<PAGE>
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
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Commission file number 1-1657
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CRANE CO.
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(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
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (203) 363-7300
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
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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
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(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.
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PART I
Item 1. Business
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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
<PAGE>
PART I (continued)
Item 1. Business (continued)
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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
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PART I (continued)
Item 1. Business (continued)
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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
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PART I (continued)
Item 1. Business (continued)
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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
<PAGE>
PART I (continued)
Item 1. Business (continued)
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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
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PART I (continued)
Item 1. Business (continued)
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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
<PAGE>
PART I (continued)
Item 1. Business (continued)
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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
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PART I (continued)
Item 1. Business (continued)
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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
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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.
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*Includes plants under lease agreements.
Leased Leases
Manufacturing Expiring
Facilities Number Area Through
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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
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PART I (continued)
Item 2. Properties (continued)
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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
<PAGE>
PART I (continued)
Item 3. Legal Proceedings
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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
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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
<PAGE>
PART I (continued)
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the registrant are as follows:
<TABLE>
<CAPTION>
Business Experience Officer
Name Position During Past Five Years Age Since
- ---- -------- ---------------------- --- -------
<S> <C> <C> <C> <C>
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
</TABLE>
/12
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
CRANE CO. AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
<TABLE>
<CAPTION>
Balance at Additions Balance
Beginning Charged to at End
Description of Year Cost & Expenses Deductions of Year
- ---------------------------------- ---------- --------------- ---------- -------
<S> <C> <C> <C> <C>
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
======= ======= ======= =======
</TABLE>
/18
<PAGE>
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)
<TABLE>
<CAPTION>
Primary 1996 1995 1994 1993 1992
- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
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
======= ======= ======= ======= =======
</TABLE>
* 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.
<PAGE>
CRANE CO.
ANNUAL REPORT 1996
<PAGE>
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
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
($ and shares in thousands except per share data) 1996 1995 % Change
---- ---- --------
<S> <C> <C> <C>
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%
</TABLE>
(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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
Crane at a Glance
<TABLE>
<CAPTION>
Business Unit Products Markets Served Business Highlights Business Outlook
- -----------------------------------------------------------------------------------------------------------------------------------
Fluid Handling
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Business Unit Products Markets Served Business Highlights Business Outlook
- ------------------------------------------------------------------------------------------------------------------------------------
Aerospace
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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.
</TABLE>
7
<PAGE>
Crane at a Glance
<TABLE>
<CAPTION>
Business Unit Products Markets Served Business Highlights Business Outlook
- ------------------------------------------------------------------------------------------------------------------------------------
Engineered Materials
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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.
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Business Unit Products Markets Served Business Highlights Business Outlook
- ------------------------------------------------------------------------------------------------------------------------------------
Controls
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
</TABLE>
9
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME (In thousands except per share data) Crane Co.
<TABLE>
<CAPTION>
For Years Ended December 31, 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
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
========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
14
<PAGE>
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
<PAGE>
Consolidated Statements of Cash Flows (In thousands) Crane Co.
<TABLE>
<CAPTION>
For Years Ended December 31, 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
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
</TABLE>
See Notes to Consolidated Financial Statements
16
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON SHAREHOLDERS' EQUITY Crane Co.
(In thousands except share data)
<TABLE>
<CAPTION>
CURRENCY TOTAL COMMON
COMMON CAPITAL RETAINED TRANSLATION SHAREHOLDERS'
SHARES SURPLUS EARNINGS ADJUSTMENT EQUITY
-------- -------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C>
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
======== ======== ========= ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
17
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
------------------------ ------------------------
OVERFUNDED UNDERFUNDED OVERFUNDED UNDERFUNDED
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
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)
========= ======= ========= =======
</TABLE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
(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
--------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
$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
</TABLE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA (In thousands except per share
data)
<TABLE>
<CAPTION>
Years Ended December 31, 1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
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
---------- ---------- ---------- ---------- ----------
</TABLE>
QUARTERLY RESULTS FOR THE YEAR (In thousands except per share data)
<TABLE>
<CAPTION>
Quarter Year
First Second Third Fourth ----
----- ------ ----- ------
1996
<S> <C> <C> <C> <C> <C>
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
---------- ---------- ---------- ---------- ----------
</TABLE>
MARKET AND DIVIDEND INFORMATION-CRANE CO. COMMON SHARES
<TABLE>
<CAPTION>
NEW YORK STOCK EXCHANGE COMPOSITE PRICE PER SHARE DIVIDENDS PER SHARE
------------------------------------------------- -------------------
1996 1995 1996 1995
-------------------- ---------------------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
[LOGO]Crane
Crane Co.
Executive Offices
100 First Stamford Place
Stamford, CT 06902
(203) 363-7300
38
<PAGE>
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
<PAGE>
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
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
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0
0
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</TABLE>
