel and hydraulic pumps and systems for commercial, military and general aviation aircraft. It is a major supplier of hydraulic and pneumatic valves and regulators for these markets as well. Hydro-Aire, which developed anti-skid braking technology, has remained the dominant player and technology leader in the field, and is the only fully integrated brake control system supplier. In recent years, it has won most of the new contracts it has bid on, including brake controls, fuel pumps and hydraulic components for the Boeing 737-700 and the McDonnell Douglas MD-95 in 1995, and brake control systems on the Raytheon Premier I business jet, the Lockheed/Martin Joint Strike Fighter and the prototype of the Venture Star, the X-33. The company, based in Burbank, California, has refocused its business on the commercial sector and expanded its repair, overhaul and spare parts business. Kemlite Company, Inc. Kemlite, the world's largest manufacturer of fiberglass-reinforced plastic panels and the largest business in Crane's Engineered Materials segment, improved its position in its three principal markets in 1996. The 1993 acquisition of Filon has played a key role in Kemlite's growth and profitability, enabling the company to enter--and immediately lead--the market for exterior sidewalls for recreational vehicles, even as Kemlite expanded its presence in the truck and trailer and building materials markets. Kemlite has made significant gains in production efficiency, manufacturing the higher performance panels for trucks and trailers at Joliet, Illinois, and the RV panels at Jonesboro, Arkansas. - -------------------------------------------------------------------------------- The company's strong technical department and aggressive sales force have proven an effective combination in promoting the substitution of fiberglass-reinforced plastic for other materials. - -------------------------------------------------------------------------------- The company is headquartered in Joliet, with sales offices in the U.K. and Singapore. The substitution of fiberglass-reinforced plastic (frp) for aluminum in RVs, a trend beneficial to Kemlite, now extends to towable vehicles, expanding the market. The company, which is developing a panel with a superior, smooth finish that should further enhance its market-leading position, plans to increase production at its Jonesboro facility over the next two years. Kemlite has already had considerable success in displacing aluminum with a translucent frp roof for dry freight trucks and trailers. These roof panels provide light that makes loading and unloading faster and safer, while providing weight savings. The company is developing an frp roof for refrigerated trailers, which will complement Kemlite's dominance of the market for interior liners for these trailers. The company's strong technical department and aggressive sales force have proven an effective combination in promoting the substitution of frp for other materials, in developing new applications, and in educating domestic and international customers about frp's advantages. Kemlite maintains a strong presence in the building products markets through its network of 150 distributors in North America, Europe, Asia and Latin America, and has national and international buying agreements with more than 130 fast food, restaurant and supermarket chains. Crane National Vendors Crane National Vendors, which marked 70 years in business in 1996, is the industry leader in the design and manufacture of automated vending merchandisers. The company, the larger of the two businesses that make up the Merchandising Systems segment, has evolved dramatically from its beginnings as a maker of manually operated cigarette and candy machines 11 CRANE'S MARKET LEADERS continued in wooden cabinets. Today National Vendors produces a complete line of computerized vending equipment, with machines that can brew fresh coffee, provide both hot and cold beverages, or handle both refrigerated and frozen food products. - -------------------------------------------------------------------------------- Today National Vendors produces a complete line of computerized vending equipment, with machines that can brew fresh coffee, provide both hot and cold beverages, or handle both refrigerated and frozen food products. - -------------------------------------------------------------------------------- Prompt, efficient service to customers is critical to success in this industry, and National Vendors has built a reputation worldwide for the quality and responsiveness of its service to vending machine operators. It operates through a nationwide marketing and field service staff, backed by eight regional centers throughout the U.S. and a showroom facility at the company's headquarters in Bridgeton, Missouri. Its offices in Canada, the United Kingdom, Germany and France provide comparable support in those regions. A network of independent distributors serves customers in Latin America, the Middle East, the Pacific Rim and other areas. Timely and effective development of new products is fundamental to survival in the competitive global marketplace. Recognizing the shift in the vending services market toward smaller population locations and office environments, the company developed and successfully launched several advanced products in 1996. The Refreshment Center 4, for example, is designed to meet the specific snack and canned drink, or refrigerated/frozen food requirements of these smaller locations. The Twin Drink Center, a redesigned version of a National Vendors product that has been successful in Europe, offers both fresh-brewed hot beverages and cold beverages from the same machine. It is the first in the industry to provide cups in three sizes and dispense iced tea, iced coffee and iced cappuccino from freshly brewed ingredients, and provides a full menu of hot beverages and four flavors of soft drinks, as well. Both models are expected to sell well not only in Europe and the U.S. but also in the Pacific Rim and Latin American markets. In 1996, National Vendors completed a major expansion that has made its Bridgeton plant the most technologically advanced in the industry. The flexibility and low-cost manufacturing capability of the new plant will enable National Vendors to respond quickly to changing consumer tastes. Huttig Sash & Door Company Huttig, the largest business in Crane's Wholesale Distribution segment, is one of America's largest distributors of brand name millwork and specialty building products for the home construction and remodel/repair markets. Huttig's 44 distribution centers serve most of the lower - -------------------------------------------------------------------------------- Huttig intends to grow by expanding into areas where it does not now have a presence, primarily Texas and the mountain and northern plains states. - -------------------------------------------------------------------------------- 48 states and Alaska. Huttig, based in St. Louis, Missouri, benefits from the industry's most advanced management information system, which has allowed the company to manage working capital effectively and improve the efficiency of its purchasing and warehousing operations. The company generally sells to lumber dealers and building material retailers, but in some markets sells directly to home building contractors, a growing segment of the business. Huttig intends to grow by expanding into areas where it does not now have a presence, primarily Texas and the mountain and northern plains states. It will also capitalize on new products and an increased focus on the remodel and repair market. Just as the company gained from the increased pace of new home construction in 1996, so also will it benefit from increased repair and remodeling that are expected as baby boomers and the nation's housing stock age. Although the large home center chains have prospered at the expense of neighborhood lumber and building supply dealers, Huttig will increase its share of the remodel and repair market by providing a higher level of service to the contractor market. A Trio of Smaller Stars Among Crane's smaller companies, three make an outsized contribution to current profits and future growth potential. The three are Resistoflex Company, in our Engineered Materials segment; Barksdale, Inc., in our Crane Controls segment; and Crane Pumps & Systems, Inc., in our Fluid Handling segment. Resistoflex Resistoflex, Crane's market-leading manufacturer of corrosion-resistant, plastic-lined hoses, pipes, valves and fittings for niche markets, continues to look aggressively for new uses and markets for its proprietary PTFE (Teflon(R)) processing technology. 12 Founded in 1937, the company made pressure hoses for automobiles and military aircraft. In the 1950s, it invented - -------------------------------------------------------------------------------- Resistoflex is the industry's lowest-cost producer as well as the leader in technology and new-product development. - -------------------------------------------------------------------------------- corrosion-resistant Teflon hose, expanding its niche in defense and space markets. In late 1996, the company launched a new line of industrial PTFE hoses and fluoropolymer-lined complex shapes, providing the chemical industry a lower-cost alternative to metal alloys. Resistoflex's 1995 acquisition of Kessel PTE, Ltd., a plasticlined pipe manufacturer with facilities in Singapore and Thailand, has provided immediate access to the region's fast-growing chemical processing industry. Resistoflex moved to exploit the opportunity by establishing a marketing and distribution center in Singapore, and intends to expand its markets to include Indonesia and China. It plans to establish a similar operation in Europe. Resistoflex, the industry's lowest-cost producer as well as the leader in technology and new-product development, will continue to concentrate most of its manufacturing in North America at its highly efficient plants in Marion, North Carolina, the company's home, and Jacksonville, Florida. Barksdale Barksdale is a successful, niche-market manufacturer of directional control valves, electromechanical and solid-state pressure switches, pressure transducers and temperature switches used in compressors, machine tools, heavy trucks and other equipment in a wide range of industries. The company is also a leading supplier of pressure transducers to the underground leak detection and groundwater remediation markets. Close customer relationships and the ability to design and manufacture highly engineered devices for customer-specific uses are central elements of Barksdale's strength. But the company is successfully targeting new markets as well. A recently introduced valve that is a key part of ride-leveling systems for heavy trucks has seen rapid sales growth and has excellent prospects in transportation applications in the U.S. and Europe. Another high-potential new market is the chemical processing industry, for which Barksdale makes explosion-proof and intrinsically safe pressure switches for hazardous locations. These switches already hold a - -------------------------------------------------------------------------------- Close customer relationships and the ability to design and manufacture highly engineered devices for customer-specific uses are central elements of Barksdale's strength. - -------------------------------------------------------------------------------- solid market share in Europe and were recently introduced in the U.S. Barksdale manufactures in Los Angeles, California, where it is headquartered, and in Reichelsheim, Germany. Crane Pumps & Systems Crane Pumps & Systems, based in Piqua, Ohio, is successfully pursuing a growth strategy in a fragmented, slow-growing industry marked by excess capacity, increasing consolidation and continuing price erosion. Many small and medium-sized manufacturers have loyal customers and solid positions in niche markets, but are hard-pressed to make needed investments in new products and manufacturing improvements. Increasingly, large regional or national distributors carrying competing brands use their leverage to force price cuts. - -------------------------------------------------------------------------------- Crane Pumps & Systems established itself as a technological leader with the NC series pumps. - -------------------------------------------------------------------------------- Crane's strategy has been to acquire companies with strong positions in growing niche markets, retaining their brands and separate sales forces while consolidating most production and administrative and support functions to reduce costs. In the mature U.S. pump market, new products are an important avenue to growth. Chempump, a division of Crane Pumps & Systems, established itself as the industry's technological leader with the NC series of stainless steel sealless pumps it introduced in late 1994. Sales of these leakproof pumps, designed with an onboard computerized diagnostic monitoring system to communicate with a remote distribution control system, accelerated in 1996 after a strong 1995 showing. Crane's principal focus continues to be on the U.S. pump market, which is estimated at more than $2 billion, with a market of similar size for spare parts and repairs. The pump market outside the U.S. is twice as large, and growing rapidly in Asia and Latin America. Crane has begun to penetrate some niche markets in these regions through sales to U.S. OEMs involved there in building plants and municipal infrastructure. 13 CONSOLIDATED STATEMENTS OF INCOME (In thousands except per share data) Crane Co.
