FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1999
Commission File Number 1-1657
CRANE CO.
(Exact name of registrant as specified in its charter)
Delaware 13-1952290
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 First Stamford Place, Stamford, CT. 06902
(Address of principal executive office) (Zip Code)
(203) 363-7300
(Registrant's telephone number, including area code)
(Not Applicable)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
The number of shares outstanding of the issuer's classes of common stock, as of
April 30, 1999:
Common stock, $1.00 Par Value - 67,997,249 shares
<PAGE>
Part I - Financial Information
Item 1. Financial Statements
<TABLE>
Crane Co. and Subsidiaries
Consolidated Statements of Income
(In Thousands, Except Per Share Amounts)
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
1999 1998
<S> <C> <C>
Net Sales $574,821 $526,817
Operating Costs and Expenses:
Cost of sales 413,638 379,989
Selling, general and
Administrative 88,062 80,172
Depreciation and amortization 16,280 14,281
------- -------
517,980 474,442
Operating Profit 56,841 52,375
Other Income (Expense):
Interest income 1,369 542
Interest expense (7,922) (5,939)
Miscellaneous - net 1,907 (78)
------ ------
(4,646) (5,475)
Income Before Taxes 52,195 46,900
Provision for Income Taxes 18,529 17,001
-------- --------
Net Income $ 33,666 $ 29,899
======== ========
Net Income Per Share:
Basic $.49 $.44
Diluted .49 .43
Average Basic Shares Outstanding 68,218 68,387
Average Diluted Shares Outstanding 68,781 69,308
Dividends Per Share $.10 $.08
See Notes to Consolidated Financial Statements
</TABLE>
-2-
<PAGE>
<TABLE>
Part I - Financial Information
Item 1. Financial Statements
Crane Co. and Subsidiaries
Consolidated Balance Sheets
(In Thousands, Except Share and Per Share Amounts)
(Unaudited)
<CAPTION>
March 31, December 31,
1999 1998 1998
---- ---- ----
Assets
<S> <C> <C> <C>
Current Assets
Cash and cash equivalents $ 24,355 $ 48,908 $ 15,909
Accounts receivable 307,417 286,807 303,245
Inventories:
Finished goods 153,546 118,683 146,898
Finished parts and subassemblies 60,008 49,241 58,644
Work in process 37,692 47,732 38,743
Raw materials 77,056 80,206 86,059
------- ------- -------
328,302 295,862 330,344
Other Current Assets 50,168 40,215 49,468
------- ------- -------
Total Current Assets 710,242 671,792 698,966
Property, Plant and Equipment:
Cost 639,462 592,296 645,383
Less accumulated depreciation 337,071 317,471 337,816
------- ------- -------
302,391 274,825 307,567
Other Assets 36,157 30,497 32,964
Intangibles 48,984 50,661 50,073
Cost in excess of net assets acquired 359,315 218,299 365,104
---------- ---------- ----------
$1,457,089 $1,246,074 $1,454,674
========== ========== ==========
See Notes to Consolidated Financial Statements
</TABLE>
-3-
<PAGE>
<TABLE>
Part I - Financial Information
Item 1. Financial Statements
Crane Co. and Subsidiaries
Consolidated Balance Sheets
(In Thousands, Except Share and Per Share Amounts)
(Unaudited)
<CAPTION>
March 31, December 31,
1999 1998 1998
---- ---- ----
Liabilities and Shareholders Equity
<S> <C> <C> <C>
Current Liabilities
Current maturities of long-term debt $ 728 $ 981 $ 787
Loans payable 45,409 24,573 50,401
Accounts payable 144,703 134,728 132,376
Accrued liabilities 133,432 118,749 148,938
U.S. and foreign taxes on income 33,672 29,497 18,660
------- ------- -------
Total Current Liabilities 357,944 308,528 351,162
Long-Term Debt 353,808 281,783 359,090
Deferred Income Taxes 26,610 21,739 26,184
Other Liabilities 23,788 26,783 28,235
Accrued Postretirement Benefits 40,273 41,152 40,814
Accrued Pension Liability 5,965 6,415 5,955
Preferred Shares, par value $.01 - - -
5,000,000 shares authorized
Common Shareholders Equity:
Common stock, par value $1.00 72,426 72,426 72,426
80,000,000 shares authorized,
72,426,139 shares issued
Capital surplus 96,262 89,624 96,262
Retained earnings 602,565 486,280 574,797
Accumulated other comprehensive income (loss) (21,173) (16,442) (18,036)
Common stock held in treasury (101,379) (72,214) (82,215)
------- ------- -------
Total Common Shareholders Equity 648,701 559,674 643,234
---------- ---------- ----------
$1,457,089 $1,246,074 $1,454,674
========== ========== ==========
Common Stock Issued 72,426,139 72,426,139 72,426,139
Less Common Stock held in Treasury (4,621,593) (3,959,068) (3,930,245)
---------- ---------- ----------
Common Stock Outstanding 67,804,546 68,467,071 68,495,894
========== ========== ==========
See Notes to Consolidated Financial Statements
</TABLE>
-4-
<PAGE>
<TABLE>
Part I - Financial Information (Cont'd.)
Item 1. Financial Statements
Crane Co. and Subsidiaries
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
<CAPTION>
March 31,
1999 1998
<S> <C> <C>
Cash flows from Operating activities:
Net income $33,666 $29,899
Depreciation 10,111 9,505
Amortization 6,169 4,776
Deferred income taxes 1,838 (306)
Cash used for operating working capital 6,120 (4,189)
Other (7,918) 2,009
------ ------
Total provided by operating activities 49,986 41,694
Cash flows used for Investing activities:
Capital expenditures (8,778) (10,970)
Purchase of equity investment (2,008) -
Proceeds from disposition of capital assets 4,807 116
------- --------
Total used for investing activities (5,979) (10,854)
Cash flows for Financing activities:
Equity:
Dividends paid (6,810) (5,703)
Reacquisition of shares-open market (20,313) -
Reacquisition of shares-stock incentive programs (656) (418)
Stock options exercised 2,802 1,938
-------- -------
Net equity (24,977) (4,183)
Debt:
Proceeds from issuance of long-term debt - 20,935
Repayments of long-term debt (350) (14)
Net decrease in short-term debt (9,095) (5,460)
------- ------
Net debt (9,445) 15,461
-------- ------
Total (used for) provided by financing activities (34,422) 11,278
Effect of exchange rate on cash and cash equivalents (1,139) (192)
------ ------
Increase in cash and cash equivalents 8,446 41,926
Cash and cash equivalents at beginning of period 15,909 6,982
------- -------
Cash and cash equivalents at end of period $24,355 $48,908
======= =======
Detail of Cash Provided by (Used for) Operating Activities
Working capital
Accounts receivable $ (5,306) $(15,246)
Inventories 1,043 (5,097)
Other current assets (751) (2,602)
Accounts payable 12,982 12,311
Accrued liabilities (15,053) (9,891)
U.S. and foreign taxes on income 13,205 16,336
-------- ---------
Total $ 6,120 $ (4,189)
======== =========
Supplemental disclosure of cash flow information:
Interest paid $5,770 $5,124
Income taxes paid 4,265 883
See Notes to Consolidated Financial Statements
</TABLE>
-5-
<PAGE>
Part I - Financial Information (Cont'd.)
Notes to Consolidated Financial Statements (Unaudited)
<TABLE>
1. The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and, therefore
reflect all adjustments which are, in the opinion of management,
necessary for a fair statement of the results for the interim period
presented. Certain prior year amounts have been reclassified to conform
to the 1999 presentation.
These interim consolidated financial statements should be read in
conjunction with the Consolidated Financial Statements and Notes to
Consolidated Financial Statements in the company's Annual Report on Form
10-K for the year ended December 31, 1998.