For Years Ended December 31, 1996 1995 1994 ---- ---- ---- Net Sales $ 1,847,732 $ 1,782,310 $ 1,653,466 Operating Costs and Expenses: Cost of sales 1,344,745 1,316,321 1,253,412 Selling, general and administrative 287,432 274,276 245,474 Depreciation and amortization 49,402 48,765 44,691 ---------- ---------- ---------- 1,681,579 1,639,362 1,543,577 ---------- ---------- ---------- Operating Profit 166,153 142,948 109,889 Other Income (Expense): Interest income 2,527 2,025 3,616 Interest expense (23,420) (26,913) (24,171) Miscellaneous-net (240) 3,408 1,893 ---------- ---------- ---------- (21,133) (21,480) (18,662) ---------- ---------- ---------- Income Before Taxes 145,020 121,468 91,227 Provision for Income Taxes 52,910 45,131 35,294 ---------- ---------- ---------- Net Income $ 92,110 $ 76,337 $ 55,933 ========== ========== ========== Primary Net Income Per Share $ 2.01 $ 1.67 $ 1.24 Average primary shares outstanding 45,930 45,816 45,219 Dividends Per Common Share $ .50 $ .50 $ .50 ========== ========== ==========
See Notes to Consolidated Financial Statements 14 CONSOLIDATED BALANCE SHEETS (In thousands except share data) Crane Co. Balance December 31, 1996 1995 ---- ---- Assets Current Assets: Cash and cash equivalents $ 11,579 $ 5,476 Accounts receivable 253,729 240,787 Inventories Finished goods 124,490 117,060 Finished parts and subassemblies 35,507 37,915 Work in process 43,894 35,364 Raw materials and supplies 63,383 54,662 ----------- --------- Total inventories 267,274 245,001 Other current assets 7,432 6,774 ----------- --------- Total Current Assets 540,014 498,038 Property, Plant and Equipment at Cost: Land 36,794 36,975 Buildings and improvements 153,576 149,368 Machinery and equipment 357,196 326,642 ----------- --------- Gross Property, Plant and Equipment 547,566 512,985 Less accumulated depreciation 289,219 269,047 ----------- --------- Net Property, Plant and Equipment 258,347 243,938 Other Assets 29,879 26,874 Intangibles 55,862 58,894 Cost in Excess of Net Assets Acquired 204,753 170,667 ----------- --------- $ 1,088,855 $ 998,411 =========== ========= Liabilities and Shareholders' Equity Current Liabilities: Current maturities of long-term debt $ 1,251 $ 771 Loans payable 23,937 15,359 Accounts payable 105,082 96,873 Accrued liabilities 116,488 115,530 U.S. and foreign taxes on income 7,095 12,743 ----------- --------- Total Current Liabilities 253,853 241,276 Long-Term Debt 267,795 281,093 Other Liabilities 25,126 21,977 Accrued Postretirement Benefits 43,155 43,071 Accrued Pension Liabilities 6,483 8,272 Deferred Income Taxes 29,774 27,993 Preferred Shares, par value $.01; 5,000,000 shares authorized -- -- Common Shareholders' Equity: Common shares, par value $1.00; 80,000,000 shares authorized Outstanding 45,659,859 shares (45,187,875 in 1995) after deducting 2,625,067 shares in treasury (18,200,426 in 1995) 45,660 45,188 Capital surplus 29,756 12,535 Retained earnings 394,621 327,015 Cumulative currency translation adjustment (7,368) (10,009) ----------- --------- Total Common Shareholders' Equity 462,669 374,729 ----------- --------- $ 1,088,855 $ 998,411 =========== ========= See Notes to Consolidated Financial Statements 15 Consolidated Statements of Cash Flows (In thousands) Crane Co.
For Years Ended December 31, 1996 1995 1994 ---- ---- ---- Cash Flows from Operating Activities: Net income $ 92,110 $ 76,337 $ 55,933 Depreciation 35,122 35,746 35,453 Amortization 14,280 13,019 9,238 Deferred income taxes 3,105 (4,317) (3,283) Cash (used for) provided from operating working capital (13,783) (7,320) 17,550 Other (8,678) (6,847) 2,443 --------- --------- --------- Total Provided from Operating Activities 122,156 106,618 117,334 --------- --------- --------- Cash Flows from Investing Activities: Capital expenditures (50,471) (26,603) (28,199) Proceeds from disposition of capital assets 11,759 8,218 16,058 Purchase of equity investments -- (5,067) -- Sale of equity investments -- 19,440 49 Payments for acquisitions net of cash, and liabilities assumed of $1,126 in 1996, $2,653 in 1995 and $138,797 in 1994 (2,523) (9,419) (161,424) Proceeds from divestitures 1,554 -- 2,580 --------- --------- --------- Total Used for Investing Activities (39,681) (13,431) (170,936) --------- --------- --------- Cash Flows from Financing Activities: Equity: Dividends paid (22,710) (22,755) (22,518) Reacquisition of shares (26,683) (17,940) (186) Stock options exercised 5,042 8,784 1,267 --------- --------- --------- (44,351) (31,911) (21,437) --------- --------- --------- Debt: Proceeds from issuance of long-term debt -- -- 230,105 Repayments of long-term debt (12,987) (47,527) (76,911) Net (decrease) in short-term debt (18,996) (10,398) (88,774) --------- --------- --------- (31,983) (57,925) 64,420 --------- --------- --------- Total (Used for) Provided from Financing Activities (76,334) (89,836) 42,983 --------- --------- --------- Effect of exchange rate on cash and cash equivalents (38) 53 99 --------- --------- --------- Increase (Decrease) in Cash and Cash Equivalents 6,103 3,404 (10,520) Cash and cash equivalents at beginning of year 5,476 2,072 12,592 --------- --------- --------- Cash and Cash Equivalents at End of Year $ 11,579 $ 5,476 $ 2,072 ========= ========= ========= Detail of Cash (Used for) Provided from Operating Working Capital (Net of Effects of Acquisitions): Accounts receivable $ (733) $ (3,034) $ (11,004) Inventories (2,878) (4,474) 15,285 Other current assets (327) (330) 2,406 Accounts payable 2,134 (64) 10,358 Accrued liabilities (8,235) (4,722) 1,743 U.S. and foreign taxes on income (3,744) 5,304 (1,238) --------- --------- --------- Total $ (13,783) $ (7,320) $ 17,550 ========= ========= ========= Supplemental Disclosure of Cash Flow Information: Interest paid $ 22,790 $ 26,262 $ 24,947 Income taxes paid $ 48,017 $ 43,474 $ 32,855
See Notes to Consolidated Financial Statements 16 CONSOLIDATED STATEMENTS OF CHANGES IN COMMON SHAREHOLDERS' EQUITY Crane Co. (In thousands except share data)
CURRENCY TOTAL COMMON COMMON CAPITAL RETAINED TRANSLATION SHAREHOLDERS' SHARES SURPLUS EARNINGS ADJUSTMENT EQUITY -------- -------- --------- ----------- ------------- Balance December 31, 1993 $ 44,795 $ 10,543 $ 248,351 $(12,870) $290,819 Net income 55,933 55,933 Cash dividends (22,518) (22,518) Reacquisition of 10,485 shares (10) (176) (186) Exercise of stock options, 124,413 shares 124 1,143 1,267 Conversion of debentures, 107,354 shares 107 196 303 Restricted stock awarded, 55,185 shares 55 1,351 (813) 593 Currency translation adjustment 1,781 1,781 -------- -------- --------- -------- -------- Balance December 31, 1994 $ 45,071 $ 13,057 $ 280,953 $(11,089) $327,992 Net income 76,337 76,337 Cash dividends (22,755) (22,755) Reacquisition of 827,850 shares (828) (17,112) (17,940) Exercise of stock options, 594,863 shares 595 8,189 8,784 Restricted stock awarded, 349,830 shares 350 8,401 (7,520) 1,231 Currency translation adjustment 1,080 1,080 -------- -------- --------- -------- -------- Balance December 31, 1995 $ 45,188 $ 12,535 $ 327,015 $(10,009) $374,729 Net income 92,110 92,110 Cash dividends (22,710) (22,710) Issuance of 1,094,312 shares for Interpoint acquisition 1,094 31,722 32,816 Reacquisition of 1,081,761 shares (1,082) (27,519) (28,601) Exercise of stock options, 307,257 shares 307 7,702 8,009 Restricted stock awarded, 153,428 shares 153 5,316 (1,794) 3,675 Currency translation adjustment 2,641 2,641 -------- -------- --------- -------- -------- Balance December 31, 1996 $ 45,660 $ 29,756 $ 394,621 $ (7,368) $462,669 ======== ======== ========= ======== ========
See Notes to Consolidated Financial Statements 17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ACCOUNTING POLICIES Principles of Consolidation--The consolidated financial statements include all majority-owned subsidiaries. Investments in affiliates owned 50% or less are accounted for under the equity method. All significant intercompany items have been eliminated. Certain prior year amounts have been reclassified to conform with the 1996 presentation. All share and per share data have been retroactively restated to reflect a three-for-two split of common stock effected in the form of a 50% stock dividend on December 12, 1996 for shareholders of record on December 4, 1996. General--The company's financial statements are prepared in conformity with generally accepted accounting principles. These require management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. The company evaluates the recoverability of all long lived assets by assessing whether the unamortized asset can be recovered over its remaining life through cash flows. Revenue Recognition--Revenues are recorded generally when title passes to the customer. Revenues on long-term contracts are recognized under the percentageof-completion method of accounting and are measured principally on either a cost-tocost or a unit-of-delivery basis. These contracts represented less than one percent of sales in 1996. Accounts receivable included unreimbursed costs and accrued profits to be billed of $3,470,000 and $1,943,000 at December 31, 1996 and 1995, respectively. Income Taxes--Income tax expense is based on reported earnings before income taxes. Deferred income taxes reflect the impact of temporary differences between assets and liabilities recognized for financial reporting purposes and such amounts recognized for tax purposes using currently enacted tax rates. Net Income Per Share--Primary earnings per share calculations are based upon the weighted average number of common shares outstanding and common stock equivalents. Fully diluted earnings per share have not been presented because the additional dilution is immaterial. Cash Equivalents--Marketable securities with original maturities of three months or less are included in cash equivalents. Accounts Receivable--Receivables are carried at net realizable value. The allowance for doubtful accounts at December 31, 1996 and 1995 was $5,271,000 and $4,003,000 respectively. Inventories--Inventories are stated at the lower of cost or market principally on the last-in, first-out (LIFO) method of inventory valuation. The reduction of inventory quantities has resulted in a liquidation of LIFO inventories acquired at lower costs prevailing in prior years. Liquidations have reduced cost of sales by $4,400,000 in 1996, $4,000,000 in 1995, and $3,300,000 in 1994. Replacement cost would have been higher by $49,260,000 and $49,460,000 at December 31, 1996 and 1995, respectively. Property, Plant and Equipment--Depreciation is provided primarily by the straight-line method over the estimated useful lives of the respective assets which range from three to twenty-five years. Intangibles--Intangible assets are being amortized on a straight-line basis over their estimated useful lives which range from five to twenty years. The accumulated amortization was $14,552,000 and $11,020,000 at December 31, 1996 and 1995, respectively. Cost in Excess of Net Assets Acquired--Cost in excess of net assets acquired is being amortized on a straight-line basis ranging from fifteen to forty years. The accumulated amortization was $28,587,000 and $22,482,000 at December 31, 1996 and 1995, respectively. Stock-Based Compensation Plans--As allowed by Statement of Financial Accounting Standard No. 123 (SFAS 123), "Accounting for Stock-Based Compensation," the company continues to record compensation expense for its employee stock-based compensation plans in accordance with the intrinsic-value method prescribed by APB No. 25, "Accounting for Stock Issued to Employees." Intrinsic value is the amount by which the market price of the underlying stock exceeds the exercise price of the stock option or award on the measurement date, generally the date of grant. The company has included the pro forma disclosures required by SFAS 123 in the notes to the consolidated financial statements. Currency Translation--Assets and liabilities of subsidiaries are translated at the rate of exchange in effect on the balance sheet date; income and expense are translated at the average rates of exchange prevailing during the year. The related translation adjustments are accumulated in a separate component of shareholders' equity. Financial Instruments--The company periodically enters into interest rate swap agreements to moderate its exposure to interest rate changes and to lower the overall cost of borrowings. The differential to be paid or received is accrued as interest rates change and is recognized in income over the life of the agreements. No agreements were outstanding at December 31, 1996. In addition, the company periodically uses forward foreign exchange contracts to hedge firm purchase and sales commitments. Gains and losses on such contracts are deferred and recognized as part of the related transactions. Amounts outstanding at December 31, 1996 for such contracts were not material. 18 RESEARCH AND DEVELOPMENT Product development and engineering costs were approximately $52.0 million, $51.9 million, and $46.4 million in 1996, 1995, and 1994, respectively. Included in these amounts were approximately $10.3 million, $12.6 million and $9.5 million received in 1996, 1995 and 1994, respectively, for customer-sponsored research and development. MISCELLANEOUS--NET (In thousands) For Years Ended December 31, 1996 1995 1994 ---- ---- ---- Gain (loss) on capital assets $ 3,242 $(3,037) $1,346 Gain on investments -- 9,440(a) 361 Other (3,482)(b) (2,995)(b) 186 ------- ------- ------ $ (240) $ 3,408 $1,893 ======= ======= ====== (a)Reflects gain on sale of investment in Mid Ocean Limited. (b)Includes $4.0 million and $3.4 million for legal costs related to a previously discontinued operation in 1996 and 1995, respectively. SUPPLEMENTARY INCOME STATEMENT INFORMATION The company's repair and maintenance costs for 1996 were $23.0 million as compared to $22.2 million and $19.5 million in 1995 and 1994, respectively. Amounts for amortization of intangible assets, taxes other than payroll and income taxes, royalties and advertising costs were less than one percent of sales. SUPPLEMENTARY CASH FLOW INFORMATION In a noncash transaction, the company acquired Interpoint in 1996 by issuing stock of $32.8 million and assuming liabilities of $37.9 million. The fair value of assets acquired totaled $32.2 million for an excess purchase price over net assets acquired of $38.5 million. INCOME TAXES Income before taxes is as follows: (In thousands) For Years Ended December 31, 1996 1995 1994 ---- ---- ---- U.S. operations $128,666 $113,359 $90,765 Non-U.S. operations 16,354 8,109 462 -------- -------- ------- $145,020 $121,468 $91,227 ======== ======== ======= The provision (benefit) for income taxes consists of: (In thousands) For Years Ended December 31, 1996 1995 1994 ---- ---- ---- Current: U.S. federal tax $ 39,793 $ 38,396 $ 31,152 State and local tax 6,199 6,952 5,702 Non-U.S. tax 3,813 4,100 1,723 -------- -------- -------- 49,805 49,448 38,577 -------- -------- -------- Deferred: U.S. federal tax 1,683 (3,671) (3,356) State and local tax 397 (619) (130) Non-U.S. tax 1,025 (27) 203 -------- -------- -------- 3,105 (4,317) (3,283) -------- -------- -------- Total income taxes $ 52,910 $ 45,131 $ 35,294 ======== ======== ======== Reconciliation of the statutory U.S. federal rate to effective tax rate is as follows: (In thousands) For Years Ended December 31, 1996 1995 1994 ---- ---- ---- Statutory U.S. federal tax at 35% $ 50,757 $ 42,514 $ 31,929 Increase (reduction) from: Non-U.S. taxes (1,065) 753 1,495 State and local taxes 4,287 4,116 3,622 Non-deductible goodwill 1,992 1,822 1,552 Non-taxable FSC income (2,106) (1,986) (1,343) Other (955) (2,088) (1,961) -------- -------- ------- Provision for income taxes $ 52,910 $ 45,131 $35,294 -------- -------- ------- Effective tax rate 36.5% 37.2% 38.7% -------- -------- ------- At December 31, 1996, the company had unremitted earnings of foreign subsidiaries of $88 million. Because these earnings, which reflect full provision for nonU.S. income taxes, are indefinitely reinvested in non-U.S. operations or can be remitted substantially free of additional tax, no provision has been made for taxes that might be payable upon remittance of such earnings. Furthermore, it is not practicable to determine this liability. The components of deferred tax assets and liabilities included on the balance sheet at December 31 are as follows: (In thousands) 1996 1995 ---- ---- Deferred tax assets: Postretirement benefits $16,804 $16,587 Inventory 5,627 3,154 Insurance 8,816 8,324 Environmental 5,679 5,787 Tax loss and credit carryforwards 6,384 8,241 Deferred compensation 8,245 6,162 Other 5,389 5,908 ------- ------- Total 56,944 54,163 Less valuation allowance on tax carryforwards 6,384 8,241 ------- ------- Total deferred tax assets, net $50,560 $45,922 ======= ======= Deferred tax liabilities: Depreciation $14,715 $11,432 Difference between book basis and tax basis of assets 19,468 19,301 Intangibles 15,090 15,913 Pension 5,462 4,075 ------- ------- Total deferred liabilities $54,735 $50,721 ======= ======= Net deferred liability $ 4,175 $ 4,799 ------- ------- Balance sheet classification: Current assets: Accounts receivable $25,599 $23,194 Long-term liabilities: Deferred income taxes 29,774 27,993 ------- ------- $ 4,175 $ 4,799 ======= ======= 19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued As of December 31, 1996, the company had net operating loss (NOL) carryforwards and U.S. tax credit carryforwards which will expire, if unused, as follows: NON-U.S. NON-U.S. U.S. U.S. U.S. (In thousands) NATIONAL MUNICIPAL STATE FEDERAL R&D YEAR OF EXPIRATION NOL NOL NOL NOL CREDIT -------- --------- ------ ------- ------ 1997-2000 $ 490 $ -- $5,541 $ -- $38 After 2000 793 -- 827 1,308 18 Indefinite 8,884 8,495 -- -- -- ------- ------ ------ ------ --- Total $10,167 $8,495 $6,368 $1,308 $56 ======= ====== ====== ====== === Deferred tax asset on tax carryforwards $ 4,573 $ 746 $ 551 $ 458 $56 The entire $6.4 million deferred tax asset on tax carryfowards has been offset by the valuation allowance because of the uncertainty of ultimately realizing these future benefits. ACCRUED LIABILITIES (In thousands) December 31, 1996 1995 ---- ---- Employee-related expenses $ 52,964 $ 46,281 Insurance 14,107 17,305 Environmental 3,846 3,788 Warranty 8,199 8,485 Professional fees 3,932 3,788 Sales allowances 3,229 3,251 Customer advanced payments 3,015 3,756 Interest 3,456 3,936 Taxes other than income 2,512 3,315 Pensions 4,169 3,777 Other 17,059 17,848 -------- -------- $116,488 $115,530 ======== ======== OTHER LIABILITIES (In thousands) December 31, 1996 1995 ---- ---- Environmental $ 11,872 $ 11,863 Insurance 7,715 3,337 Minority interest 3,165 2,637 Other 2,374 4,140 -------- -------- $ 25,126 $ 21,977 ======== ======== POSTRETIREMENT BENEFITS Postretirement healthcare and life insurance benefits are provided for certain domestic and non-U.S. employees hired before January 1, 1990 who meet minimum age and service requirements. The company does not pre-fund these benefits and has the right to modify or terminate the plan. (In thousands) December 31, 1996 1995 1994 ---- ---- ---- Accumulated postretirement benefit obligation: Retirees $ 21,070 $ 23,068 $ 23,059 Fully eligible active plan participants 2,540 2,295 1,983 Other active plan participants 5,808 6,093 5,934 -------- -------- -------- Total 29,418 31,456 30,976 Unrecognized net gain 13,737 11,615 12,090 -------- -------- -------- Accrued postretirement benefit $ 43,155 $ 43,071 $ 43,066 ======== ======== ======== Net periodic cost: Benefits earned during the period $ 523 $ 564 $ 722 Interest cost on accumulated benefit obligation 2,120 2,294 2,303 Amortization of gain (772) (715) (448) -------- -------- -------- Net cost 1,871 2,143 2,577 Benefits paid (1,943) (2,138) (2,411) Acquisition 156 -- 330 Accrued postretirement benefit-- beginning of year 43,071 43,066 42,570 -------- -------- -------- Accrued postretirement benefit-- end of year $ 43,155 $ 43,071 $ 43,066 ======== ======== ======== For the purpose of estimating this liability, the cost of covered benefits was assumed to increase 10.2% for 1996, and then to decrease gradually to 5.2% by 2007 and remain at that level thereafter. In 1995, the cost of covered benefits was assumed to increase 11.1%, and then to decrease gradually to 5.2% by 2007 and remain at that level thereafter. An increase in the assumed health care cost trend rate by one percentage point would increase the accumulated postretirement benefit obligation by approximately $3.2 million at December 31, 1996 and the net periodic cost by approximately $.3 million for the year. The discount rate used in determining the accumulated postretirement benefit obligation was 7.5% in 1996, 7.5% in 1995 and 8.25% in 1994. The company participates in several multi-employer insurance plans, which provide benefits to certain employees under collective bargaining agreements. Total contributions to these plans were approximately $2,399,000 in 1996, $2,602,000 in 1995 and $2,320,000 in 1994. PENSIONS The company and most of its subsidiaries have defined benefit pension plans for their employees. The company also has a defined benefit plan for its directors. The plans generally provide benefit payments using a formula based on length of service and final average compensation, except for some hourly employees for whom the benefits are a fixed amount per year of service. The company's policy is to fund at least the minimum amount required by the applicable governmental regulations. 20 The following table sets forth by funded status the amounts recognized in the company's balance sheet at December 31, for company sponsored defined benefit pension plans:
(In thousands) 1996 1995 ------------------------ ------------------------ OVERFUNDED UNDERFUNDED OVERFUNDED UNDERFUNDED ---------- ----------- ---------- ----------- Actuarial present value of benefit obligation: Vested $ 213,720 $ 5,424 $ 190,472 $ 7,285 Non-vested 7,530 185 6,670 235 --------- ------- --------- ------- Accumulated benefit obligation 221,250 5,609 197,142 7,520 Effect of future pay increases 30,936 509 29,331 421 --------- ------- --------- ------- Projected benefit obligation (PBO) 252,186 6,118 226,473 7,941 Funded assets at fair value 342,419 4,507 293,725 6,796 --------- ------- --------- ------- Assets over (under) PBO 90,233 (1,611) 67,252 (1,145) Unrecognized net (asset) liability at date of adoption less amortization $ (10,621) $ 214 $ (11,801) $ 478 Unrecognized net (gains) losses (67,397) 685 (46,205) 754 Unrecognized prior service cost 1,757 -- 1,488 -- Adjustment required to recognize minimum liability -- (721) -- (979) --------- ------- --------- ------- Prepaid (accrued) pension cost $ 13,972 $(1,433) $ 10,734 $ (892) ========= ======= ========= =======
The following rates were used to determine the projected benefit obligation: 1996 1995 1994 ---- ---- ---- U.S. Plans: Discount rate 7.50% 7.50% 8.25% Expected long-term rate of return on assets 8.75% 8.75% 8.75% Rate of compensation increase 4.75% 4.75% 5.00% Non-U.S. Plans: Discount rate 7.50% 7.50%-8.25% 8.25%-8.50% Expected long-term rate of return on assets 7.50%-8.00% 8.25%-9.00% 8.25%-9.00% Rate of compensation increase 6.25%-6.50% 6.25%-6.50% 7.50% The following table sets forth net periodic pension costs for company sponsored defined benefit plans: (In thousands) December 31, 1996 1995 1994 ---- ---- ---- Benefits earned during the period $ 9,628 $ 8,004 $ 8,743 Interest cost on projected benefit obligation 15,604 15,990 15,435 Actual return on plan assets (41,749) (62,311) 6,678 Net amortization and deferral 18,175 41,320 (27,468) -------- -------- -------- Pension expense (income) $ 1,298 $ 3,003 $ 3,388 ======== ======== ======== At December 31, 1996, substantially all plan assets are invested in listed stocks and bonds. These investments include common stock of the company which represents 4% of plan assets. The company participates in several multi-employer pension plans, which provide benefits to certain employees under collective bargaining agreements. Total contributions to these plans were approximately $1,515,000 in 1996, $1,724,000 in 1995 and $1,533,000 in 1994. A subsidiary of Crane, ELDEC Corporation, has a non-contributory target benefit (defined contribution) plan to provide retirement benefits for all eligible employees. The annual contribution is aimed at funding targeted retirement benefits for each eligible employee. The contributions for 1996, 1995 and 1994 were $1,400,000, $1,899,000 and $1,343,000, respectively. The company and its subsidiaries sponsor savings and investment plans which are available to eligible employees of the company and its subsidiaries. The company made contributions of approximately $4 million to the plans in 1996 and 1995 and $3 million in 1994. 21 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued SHORT-TERM FINANCING The weighted average interest rate for short-term borrowings at December 31, 1996 and 1995 was 4.9% and 6.8%, respectively. As of December 31, 1996, the company had unused domestic lines of credit totaling $195 million and unused foreign lines of credit totaling $40.5 million. These lines of credit are typically available for borrowings up to 364 days and are renewable at the option of the lender. Short-term obligations of $8.0 million and $11.9 million at December 31, 1996, and 1995, respectively, were classified as long-term debt since the company had entered into finance agreements that permit it to refinance short-term obligations on a long-term basis. LONG-TERM FINANCING (In thousands) December 31, 1996 1995 ---- ---- Crane Co. Senior debt: 8 1/2% notes due 2004 $ 100,000 $ 100,000 Original issue discount (602) (686) Deferred financing costs (494) (562) --------- --------- 98,904 98,752 --------- --------- 7 1/4% notes due 1999 150,000 150,000 Original issue discount (173) (238) Deferred financing costs (1,093) (1,568) --------- --------- 148,734 148,194 --------- --------- Various bank loans -- 11,900 --------- --------- Total Crane Co. 247,638 258,846 --------- --------- Subsidiaries: Industrial revenue bonds 2,895 904 Capital lease obligations 1,844 2,343 Various loans 16,669 19,771 --------- --------- Total Subsidiaries 21,408 23,018 --------- --------- Total long-term debt 269,046 281,864 Less current portion 1,251 771 --------- --------- Long-term debt net of current portion $ 267,795 $ 281,093 ========= ========= At December 31, 1996, the principal amounts of long-term debt repayments required for the next five years are $1,251,000 in 1997, $1,150,000 in 1998, $165,956,000 in 1999, $669,000 in 2000, and $574,000 in 2001. As of December 31, 1996, Crane Co. had $200 million in contractually committed lines of credit, under a long-term bank credit facility which expires in August 2000. There were no borrowings outstanding under this facility at December 31, 1996. Commitments under the facility are for general corporate purposes and to provide bridge financing for acquisitions. In addition, the company has other international long-term credit arrangements with banks totaling $14.6 million of which $6.6 million was outstanding at December 31, 1996. The long-term credit facilities contain certain financial and restrictive covenants, including