2. Sales and operating profit by segment are as follows:
<CAPTION>
Three Months Ended
March 31,
1999 1998
---- ----
<S> <C> <C>
(In thousands)
Net Sales:
Fluid Handling $105,300 $118,041
Aerospace 97,080 94,505
Engineered Materials 91,061 61,249
Crane Controls 30,160 35,002
Merchandising Systems 50,285 46,184
Wholesale Distribution 200,061 172,448
Other 3,395 3,206
Intersegment Elimination (2,521) (3,818)
-------- --------
Total $574,821 $526,817
======== ========
Operating Profit (Loss):
Fluid Handling $ 3,845 $ 8,952
Aerospace 27,243 25,272
Engineered Materials 14,658 7,551
Crane Controls 584 2,982
Merchandising Systems 9,506 8,736
Wholesale Distribution 5,740 4,428
Other (145) (383)
Corporate (4,553) (5,200)
Intersegment Elimination (37) 37
------- -------
Total $56,841 $52,375
======= =======
</TABLE>
-6-
<PAGE>
Part I - Financial Information (Cont'd.)
Notes to Consolidated Financial Statements (Unaudited)
3. Inventories
Inventories are stated at the lower of cost or market, principally on
the last-in, first-out (LIFO) method of inventory valuation. Replacement
cost would be higher by $42.1 million at March 31, 1999, $47.7 million
at March 31, 1998, and $42.8 million at December 31, 1998.
4. Intangibles
Intangible assets are amortized on a straight-line basis over their
estimated useful lives, which range form five to twenty years.
Accumulated amortization was $22.8 million at March 31, 1999, $19.5
million at March 31, 1998 and $21.8 million at December 31, 1998
5. Cost in Excess of Net Assets Acquired
Cost in excess of net assets acquired is amortized on a straight-line
basis principally over 15 to 40 years. Accumulated amortization was
$55.2 million at March 31, 1999, $39.6 million at March 31, 1998 and
$50.9 million at December 31, 1998.
6. Total comprehensive income for the three months ended March 31, 1999
and 1998 was as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
---- ----
<S> <C> <C>
(In Thousands)
Net Income $33,666 $29,899
Other comprehensive income, net of tax
Unrealized gain on equity investment 653 -
Foreign currency translation adjustments (3,790) 108
------- -------
Comprehensive Income $30,529 $30,007
======= =======
</TABLE>
-7-
<PAGE>
Part I - Financial Information (Cont'd)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months Ended March 31, 1999 and 1998
This 10Q may contain forward-looking statements as defined by the Private
Securities Litigation Reform Act of 1995. These statements present management's
expectations, beliefs, plans and objectives regarding future financial
performance, and assumptions or judgments concerning such performance. Any
discussions contained in this 10Q, except to the extent that they contain
historical facts, are forward-looking and accordingly involve estimates,
assumptions, judgments and uncertainties. There are a number of factors that
could cause actual results or outcomes to differ materially from those addressed
in the forward-looking statements. Such factors are detailed in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1998 filed
with the Securities and Exchange Commission
Results from Operations
First Quarter of 1999 Compared to First Quarter of 1998
Net income for the quarter ended March 31, 1999, set a first quarter record of
$33.7 million, an increase of 13% from $29.9 million in the same period last
year. Earnings per diluted share of $.49 was a 14% increase from the $.43
reported last year. Operating profit for the first quarter increased 9% to $56.8
million on a sales increase of 9% to $574.8 million. Operating margins for the
quarter were unchanged at 9.9% of sales. Cash flow (net income plus depreciation
and amortization) per diluted share increased 14% for the quarter to $.73 per
share.
The improved performance was led by Engineered Materials, where sales increased
49%, or $29.8 million, to $91.1 million and operating profit increased 94% to
$14.7 million, compared to the first quarter of 1998. Kemlite's transportation,
recreational vehicle and building products markets continued their strong
growth, with sales up 14% and operating profit up 50% over 1998. The
acquisitions of Sequentia (August 1998) and Plastic-Lined Piping Products
(September 1998), consistent with Crane's strategy to make synergistic
acquisitions that are accretive to earnings per share, added $26.0 million in
sales and $3.3 million in operating profit for the quarter. These acquisitions
continue to be integrated with Kemlite and Resistoflex, respectively. Operating
profit margins increased to 16.1% of sales compared to 12.3% in 1998 as margins
improved at Plumbing, Kemlite and Resistoflex. Order backlog decreased $4.5
million, to $29.1 million as Cortec's order backlog declined from unusually high
levels in 1998.