limitations on indebtedness and liens. In June 1994, the company issued $150 million 7 1/4% Senior Notes due 1999. Incorporating the effects of underwriting fees, original issue discount and the cost of a treasury lock agreement, the effective cost of this financing was 7.6%. This public debt was issued under the company's $300 million shelf registration as filed with the Securities and Exchange Commission in May 1994. Financial Instruments--The company periodically enters into interest rate swap agreements to manage its exposure to interest rate changes and to lower the overall cost of borrowings. All interest rate swaps are subject to market risk as interest rates fluctuate. No new interest rate swap agreements were executed in 1996 and 1995. At December 31, 1996 and 1995, the company had no interest rate swap contracts outstanding. FAIR VALUE OF FINANCIAL INSTRUMENTS The following estimated fair values have been determined using available market information and appropriate valuation methodologies: (In thousands) December 31, 1996 1995 ------------------- ------------------- ESTIMATED ESTIMATED CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE -------- --------- -------- --------- Assets: Investments $ 7,443 $ 7,443 $ 5,067 $ 5,067 Liabilities: Short-term debt 25,188 25,188 16,130 16,130 Long-term debt 267,795 278,251 281,093 300,313 The company purchased an equity position in Powec, a Norwegian manufacturer in 1995 and in Kessel Thailand Co., Ltd., in late 1995. The carrying value of Powec and Kessel Thailand Co., Ltd., approximates the company's interest in their underlying assets. Short-term and long-term debt rates currently available to the company for debt with similar terms and remaining maturities are used to estimate the fair value for debt issues that are not quoted on an exchange. LEASES The company leases certain facilities, vehicles and equipment under capital and operating leases with various terms. Certain leases contain renewal or purchase options. Future minimum payments, by year, and in the aggregate, under leases with initial or remaining terms of one year or more consisted of the following at December 31, 1996: MINIMUM CAPITAL OPERATING SUBLEASE (in thousands) LEASES LEASES INCOME NET ------- --------- -------- ------- 1997 $ 447 $11,646 $1,018 $11,075 1998 366 8,829 806 8,389 1999 215 6,559 718 6,056 2000 204 4,540 532 4,212 2001 204 3,407 346 3,265 Thereafter 920 9,450 757 9,613 ------ ------- ------ ------- Total minimum lease payments $2,356 $44,431 $4,177 $42,610 Interest (512) ======= ====== ======= ------ Present value $1,844* ====== * Includes $331 due within one year. 22 The weighted average interest rate for capital leases is 7.84%. Rental expense for all operating leases was $15,604,000, $16,567,000 and $16,164,000 for 1996, 1995 and 1994, respectively. The cost of assets capitalized under leases at December 31 is as follows: (In thousands) 1996 1995 ---- ---- Buildings and improvements $ 6,377 $ 7,056 Machinery and equipment 7,619 7,619 ------- ------- 13,996 14,675 Less accumulated depreciation 12,006 12,278 ------- ------- $ 1,990 $ 2,397 ======= ======= CONTINGENCIES The company has established insurance programs to cover product and general liability losses. These programs have deductible amounts of $5 million before coverage begins, with the exception of aircraft products which have first dollar coverage. The company does not deem its deductible exposure to be material. As of December 31, 1996, the company has received certain proposed notices of adjustment to federal income tax and is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material effect on the company's financial condition and results of operations. The company continues to be involved in various remediation actions to clean up hazardous wastes as required by federal and state laws. Estimated future environmental remediation cost was $16 million at December 31, 1996, which was fully accrued. Not included in the accrual is the cost of cleaning one site for approximately $3.6 million for which a full escrow was established when the property was acquired in 1993. The company spent $2.5 million on environmental costs in 1996, and expects to pay remediation costs of approximately $3.5 million in 1997. The annual level of future remediation expenditures is difficult to estimate because of the many uncertainties relating to conditions of individual sites as well as uncertainties about the status of environmental laws and regulations and developments in remedial technology; however, the required remedial actions being implemented or engineered are not, individually or in the aggregate, expected to be material. The company has also been advised by the Environmental Protection Agency (EPA) that it is a potentially responsible party (PRP) with respect to the Roebling Steel Company Superfund site in Roebling, New Jersey previously operated by a former subsidiary, CF&I Steel Corporation. The company has advised the EPA that it was not an owner or operator of the site and has rejected all assertions of PRP status. Crane Co. is a defendant in a class action arising out of the contamination of a creek in eastern Ohio by a chemical pesticide sold under the trade name Mirex. This chemical was not manufactured or sold by Crane but was manufactured by another company, also a defendant, at a site adjacent to a Crane facility. The complaint seeks compensatory damages of $10 million and a like amount in punitive damages against Crane, and compensatory damages of $100 million and a like amount in punitive damages against the manufacturer. Crane has asserted cross-claims for contamination of its property and for indemnification against any liability to the plaintiffs against the manufacturer, its foreign parent company and the seller of the pesticide that arranged for its manufacture. It is expected that the lawsuit will be tried in late 1997. Based on data from environmental studies available to date, the company believes that it not only has meritorious defenses to the plaintiffs' class action but also has valid claims against the other parties. Accordingly, the company believes that these actions are not likely to have a material effect on its results of operations or financial condition. Crane Co. is a defendant in a lawsuit under the False Claims Act seeking treble damages and attorney's fees in connection with the assumption by the Pension Benefit Guarantee Corporation of the unfunded pension liabilities (allegedly $270 million) of CF&I Steel Corporation. The company believes the allegations are without merit. The lawsuit was dismissed in May 1996 upon the company's motions for summary judgment and for judgment on the pleadings. While the plaintiff has appealed this dismissal, the company believes that the dismissal will be upheld on appeal and, accordingly, that the lawsuit is not likely to have a material effect on the company's results of operations or financial condition. The company's subsidiary Crane Canada, Inc. is the defendant in a class action pending in British Columbia, Canada alleging damages to property from water escaping from toilet tanks manufactured by Crane Canada. Crane Canada has settled past claims for property damage arising from water escaping from cracked toilet tanks on a case by case basis, and has entered into claims handling agreements with a number of property insurers to process such claims pursuant to agreed claim procedures and reimbursement formulas. Crane Canada has appealed the class certification order and continues to settle property damage claims in accordance with the claims handling agreements and to enter into such agreements with additional insurers. Accordingly, the company believes that the pending legal action will not have a material impact on its liabilities. Based on the historical trends for claims related to cracked toilet tanks and the experience of Crane Canada in resolving such claims, the company believes that pending and reasonably anticipated future claims are not likely to have a material effect on its results of operations or financial condition. As of December 31, 1996, Crane Co. was a defendant (among a number of defendants, typically 15 to 40) in approximately 5,700 actions filed in various state and federal courts alleging injury or death as a result of exposure to asbestos in products allegedly manufactured or sold by the company. Of these claims, approximately 5,200 were filed in 1996. Because of the unique factors inherent in each case and the fact that most are in preliminary stages, the company lacks sufficient information upon which judgments can be made as to their validity or ultimate disposition. Based on the limited information available to the company and its experience in the disposition of lawsuits of this type, the company believes that pending and reasonably anticipated future asbestos actions are not likely to have a material effect on its results of operations or financial condition. 23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued ACQUISITIONS, DIVESTITURES AND INVESTMENTS The company reviews potential acquisition candidates with market and technology positions that provide meaningful opportunities in the markets in which it already has a presence, or which afford significant financial reward, and may dispose of operations when consistent with its overall goals and strategies. During 1996, the company completed two acquisitions. The company acquired Interpoint Corporation in a tax-free merger in which the company assumed $26 million of Interpoint debt and issued 1,094,312 shares of Crane common stock for all the outstanding shares of Interpoint. Interpoint designs and manufactures high density power converters with applications in the aerospace and medical technology industries. The company also acquired Grenson Electronics of Daventry, England for a cash payment of $2.7 million. Grenson Electronics produces low voltage power conversion electronics for the aerospace, defense and industrial markets. Also in 1996 the company sold Empire Foundry. During 1995, the company completed three acquisitions at a cost of $9.4 million. In February the company, through its Barksdale subsidiary, acquired Unimess GmbH, a German-based manufacturer of a full line of solid state pressure switches and transducers, level switches and indicating systems, and flow measurement and control components for specialized instrumentation requirements in numerous industrial processes. In the fourth quarter, the company acquired Process Systems, Inc. based in Michigan. Process Systems is a manufacturer of vertical turbine pumps and accessories for industrial applications. In November 1995, the company acquired Kessel PTE Ltd., a fluoropolymer plastic lined pipe manufacturer with facilities in Singapore and Thailand. In September, ELDEC made a 47% equity investment in Powec, a Norwegian manufacturer of power conditioning products and systems. During 1994, the company completed three acquisitions at a cost of $240 million, including debt. In May, the company, through its wholly owned subsidiary Huttig Sash & Door Company, acquired a molding and millwork manufacturing operation in Prineville, Oregon. In April, the company purchased Mark Controls Corporation, a manufacturer of automatic and manually operated valves, specialized electronic and mechanical instruments and controls, regulators, and pneumatic and electronic controllers. In March, the company acquired ELDEC Corp., whose products are used worldwide on nearly every aircraft model and include proximity switches and sensing systems, power conversion equipment, fuel flow measurement systems, data acquisition, monitoring and control equipment, flat panel displays and integrated modular systems. In 1994, the company sold Modulinc, the fiber optic channel product line of ELDEC and excess ELDEC facilities for $14.3 million. In December 1994, Huttig sold its window manufacturing business for $2.4 million. The Huttig transaction excluded real estate and receivables. All acquisitions were accounted for by the purchase method. The results of operations for all acquisitions have been included in the financial statements from their respective dates of purchase. PREFERRED SHARE PURCHASE RIGHTS In 1988, the company distributed one preferred share purchase right for each outstanding share of common stock. The preferred rights were not exercisable when granted and may only become exercisable under certain circumstances involving actual or potential acquisitions of the company's common stock by a person or affiliated persons. Depending upon the circumstances, if the rights become exercisable, the holder may be entitled to purchase shares of the company's Series A Junior Participating Preferred Stock, or shares of common stock of the acquiring person. Preferred shares purchasable upon exercise of the rights will not be redeemable. Each preferred share will be entitled to preferential rights regarding dividend and liquidation payments, voting power, and, in the event of any merger, consolidation or other transaction in which common shares are exchanged, preferential exchange rate. The rights will remain in existence until June 27, 1998, unless they are earlier terminated, exercised or redeemed. The company has authorized five million shares of $.01 par value preferred stock of which 525,000 shares have been designated as Series A Junior Participating Preferred Stock. STOCK-BASED COMPENSATION PLANS The company has three stock-based compensation plans: the Stock Option Plan, the Restricted Stock Award Plan and the Non-Employee Director Restricted Stock Plan. In accounting for its stock-based compensation plans, the company applies the intrinsic value method prescribed by APB No. 25, "Accounting for Stock Issued to Employees." Intrinsic value is the amount by which the market price of the underlying stock exceeds the exercise price of the stock option or award on the measurement date, generally the date of grant. No compensation expense is recognized for the company's stock option plan. Compensation expense recognized for its restricted stock award plans was $4.6 million in 1996 and $2.9 million in 1995. The pro forma net income and earnings per share listed below reflect the impact of measuring compensation expense for options granted in 1996 and 1995 in accordance with the fair-value-based method prescribed by SFAS 123, "Accounting for Stock-Based Compensation." These amounts may not be representative of future years' amounts as options vest over a three-year period and generally additional awards are made each year. (In thousands except per share data) 1996 1995 ---- ---- Net income As reported $ 92,110 $ 76,337 Pro forma 90,616 75,753 Primary net income per share As reported 2.01 1.67 Pro forma 1.97 1.66 24 The weighted average fair value of options granted was $8.01 per share in 1996 and $6.74 per share in 1995. These estimates were based on the Black-Scholes multiple option-pricing model with the following weighted average assumptions: 1996 1995 ---- ---- Dividend yield 1.81% 2.18% Volatility 26.89% 29.69% Risk-free interest rates 6.53% 6.41% Expected lives in years 4.75 4.75 Options are granted under the Stock Option Plan to officers and other key employees at an exercise price equal to the fair market value of the shares on the date of grant. Options become exercisable at a rate of 50% the first year, 75% the second year and 100% the third year after the date of grant, and expire ten years after the date of grant. A summary of stock option activity follows: NUMBER OF WEIGHTED (Shares in thousands) SHARES AVERAGE PRICE --------- ------------- 1994 Options outstanding at beginning of year 1,917 $ 15.36 Granted 524 17.79 Exercised (124) 10.18 Canceled (58) 17.63 Options outstanding at end of year 2,259 16.15 Options exercisable at end of year 1,440 15.24 1995 Granted 504 22.90 Exercised (595) 14.75 Canceled (71) 18.09 Options outstanding at end of year 2,097 18.10 Options exercisable at end of year 1,272 16.30 1996 Granted 481 27.55 Exercised (307) 16.64 Canceled (60) 23.03 Options outstanding at end of year 2,211 20.26 Options exercisable at end of year 1,416 17.63 A summary of information regarding stock options outstanding at December 31, 1996 follows:
(Shares in thousands) OPTIONS OUTSTANDING OPTIONS EXERCISABLE --------------------- --------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE NUMBER OF REMAINING EXERCISE NUMBER OF EXERCISE RANGE OF EXERCISE PRICES SHARES LIFE PRICE SHARES PRICE --------- --------- -------- --------- -------- $22.21-26.54 900 8.74 $25.33 214 $22.89 14.88-18.05 1,180 5.96 17.37 1,071 17.33 8.53-11.73 131 2.16 11.43 131 11.43
The Restricted Stock Award Plan provides for awards of common stock to officers and other key employees, subject to resale restrictions. The restrictions on outstanding awards are scheduled to lapse upon the achievement of certain performance objectives or over time. In 1996, an additional 750,000 shares were authorized for grant. The company awarded 256,118 shares with a weighted average fair value of $27.51 in 1996. As of December 31, 1996, 707,558 shares were available for future awards. Under the Non-Employee Director Restricted Stock Plan, directors who are not full-time employees of the company receive the portion of their annual retainers which exceeds $15,000 in shares of common stock. The shares are issued each year after the company's annual meeting, are forfeitable if the director ceases to remain a director until the company's next annual meeting, and may not be sold for a period of five years, or until the director leaves the Board. As a group, non-employee directors received 2,880 shares with a weighted average fair value of $27.59 in 1996. 25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued SEGMENT INFORMATION Information by industry segments follows: (In thousands) 1996 1995 1994 ---- ---- ---- Fluid Handling Net Sales $ 363,968 $ 343,751 $ 309,969 Operating Profit 25,735 19,723 19,062 Assets 255,093 261,201 240,789 Capital Expenditures 7,888 5,678 7,825 Depreciation and Amortization 10,666 10,866 10,029 Aerospace Net Sales $ 246,674 $ 216,161 $ 160,843 Operating Profit 65,914 56,030 31,316 Assets 251,716 166,599 169,303 Capital Expenditures 8,325 3,589 2,671 Depreciation and Amortization 10,126 9,896 9,133 Engineered Materials Net Sales $ 207,198 $ 202,073 $ 201,868 Operating Profit 25,666 22,911 22,987 Assets 102,035 103,276 101,069 Capital Expenditures 4,252 3,177 6,384 Depreciation and Amortization 5,537 5,499 6,558 Crane Controls Net Sales $ 129,676 $ 131,127 $ 87,973 Operating Profit 11,256 11,322 4,438 Assets 125,433 128,523 122,353 Capital Expenditures 4,170 3,174 2,043 Depreciation and Amortization 6,495 6,760 5,199 Merchandising Systems Net Sales $ 172,847 $ 183,082 $ 168,543 Operating Profit 24,810 23,573 23,167 Assets 91,529 88,936 87,846 Capital Expenditures 7,900 9,161 6,484 Depreciation and Amortization 5,664 4,929 4,736 Wholesale Distribution Net Sales $ 734,585 $ 710,844 $ 730,646 Operating Profit 29,492 25,032 20,007 Assets 199,622 197,528 222,876 Capital Expenditures 3,368 1,451 2,580 Depreciation and Amortization 6,362 6,534 6,493 Consolidated Net Sales Other $ 10,587 $ 11,520 $ 12,501 Intersegment Elimination (17,803) (16,248) (18,877) ----------- ----------- ----------- Total Net Sales $ 1,847,732 $ 1,782,310 $ 1,653,466 =========== =========== =========== Operating Profit Other $ 470 $ (629) $ (749) Corporate (17,311) (15,150) (10,347) Intersegment Elimination 121 136 8 ----------- ----------- ----------- Total Operating Profit $ 166,153 $ 142,948 $ 109,889 =========== =========== =========== Assets Other $ 7,100 $ 8,099 $ 12,608 Corporate 56,327 44,249 51,201 ----------- ----------- ----------- Total Assets $ 1,088,855 $ 998,411 $ 1,008,045 =========== =========== =========== 26 SEGMENT INFORMATION continued Information by geographic segments follows: (In thousands) 1996 1995 1994 ---- ---- ---- United States Net Sales $ 1,466,683 $ 1,428,495 $ 1,348,285 Operating Profit 162,533 143,672 114,091 Assets 812,832 760,536 781,136 Canada Net Sales $ 182,014 $ 173,312 $ 161,492 Operating Profit 4,731 3,094 2,623 Assets 88,912 86,163 83,653 Other International Net Sales $ 229,903 $ 208,885 $ 164,224 Operating Profit 16,200 11,332 3,522 Assets 130,784 107,463 92,055 Consolidated Net Sales Interregional Elimination (30,868) (28,382) (20,535) ----------- ----------- ----------- Total Net Sales $ 1,847,732 $ 1,782,310 $ 1,653,466 =========== =========== =========== Operating Profit Corporate (17,311) (15,150) (10,347) ----------- ----------- ----------- Total Operating Profit $ 166,153 $ 142,948 $ 109,889 =========== =========== =========== Assets Corporate 56,327 44,249 51,201 ----------- ----------- ----------- Total Assets $ 1,088,855 $ 998,411 $ 1,008,045 =========== =========== =========== 27 MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING The accompanying consolidated financial statements of Crane Co. and subsidiaries have been prepared by management in conformity with generally accepted accounting principles and, in the judgment of management, present fairly and consistently the company's financial position and results of operations and cash flows. These statements by necessity include amounts that are based on management's best estimates and judgments and give due consideration to materiality. The accounting systems and internal accounting controls of the company are designed to provide reasonable assurance that the financial records are reliable for preparing consolidated financial statements and maintaining accountability for assets and that, in all material respects, assets are safeguarded against loss from unauthorized use or disposition. Qualified personnel throughout the organization maintain and monitor these internal accounting controls on an ongoing basis. In addition, the company's internal audit department systematically reviews the adequacy and effectiveness of the controls and reports thereon. The consolidated financial statements have been audited by Deloitte & Touche LLP, independent auditors, whose report appears on this page. The Audit Committee of the Board of Directors, composed solely of outside directors, meets periodically with management and with the company's internal auditors and independent auditors to review matters relating to the quality of financial reporting and internal accounting control and the nature, extent and results of their audits. The company's internal auditors and independent auditors have free access to the Audit Committee. /s/ R. S. Evans R. S. Evans Chairman and Chief Executive Officer /s/ D. S. Smith D. S. Smith Vice President--Finance and Chief Financial Officer INDEPENDENT AUDITORS' REPORT Deloitte & Touche LLP - ---------- [LOGO] TO THE SHAREHOLDERS OF CRANE CO. We have audited the accompanying consolidated balance sheets of Crane Co. and its subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of income, cash flows and changes in common shareholders' equity for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company'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, such consolidated financial statements present fairly, in all material respects, the financial position of Crane Co. and its subsidiaries at December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. /s/ Deloitte & Touche LLP Stamford, Connecticut January 27, 1997 28 MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS RESULTS OF OPERATIONS Crane's 1996 results represented its best overall financial performance with sales, operating profit and net income reaching record levels. Net income was $92.1 million, or $2.01 per share. Operating profit was $166.2 million on sales of $1.85 billion. Cash flow (net income plus depreciation and amortization) totaled $141.5 million, allowing the company to invest $50.5 million in capital equipment and return $49.4 million to shareholders through dividends and stock repurchases. CONSOLIDATED OPERATIONS (In millions) 1996 1995 1994 ---- ---- ---- Sales $ 1,847.7 $ 1,782.3 $ 1,653.5 Operating Profit $ 166.2 $ 142.9 $ 109.9 as a percentage of sales 9.0% 8.0% 6.6% Net Income $ 92.1 $ 76.3 $ 55.9 as a percentage of sales 5.0% 4.3% 3.4% Total sales rose 4% in 1996, with sales increasing in Fluid Handling because of international growth and strong pump shipments, and in Aerospace because of higher demand and the acquisition of Interpoint. Total operating profit in 1996 increased more than $23 million, or 16.2%, with all business segments except Controls reporting profit gains. Increased sales volume, higher product margins and continued emphasis on cost controls contributed to the earnings growth. Net income in 1996 increased nearly $16 million, or 20.7%. Net interest expense declined nearly $4 million, or 16.1%, as a result of reduced debt levels and lower interest rates. Net capital gain on the disposition of assets was $3.0 million in 1996, compared to $11.3 million in 1995, which included a $9.4 million gain attributable to the sale of the company's investment in Mid Ocean Limited. In addition, the company incurred miscellaneous expense of $3.2 million, compared to $7.9 million in 1995, as a writedown of excess real estate to current market value resulted in a noncash charge of $4.4 million in 1995. The effective tax rate in 1996 was 36.5%, compared to 37.2% in 1995 because of greater utilization of foreign tax loss carryforwards. In 1995 total sales rose 7.8%, reflecting the impact of full-year results of 1994 acquisitions in Fluid Handling, Aerospace and Crane Controls. Operating profit rose $33 million, or 30%, with Aerospace contributing nearly $25 million of the gain. Aerospace's results reflect the full-year impact of the 1994 ELDEC acquisition, cost reduction initiatives, returns on earlier investments in production programs for new aircraft, and higher aftermarket demand. Net income in 1995 increased $20 million, or 36%. Net interest expense increased $4.3 million because of the full-year effect of debt incurred to finance the acquisitions in 1994. Net capital gain of $11.3 million compares to a gain of $1.7 million in 1994. Favorable tax treatment on higher export sales resulted in a 1995 tax rate lower than the rate of 38.7% in 1994. In addition, the company was unable to recognize the tax benefits on foreign tax losses in 1994. FLUID HANDLING (In millions) 1996 1995 1994 ---- ---- ---- Sales $ 364.0 $ 343.8 $ 310.0 Operating Profit 25.7 19.7 19.1 Operating Margins 7.1% 5.7% 6.1% Fluid Handling consists of valve, pump and water treatment businesses. The Crane Valve business, with five manufacturing facilities in North America, as well as plants in the United Kingdom, Australia, Norway, China and Indonesia, sells a wide variety of commodity and special purpose valves and fluid control products for the chemical and hydrocarbon processing, power generation, marine, general industrial and commercial construction industries. Products are sold under the Crane, Jenkins, Pacific, Westad, Flowseal and Center Line brands. The Crane Pump business has six manufacturing facilities in the United States located in Ohio, Illinois, Pennsylvania, West Virginia and Michigan. Pumps are manufactured under the Deming, Weinman, Chempump, Burks, Chem/Meter, Barnes, Sellers and Process Systems brand names. Pumps are sold to a broad customer base, which includes chemical and hydrocarbon processing industries, automotive, municipal, industrial and commercial wastewater, power generation, commercial heating, ventilation and air conditioning industries and original equipment manufacturers (OEM). The water treatment business has a manufacturing facility in Pennsylvania and serves the water and wastewater treatment market. Its products are sold under the Cochrane name. The Fluid Handling group employs 3,000 people and had assets of $255.1 million at December 31, 1996. The increase in Fluid Handling sales of 5.9% in 1996 resulted from sales gains in both the valve and pump businesses. Valve group sales growth derived from international operations. Crane Ltd. in the United Kingdom experienced strong export sales which more than offset a weak domestic market. Crane Australia also benefited from strong export sales, mainly to Asia, as a result of its manufacturing joint venture in Indonesia, begun in the fourth quarter of 1995, which contributed $3.3 million to its overall sales gain. Crane Ningjin in China, another joint venture begun in the fourth quarter of 1995, shipped $2.8 million of product as the company continued to expand and strengthen its international presence. Pump business shipments increased 20% with the full-year impact of the Process Systems acquisition completed in the fourth quarter of 1995 contributing 50% of the increase. The continued success of new products, namely Chempump's NC Series self-diagnostic sealless pump and Barnes' pressure sewer pump systems, along with increased demand 29 MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS continued for most of the other pump product lines, contributed the other half. Valve sales in North America declined because of weak demand in cast steel and nuclear valves markets. In addition, the sale of Empire Foundry in the first quarter of 1996 negatively impacted North American sales comparisons by $4.4 million. Operating profit improved 30% in 1996 on stronger performances by Crane Australia and the pump and water treatment businesses. With significantly higher sales, Crane Australia returned to more normal profit margins from the depressed levels of a year ago. The pump businesses improved margins through higher production volume and wider acceptance of their new product lines. Cochrane's water treatment business recorded profitable results compared to a loss in the prior year, which was caused by one large project. The North American valve business, while profitable, experienced a slight but disappointing decline in operating profit because of lower sales volume. Recently, as part of the effort to dramatically improve margins, this business completed a reorganization of management by product line. The company believes the reorganization will provide greater focus and accountability, leading to improved results. Fluid Handling's order backlog at December 31, 1996 totaled $88.6 million, a $2 million decline from the prior year level. The 11% sales increase in 1995 resulted primarily from the April 1994 acquisition of Mark Controls. In addition, new product offerings by Crane Ltd. led to a 15% increase in shipments in a relatively flat market. Westad gained market share in 1995 by capturing a number of marine projects. Pump sales and North American valve sales each declined approximately 1%. Crane Australia's sales were essentially flat. Operating profit in 1995 increased 3.5% as a result of the market share gains at Crane Ltd. and Westad. Cost reductions from product line and manufacturing rationalizations led to improved operating margins at Crane Pumps & Systems. Lower valve margins in North America and Australia partially offset these favorable factors. The Mark Controls acquisition contributed marginally to the improvement. The company expects that Fluid Handling's results will continue to improve in 1997. This will come about through continued market expansion in Asia, growth of existing product lines in both the valve and pump businesses and new product introductions in the pump business. Aerospace (In millions) 1996 1995 1994 ---- ---- ---- Sales $ 246.7 $ 216.2 $ 160.8 Operating Profit 65.9 56.0 31.3 Operating Margins 26.7% 25.9% 19.5% Aerospace consists of ELDEC, the industry leader in design and manufacture of position indication and control systems; Interpoint, the industry leader in design and manufacture of thick-film hybrid DC-to-DC power converters, custom microcircuits and accessory products, for applications in the medical technology industry, as well as the aerospace, military and space industries; Hydro-Aire, the industry leader in design and manufacture of electronically controlled anti-skid and automatic braking systems, and Lear Romec, a supplier of oil lubrication and fuel boost pumps. Additional products manufactured by this group consist of proximity sensors, fuel flowmeters, high and low voltage power conversion systems, fuel and hydraulic pumps, coolant pumps and systems, valves, regulators and actuators for the commercial, business and military aerospace and space industries. Aerospace operates eight manufacturing facilities located in Washington, California, Ohio, England and Taiwan, and a small assembly facility in France. The Aerospace group employs 2,300 people and had assets of $251.7 million at year end. Aerospace sales increased 14.1%, or $30.5 million, in 1996. The Interpoint acquisition, completed in October of 1996, contributed $10 million to the sales gain, while ELDEC contributed $9.3 million, Hydro-Aire $7.1 million and Lear Romec $4.4 million. ELDEC experienced strong OEM sales of its proximity, low voltage and fuel flow product lines as aircraft production increased in 1996. ELDEC spare parts sales also increased as a result of higher aircraft utilization rates. Results from Grenson Electronics, which was acquired in the fourth quarter, were included with ELDEC with no material effect on that business's results. Hydro-Aire posted strong commercial OEM sales as a result of the increase in aircraft production, and strong aftermarket sales. Significant growth in the overhaul and repair segment, which benefited from improved customer service standards, contributed to the increase in aftermarket sales, along with the higher aircraft utilization rates. Lear Romec experienced gains in both the OEM market and aftermarket as it benefited from the increased aircraft production and higher demand for spare parts in the government sector. Aerospace operating profit increased 18%, or $9.9 million, in 1996 and margins improved to 26.7% from 25.9%. All units contributed to the increase. Higher shipment and production levels combined with process improvements at Lear Romec resulted in significantly higher margins. Profits from increased OEM and aftermarket sales at ELDEC more than offset higher development costs on the MD-95 and Global Express programs and costs related to a major business process reengineering project. Hydro-Aire's increased sales volume resulted in higher profits with slightly lower margins because of higher product and market development costs. Order backlog totaled $269 million at December 31, 1996, an increase of 28% from the prior year. In 1996, Crane continued to invest in developing products and technologies for specific aircraft applications, such as Bombardier Global Express, Gulfstream V, McDonnell Douglas MD-95, Boeing 737, 747, 757, 767, 777, Raytheon Premier, Canadair/RJX and Airbus A300, A310, A330. Additionally, ELDEC has undertaken a major reengineering project aimed at optimizing each business process. Under the project, the company will invest $10 million, over a two-year 30 period, in state-of-the-art systems technology and engineering and manufacturing equipment, which will reduce costs, enhance revenues and improve customer service. These investments in the future, while dampening short-term results, are key to the company maintaining its leading positions in the aerospace industry. In 1995, sales rose a dramatic 34%, or $55.4 million, from 1994. Several factors contributed to the rise, including the full-year impact of ELDEC which was acquired in March 1994. Overall OEM shipments increased, particularly for the position indication and control systems and power systems products for the new Boeing 777 aircraft. Aftermarket sales increased 28% because of higher aircraft utilization rates by airlines, spare parts provisioning requirements for the Boeing 777 aircraft and increased focus on the overhaul and repair business by all three operating units. Operating profit in 1995 increased 79%, or $24.7 million, from 1994. Key to this increase was the restructuring of operations at ELDEC which, at the time of acquisition, was burdened with an inappropriately high cost structure. By consolidating facilities and reducing costs, the company was able to improve profit margins dramatically during 1995. While the aerospace industry experienced a downturn in the first years of the 1990s, the company placed a greater emphasis on cost control at Hydro-Aire and Lear Romec. This action led to higher profit margins as the industry began a recovery in 1995. It is expected that the aerospace industry will continue to experience a surge as production levels and airline utilization rates remain high over the next several years. Crane believes it is well poised to benefit from this trend. Its current market position, along with strategic acquisitions, investments in new product technology and continued cost reductions, will allow Crane to meet the challenges of increased competition and a highly concentrated customer base. In addition, the expansion of core technologies in the commercial wireless telecommunications and medical instruments markets promises excellent opportunity for future growth. ENGINEERED MATERIALS (In millions) 1996 1995 1994 ---- ---- ---- Sales $ 207.2 $ 202.1 $ 201.9 Operating Profit 25.7 22.9 23.0 Operating Margins 12.4% 11.3% 11.4% Engineered Materials consists of four principal operating units: Kemlite manufactures fiberglass-reinforced plastic panels at facilities in Arkansas and Illinois for transportation, recreational vehicle and commercial building products markets; Cor Tec manufactures fiberglass-reinforced laminated panels in its Ohio plant for use as structural sidewalls by the truck and trailer transportation industry; Resistoflex manufactures corrosion-resistant, plastic-lined pipes, fittings and valves at its North Carolina plant for the chemical processing and pharmaceutical industries and at its Singapore plant for the rapidly expanding Asian chemical processing industry and pharmaceutical industry. Crane Plumbing manufactures china, acrylic and steel plumbing fixtures at three plants in Canada for the Canadian construction industry. Engineered Materials had assets of $102 million at December 31, 1996 and employs 1,100 people. Sales improved 2.5% in 1996 with Resistoflex the largest contributor. Resistoflex sales grew by 30%, as the company's Asian operations, acquired in December 1995, secured significant contracts. In addition, an upturn in the domestic chemical processing industry resulted in increased demand in the lined pipe product line. Cor Tec saw a significant drop in sales because of a decline of approximately 25% in the truck and trailer transportation industry. For Kemlite, this decline in transportation was more than offset by strong sales in the recreational vehicle market, as fiberglass reinforced panels continued to displace aluminum. Engineered Materials operating profits increased 12%. Resistoflex posted significant profit gains on increased sales volume and significantly higher margins at its defense operations because of earlier investments in manufacturing technology and improved processes. Kemlite benefited from higher sales along with a change in product mix. Profits declined at Cor Tec and Crane Plumbing because of lower shipments. Order backlog at December 31, 1996 stood at $22.6 million, a slight increase from the prior year. Sales in 1995 were in line with the 1994 level, as strong sales to the truck and trailer transportation industry at both Kemlite and Cor Tec and major project wins at Resistoflex were offset by a 30% decline in the residential housing market in Canada and the transfer of plumbing brass products to the Controls group. In addition, sales were adversely impacted by a shortage of fiberglass, a key raw material in Kemlite's products, hurting Kemlite's ability to meet the demand from truck and trailer transportation manufacturers in the first half of the year. Operating profit in 1995 was in line with the 1994 level also. Productivity gains at Cor Tec and improved results at Resistoflex fully offset the impact of the drastic decline in Canada's residential construction market on Crane Plumbing, and the adverse margin impact of higher fiberglass and resin costs at Kemlite. During the fourth quarter of 1996, Resistoflex launched its new line of industrial hoses designed for a broad range of hazardous material applications. In addition, it relocated its Singapore manufacturing facility to serve the Asian chemical processing industry better. These actions, along with the expected continued strength in the chemical processing industry, augur well for 1997. MERCHANDISING SYSTEMS (In millions) 1996 1995 1994 ---- ---- ---- Sales $ 172.8 $ 183.1 $ 168.5 Operating Profit 24.8 23.6 23.2 Operating Margins 14.4% 12.9% 13.7% Merchandising Systems has two operating units: National Vendors, the industry leader in the design and manufacture of a complete line of vending merchandisers for the food/service vending market; and NRI, manufacturer of electronic coin validators in Buxtehude, Germany for the automated merchandising and gambling/amusement markets in 31 MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS continued Europe. National Vendors' products include electronic vending merchandisers for refrigerated and frozen foods, hot and cold beverages, snack foods, single-cup individually brewed hot drinks and combination vendors/merchandisers, designed to vend both snacks and hot/cold drinks, or snacks and refrigerated/frozen foods in one machine. National Vendors manufactures its products in a 463,000-square-foot, stateof-the-art facility in Missouri. In the U.S. and Europe, National Vendors' products are marketed directly to customers by company sales and marketing personnel, and in other international markets through independent distributors. Merchandising Systems employs 1,000 people and had assets of $91.5 million at December 31, 1996. The 1996 sales decline of $10.3 million consists of a $13.2 million decline at National Vendors and a $2.9 million increase at NRI. The decline at National Vendors resulted from the 1995 completion of the United States Postal Office contract, which contributed $5.4 million in sales in that year, and lower sales to national accounts in the U.S. market. Increased sales of the Cafe System "7" coffee service product and increased penetration in Latin American and Pacific Rim markets partially offset these adverse factors. Sales gains at NRI were the result of increased demand for coin validators throughout Europe. NRI increased profits through higher sales volume and improved margins stemming from its successful efforts to reduce production costs on certain high-volume validators. The lower sales volume and lower margins from international sales at National Vendors were partially offset by substantial productivity gains from its plant modernization program. Order backlog totaled $18.6 million at December 31, 1996, compared to $14.7 million at December 31, 1995. The company's lead times have been improved by the plant modernization program. Sales in 1995 were 9% higher than the 1994 level. The improvement resulted from a 40% increase in international shipments at National Vendors, market share gains for the Cafe System "7" and higher shipments of coin validators by NRI in Europe. Operating profit improved marginally in 1995. Although NRI operated at a profit for the first time since 1991, National Vendors' margins were lower because of increased promotional activities to entice new equipment purchases and strengthen the company's leading domestic market position. The margin decline was further compounded by the delayed completion of the plant modernization program. The decline in the U.S. vending merchandiser market is attributable, in part, to the use of refurbished machines. The company has taken aggressive action to counter this trend. Special pricing along with trade-in and financing programs have been offered to increase sales. In addition, the company continues to develop new products for emerging small and mid-sized location markets. The company expects that these actions, along with overall improvement in the European market, will result in greater sales volume and increased market share in 1997. CRANE CONTROLS (In millions) 1996 1995 1994 ---- ---- ---- Sales $ 129.7 $ 131.1 $ 88.0 Operating Profit 11.3 11.3 4.4 Operating Margins 8.7% 8.6% 5.0% Crane Controls manufactures products for use in a wide variety of specialized industrial applications where process control is required. Barksdale, with manufacturing facilities in California and Germany, produces pressure, level and temperature switches, transducers and directional control valves. Powers Process Controls produces electronic sensors, pressure balancing and control valves, and plumbing brass for both industrial and commercial markets at its Illinois facility. Azonix, located in Massachusetts, designs electronic data acquisition products and measurement and control systems for harsh industrial environments. Dynalco, in Florida, produces rotational speed sensors, instruments and control systems for use in industrial engines, natural gas production and pipelines, and agricultural and marine machinery. Ferguson manufactures a complete line of motion control products for transferring and positioning components in automated assembly processes. Ferguson has three domestic manufacturing facilities in Missouri, Mississippi and Michigan and one in Belgium. Crane Controls had assets totaling $125.4 million at December 31, 1996 and employs 860 people. Crane Controls' 1996 sales declined slightly to $129.7 million. Ferguson experienced lower sales across all product lines because of an overall softening in the markets it serves, most notably the packaging industry. Sales at Azonix were down slightly from the prior year with an unexpected weakness in the OEM product line. Sales gains at the other three Controls business units partially offset these declines. Powers Process Controls recorded the biggest sales gain, benefiting from the significant upturn in the U.S. construction market. Sales at Barksdale increased on the strength of higher shipments of its transducers in the U.S. and level products in Europe and the U.S., while sales at Dynalco improved as a result of higher demand in the agricultural OEM market. Operating profit in 1996 was essentially unchanged from the prior year. Profits at Ferguson Europe improved because of the benefits of consolidating its manufacturing facilities which was completed in 1995 and profits at Powers Process Controls improved because of increased sales volume. At Barksdale, profits were lower despite increased sales because of higher material costs of its level and transducer products relative to its other product lines. A change in product mix also resulted in lower margins at Azonix while higher margins minimized the sales shortfall at Ferguson U.S. On December 31, 1996, Crane Controls had a backlog of $25 million, which represented a 4% decline from the 1995 level. In 1995, sales increased 49%, reflecting, in part, the full-year impact of the April 1994 acquisition of Mark Controls, which included the operations of Barksdale, Powers Process Controls, Dynalco and Azonix. In addition, sales benefited from the February 1995 acquisition of Unimess GmbH, which brought a full line of solid state switches, transducers and indicating systems to Barksdale. Sales also benefited from the transfer of product line responsibility for plumbing brass products to Powers Process Controls from Crane Plumbing. Ferguson U.S. sales improved 9.1% because of high demand for its motion control products. 32 Profits more than doubled in 1995 from the 1994 level. In addition to the Mark Controls acquisition and increased sales at Ferguson U.S., strong cost reduction initiatives contributed to the profit improvement. The plant consolidation at Ferguson Europe negatively impacted results in 1995, as did costs associated with the transfer of the plumbing brass products to Powers Process Controls. New product offerings and increased market penetration will be key to the success of Crane Controls in 1997. Wholesale Distribution (In millions) 1996 1995 1994 ---- ---- ---- Sales $ 734.6 $ 710.8 $ 730.6 Operating Profit 29.5 25.0 20.0 Operating Margins 4.0% 3.5% 2.7% Wholesale Distribution serves three end user markets. Huttig Sash & Door Company, the largest American wholesale distributor of windows, doors and specialty millwork, serves building product retailers, contractors and home remodelers. Huttig operates forty-four distribution centers located throughout the United States. Valve Systems and Controls, an industrial distributor of automated valves and related products located in Texas, serves the petrochemical, oil refining and pipeline transmission industries. Crane Supply, a distributor of pipes, valves, fittings, plumbing fixtures and related supplies, serves the industrial, municipal and institutional construction industries in Canada. Crane Supply operates thirty-five distribution centers located throughout Canada. The key success factors in Wholesale Distribution are customer service and effective inventory and cost management. This group had assets of $199.6 million at December 31, 1996 and employs 2,400 people. Wholesale Distribution sales increased $23.8 million, or 3.3%, in 1996, as sales at Huttig increased $24.2 million, because of growth in new home construction and an increase in residential remodel and repair spending throughout the United States. Crane Supply sales were essentially unchanged from the prior year. Weak sales in Quebec because of a depressed economy offset strong results in Alberta, where there was a marked improvement in the oil and gas market. Sales at Valve Systems and Controls declined $1.1 million as a result of the loss of a major supplier. Higher sales of manual valves to the petroleum industry minimized the adverse effect of the loss. 1996 operating profit increased $4.5 million, or 18%, as Huttig's distribution and manufacturing businesses both posted strong results. Distribution operating profit improved on higher overall sales. Manufacturing operating profit increased significantly because of demand-related price increases, production efficiencies and higher sales of value-added products. At Crane Supply, productivity improvements and cost reductions resulted in higher margins. At Valve Systems and Controls, decreased sales and increased competitive pressures unfavorably impacted earnings. Total backlog at December 31, 1996 was $36.2 million, an increase of $10.3 million from the prior year. In 1995, sales declined 3% compared to 1994. Huttig experienced a 4.6% decline because of an 11% decline in single family home construction, the closing of a large but unprofitable branch in New Jersey, and an exit from the wood window manufacturing business at the end of 1994. The adverse impact of these factors was partially offset by the full-year contribution by the Prineville, Oregon wood molding operation acquired in May of 1994. Crane Supply experienced an 8% gain in sales reflecting the strength of the Canadian industrial markets it serves. Sales at Valve Systems and Controls increased slightly. Despite the sales decline, 1995 operating profit rose significantly. Crane Supply's increased emphasis on cost controls led to a dramatic improvement in profit margins. Valve Systems and Controls recorded a profit in 1995 compared to a loss in 1994 as a result of cost containment and a greater focus on sales of higher margin, value-added products. While Huttig's profits declined slightly on lower sales, its margins improved because of cost controls, as well as improved asset management and productivity gains made possible by its state-of-the-art management information system. It is expected that, in the current interest rate climate, 1997 housing activity in the United States will remain strong. It is also expected that the Canadian economy will improve. As such, Wholesale Distribution should post another strong year in 1997. LIQUIDITY AND CAPITAL RESOURCES CASH FLOW Operating activities in 1996 generated $122 million in cash flow, allowing the company to make debt repayments of $32 million and return $49.4 million to shareholders through dividends and share repurchases. This represents the third consecutive year that Crane has generated cash in excess of $100 million from operations. Although working capital increased because of higher sales, average working capital as a percentage of sales declined, resulting in a positive cash flow impact of $9.6 million. The improvement derives from better controls as a result of investment in management information systems and a compensation system which rewards higher returns on invested capital. The company expects that future working capital requirements for sales growth, geographic expansion and new product offerings will be, to a large extent, funded by continued improvement in working capital management. Net cash used for investing activities increased compared to the prior year, mainly because of increases in capital expenditures. Capital expenditures in 1996 totaled $50.5 million and primarily funded manufacturing and business process system projects. The company expects 33 MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS continued similar levels of capital spending over the next few years to continue to fund such projects. These projects are designed to reduce business process and manufacturing cycle times, increasing the company's ability to respond to customer needs. In other investing activities, the company used $2.7 million of cash to purchase Grenson Electronics of England. In addition, in a noncash transaction, it acquired Interpoint through the issuance of 1,094,312 shares of Crane common stock and assumption of $26 million of debt. In 1997, Crane plans to continue to seek acquisition opportunities that complement existing businesses, have leading positions in niche markets, and can generate cash returns greater than the cost of capital. Net cash used for financing activities in 1996 includes $26.7 million for the repurchase of more than 1 million shares of Crane common stock and $22.7 million for the payment of dividends. Debt repayments totaled $32 million and included a $19 million payment for debt assumed from the Interpoint acquisition. From the peak debt level at June 30, 1994, immediately following Crane's last 1994 acquisition, the company has repaid over $177 million in debt. CAPITAL STRUCTURE The following table sets forth the company's capitalization: ($ in thousands) 1996 1995 ---- ---- Short-term debt $ 23,937 $ 15,359 Long-term debt 269,046 281,864 -------- -------- Total debt 292,983 297,223 Less cash 11,579 5,476 -------- -------- Total net debt 281,404 291,747 Shareholders' equity 462,669 374,729 -------- -------- Total capitalization 744,073 666,476 % of net debt to shareholders' equity 60.8% 77.9% -------- -------- % of net debt to total capitalization 37.8% 43.8% -------- -------- Net debt to total capitalization declined significantly to 37.8% in 1996 because of strong earnings and repayment of debt. At December 31, 1996, the company had unused lines of credit in support of short-term borrowings of $235.5 million. Domestic lines of credit, which were uncommitted and unsecured, totaled $195 million. Foreign lines of credit totaled $40.5 million, of which $13.3 million was contractually committed and $27.2 million was uncommitted. All available short-term lines of credit are for borrowings up to 364 days and are renewable at the option of the lender. At December 31, 1996, the company had a $200 million contractually committed domestic long-term bank credit facility under which the company can borrow, repay, or to the extent permitted by the agreement, prepay loans and reborrow at any time prior to the termination date of August 2000. Proceeds may be used for general corporate purposes or to provide bridge financing for acquisitions. The agreement contains certain covenants, including limitations on indebtedness and liens. No loans were outstanding under this agreement at year end. In addition, the company's Canadian subsidiary was also party to contractually committed long-term lines of credit underwritten by banks in Canada. These facilities afford borrowings for up to $14.6 million, and on December 31, 1996, such loans outstanding totaled $6.6 million. Under a $300 million shelf registration filed with the Securities and Exchange Commission, $150 million in unissued debt securities remains registered. Crane is a party to a contractually committed off-balance sheet chattel paper financing facility which enables its National Vendors operation to offer various sales support financing programs to its customers. Recourse to Crane for all uncollectible loans made to National Vendors' customers by the banks under this agreement is limited. As of December 31, 1996, the company's senior unsecured debt was rated Baa2 by Moody's Investors Service. The company believes it has adequate access to both public and private credit markets to meet all of its operating and strategic objectives. ENVIRONMENTAL The company continues to be involved in various remediation actions to clean up hazardous wastes, as required by federal and state laws. As of December 31, 1996, the company has accrued nearly $16 million for estimated future environmental remediation costs. Not included in the accrual is the cost of cleaning one site for approximately $3.6 million, for which a full escrow was established when the property was acquired in 1993. The company spent nearly $2.5 million on environmental costs in 1996 as compared to $10.3 million in 1995. The 1995 expenditures include $7 million for settlement of Crane's liabilities in the San Fernando Valley Superfund sites in Burbank and Glendale, California. Crane expects to pay remediation costs of approximately $3.5 million in 1997. The annual level of future remediation expenditures is difficult to estimate because of the many uncertainties relating to conditions of individual sites as well as uncertainties about the status of environmental laws and regulations and developments in remedial technology. The required remedial actions being implemented or engineered are not, individually or in the aggregate, expected to be material. 34 FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA (In thousands except per share data)
Years Ended December 31, 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- Net Sales $1,847,732 $1,782,310 $1,653,466 $1,310,205 $1,306,977 Depreciation and Amortization 49,402 48,765 44,691 29,420 28,530 Operating Profit 166,153 142,948 109,889 85,856 45,244 Interest Expense 23,420 26,913 24,171 11,396 14,464 Income Before Taxes 145,020 121,468 91,227 79,818 38,689 Provision for Income Taxes 52,910 45,131 35,294 30,925 14,403 ---------- ---------- ---------- ---------- ---------- Income from Operations $ 92,110 $ 76,337 $ 55,933 $ 48,893 $ 24,286 ---------- ---------- ---------- ---------- ---------- Primary Net Income Per Common Share $ 2.01 $ 1.67 $ 1.24 $ 1.08 $ .53 Cash Dividends Per Common Share $ .50 $ .50 $ .50 $ .50 $ .50 Assets $1,088,855 $ 998,411 $1,008,045 $ 744,165 $ 630,211 Long-Term Debt $ 267,795 $ 281,093 $ 331,289 $ 105,557 $ 111,048 ---------- ---------- ---------- ---------- ----------
QUARTERLY RESULTS FOR THE YEAR (In thousands except per share data)
Quarter Year First Second Third Fourth ---- ----- ------ ----- ------ 1996 Net Sales $ 436,463 $ 466,231 $ 481,116 $ 463,922 $1,847,732 Cost of Sales 319,982 339,605 352,632 332,526 1,344,745 Depreciation and Amortization 9,710 9,718 9,872 10,146 39,446 ---------- ---------- ---------- ---------- ---------- Gross Profit $ 106,771 $ 116,908 $ 118,612 $ 121,250 $ 463,541 Net Income $ 18,208 $ 22,104 $ 26,889 $ 24,909 $ 92,110 Primary Net Income Per Share $ .40 $ .48 $ .59 $ .54 $ 2.01 ---------- ---------- ---------- ---------- ---------- 1995 Net Sales $ 432,578 $ 451,479 $ 453,344 $ 444,909 $1,782,310 Cost of Sales 323,458 332,763 336,860 323,240 1,316,321 Depreciation and Amortization 10,001 9,977 9,903 9,736 39,617 ---------- ---------- ---------- ---------- ---------- Gross Profit $ 99,119 $ 108,739 $ 106,581 $ 111,933 $ 426,372 Net Income $ 13,275 $ 20,117 $ 22,029 $ 20,916 $ 76,337 Primary Net Income Per Share $ .29 $ .44 $ .48 $ .46 $ 1.67 ---------- ---------- ---------- ---------- ----------
MARKET AND DIVIDEND INFORMATION-CRANE CO. COMMON SHARES
NEW YORK STOCK EXCHANGE COMPOSITE PRICE PER SHARE DIVIDENDS PER SHARE ------------------------------------------------- ------------------- 1996 1995 1996 1995 -------------------- ---------------------- ------ ------ Quarter High Low High Low ---- --- ---- --- First $29 $24 $20 5/8 $17 1/4 $.125 $.125 Second 29 5/8 25 7/8 25 3/4 20 1/8 .125 .125 Third 30 0/0 24 26 3/8 20 .125 .125 Fourth 31 1/2 27 7/8 25 5/8 21 7/8 .125 .125 $.50 $.50
On December 12, 1996, the company effected a three-for-two split of common stock. All per share data prior to the split have been restated. At December 31, 1996 there were approximately 6,000 holders of record of Crane Co. common stock. 35 SHAREHOLDER INFORMATION CRANE CO. SHAREHOLDER DIRECT(R) Copies of Crane Co.'s report on Form 10-K for 1996 as filed with the Securities and Exchange Commission as well as other financial reports and news from Crane Co. are available by calling 1-888-CRANE-CR (1-888-272-6327), 24 hours a day, 7 days a week. Visit Crane Co. on the Internet at http://www.shareholder.com/crane. ANNUAL MEETING The Crane Co. annual meeting of shareholders will be held at 10:00 A.M. on Monday, April 21, 1997 at the Sheraton Stamford Hotel, One First Stamford Place, Stamford, CT 06902. STOCK LISTING Crane Co. common stock is traded on the New York Stock Exchange, listed under the symbol "CR". AUDITORS Deloitte & Touche LLP Stamford Harbor Park Stamford, CT 06902 EQUAL EMPLOYMENT OPPORTUNITY POLICY Crane Co. is an equal opportunity employer. It is the policy of the company to recruit, hire, promote and transfer to all job classifications without regard to race, color, religion, sex, age, disability or national origin. ENVIRONMENT, HEALTH & SAFETY POLICY Crane Co. is committed to protecting the environment and will strive to protect the biosphere by taking responsibility to prevent serious or irreversible environmental degradation through efficient operations and activities. Crane Co. recognizes environmental management among its highest priorities throughout the corporation, and has established policies and programs which are integral and essential elements of the business plan of each of the business units. Additionally, Crane Co. has established the position of Vice President-Environment, Health and Safety, which is responsible for assuring compliance, measuring environmental performance and conducting regular environmental audits in order to provide appropriate information to the Crane Co. management team and to regulatory authorities. STOCK TRANSFER AGENT AND REGISTRAR OF STOCK First Chicago Trust Company of New York Customer Service: 1-201-324-1225 Non-Postal Deliveries 525 Washington Blvd. Jersey City, NJ 07310 Dividend Reinvestment & Optional Payments P.O. Box 13531 Newark, NJ 07188-0001 General Correspondence & Changes of Address P.O. Box 2500 Jersey City, NJ 07303-2500 Transfer of Stock Certificates P.O. Box 2506 Jersey City, NJ 07303-2506 BOND TRUSTEE AND DISBURSING AGENT THE BANK OF NEW YORK Corporate Trust Department: 1-800-438-5473 101 Barclay Street New York, NY 10286 DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN Crane offers shareholders the opportunity to participate in a Dividend Reinvestment and Stock Purchase Plan. The plan provides two convenient methods for increasing your investment in Crane Co. common shares, without paying fees and commissions. Dividend Reinvestment: for all or part of your dividends on Crane common shares; and Voluntary Cash Payments: of any amount from $10 to a maximum of $5,000 a month. Under terms of the Plan, First Chicago Trust Company of New York will act as agent for shareholders interested in purchasing additional Crane common shares automatically, on a regular basis. The details of this plan and its benefits to you as a Crane shareholder are described in a brochure available by writing to: FIRST CHICAGO TRUST COMPANY OF NEW YORK Dividend Reinvestment Plan Crane Co. P.O. Box 2598 Jersey City, NJ 07303-2598 36 DIRECTORS MONE ANATHAN, III President, Filene's Basement Corp. Retailer E. THAYER BIGELOW, JR. (1,2) President and Chief Executive Officer Time Warner Cable Programming Inc. ROBERT S. EVANS (1) Chairman and Chief Executive Officer of the Company RICHARD S. FORTE (2) President, Dawson Forte Cashmere Company Importer DORSEY R. GARDNER (2,3) President, Kelso Management Company, Inc. Investment Management JEAN GAULIN (3) Vice Chairman, President and Chief Operating Officer Ultramar Diamond Shamrock Corporation Refiner and Marketer of Petroleum Products DWIGHT C. MINTON (1,3) Chairman, Church & Dwight Co., Inc. Manufacturer of Consumer and Specialty Products CHARLES J. QUEENAN, JR. (2) Partner, Kirkpatrick & Lockhart LLP Attorneys at Law BORIS YAVITZ (1,3) Dean Emeritus, Columbia University Graduate School of Business CORPORATE OFFICERS ROBERT S. EVANS Chairman and Chief Executive Officer L. HILL CLARK President and Chief Operating Officer ROBERT J. MULLER, JR. Executive Vice President GIL A. DICKOFF Treasurer AUGUSTUS I. DUPONT Vice President, General Counsel and Secretary ANTHONY D. PANTALEONI Vice President, Environment, Health and Safety RICHARD B. PHILLIPS Vice President, Human Resources MICHAEL L. RAITHEL Controller DAVID S. SMITH Vice President, Finance and Chief Financial Officer (1) Member of the Executive Committee (2) Member of the Audit Committee (3) Member of the Organization and Compensation Committee [LOGO]Crane Crane Co. Executive Offices 100 First Stamford Place Stamford, CT 06902 (203) 363-7300 38 EX-21 4 LIST OF SUBSIDIARIES Exhibit 21 CRANE CO. EXHIBIT C TO FORM 10-K ANNUAL REPORT FOR THE YEAR ENDED DECEMBER 31, 1996 SUBSIDIARIES OF REGISTRANT The following is a list of active subsidiaries of the registrant and their jurisdictions of incorporation. All of these subsidiaries are wholly owned, directly or indirectly, and all are included in the consolidated financial statements. The names of several other subsidiaries have been omitted as they would not, if considered in the aggregate as a single subsidiary, constitute a significant subsidiary. Subsidiaries of subsidiaries are indicated by indentation. Cochrane Inc. Delaware Crane Australia Pty., Limited Australia Crane Canada Inc. Canada Crane Limited Great Britain Crane Pumps & Systems, Inc. Delaware Dyrotech Industries, Inc. Delaware ELDEC Corporation Delaware Hydro-Aire, Inc. California Huttig Sash & Door Company Delaware Interpoint Corporation Washington Kemlite Company, Inc. Delaware Mark Controls Corporation Delaware Azonix Corporation Massachusetts Barksdale, Inc. Delaware Dynalco Controls Corporation Delaware Barksdale Control Product GmbH Germany Powers Process Controls Limited Canada Mark Controls Norway A/S Norway Westad Industri A/S Norway Crane, GmbH Germany National Rejectors, Inc. GmbH Germany Ferguson Machine Company, S.A. Belgium Unidynamics/St. Louis, Inc. Delaware Unidynamics/Phoenix, Inc. Delaware EX-23 5 CONSENT OF EXPERTS & COUNSEL Exhibit 23 EXHIBIT D INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement No. 33-53709 on Form S-3, Registration Statement No. 33-36735 on Form S-8, Post- Effective Amendment No. 1 to Registration Statement No. 33-59389 on Form S- 8, Post-Effective Amendment No. 1 to Registration Statement No. 33-59475 on Form S-8, and Registration Statement No. 333-16555 on Form S-8 of our reports dated January 27, 1997, appearing in and incorporated by reference in this Annual Report on Form 10-K of Crane Co. for the year ended December 31, 1996. DELOITTE & TOUCHE LLP Stamford, Connecticut March 14, 1997 EX-27 6 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 11,579 0 253,729 0 267,274 540,014 547,566 289,219 1,088,855 253,853 267,795 0 0 45,660 417,009 1,088,855 1,847,732 1,847,732 1,384,191 1,681,579 240 0 20,893 145,020 52,910 92,110 0 0 0 92,110 2.01 2.00
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