Aerospace sales increased 3%, or $2.6 million, to $97.1 million in the quarter
with all businesses continuing to benefit from the strength of their market
position across all segments of the aerospace industry. Operating profit
increased 8%, or $2.0 million, to $27.2 million, with Hydro-Aire and ELDEC
benefiting from higher general aviation, after-market and repair/overhaul sales.
Operating margins improved further, to 28.1% compared to 26.7% in the first
quarter of 1998. Order backlog decreased $46.1 million to $264.7 million.
Merchandising Systems sales and operating profit were both up 9%, to $50.3
million and $9.5 million, respectively. Driven by shipments of new Euro-capable
coin validators, NRI posted a 22% increase in sales and, due to lower costs, a
-8-
<PAGE>
Part I - Financial Information (Cont'd)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months Ended March 31, 1999 and 1998
79% increase in profit. National Vendors sales were up 7% due to higher
export demand and higher sales to the domestic distributor market, but operating
profit decreased versus the prior year's quarter due to investments in
marketing and new product development. Operating margins were strong at 18.9%
of sales, equal to the prior year. Order backlog decreased slightly from
last year, to $19.7 million.
Wholesale Distribution sales increased 16%, or $27.6 million, to $200.1 million
and operating profit increased 30%, or $1.3 million, to $5.7 million. This
strong result was due to Huttig, where sales were up 19%, or $27.9 million, and
operating profit was up 35%, or $1.0 million. These increases were due to
Huttig's acquisitions of Number One Supply and Consolidated Lumber in 1998 and
its focus on consolidating smaller, under-performing branches into larger,
profitable regional branches, as well as increasing sales of higher-margin
products throughout the company. Crane Supply's sales decreased slightly due to
negative currency fluctuations, however, operating profit measured in U.S.
dollars increased 11% as costs remained under control. Operating profit margins
improved to 2.9% of sales compared to 2.6% in 1998 with both Huttig and Crane
Supply improving.
Fluid Handling sales declined 11%, or $12.7 million, to $105.3 million.
Operating profit decreased 57%, or $5.1 million, to $3.8 million. These declines
were due to a 31% decline in Commercial bronze and iron valve shipments and a
26% decline in Cast Steel valve shipments. Commercial Valve's results were
caused by a lack of shippable bronze valve product in the U.S. and market
weakness in the U.K. Cast Steel's results were due to weak demand from the oil
and gas industry. Partially offsetting this, the Quarter Turn and Wafer Check
businesses achieved higher first quarter earnings and improved their operating
margins. The Nuclear business was strong, as the Liberty Technologies
acquisition (September 1998) was integrated with Crane's existing service
organization. Operating profit margins were 3.7% versus 7.6% in 1998. Overall
Fluid Handling order backlog totaled $79.0 million at March 31, 1999, versus
$115.5 million in 1998.
Crane Controls sales decreased 14%, or $4.8 million, to $30.2 million and
operating profit declined 80%, or $2.4 million, to $.6 million. All business
units except Dynalco, which benefited from the Liberty Technologies acquisition,
reported lower sales and operating profits as a result of continued weak demand
for their products from the oil and gas, chemical process and general industrial
markets. Operating profit margins declined to 1.9% of sales from 8.5% in the
first quarter of 1998. Order backlog slipped 4%, to $30.8 million.
During the quarter, the company repurchased 801,700 shares of its stock in the
open market at a total cost of $20.3 million. Also during the quarter, the
company increased its shelf registration for unsecured debt securities with the
U.S. Securities and Exchange Commission to $300 million.
Net interest expense for the quarter ended March 31, 1999 increased 21%, due to
acquisitions made in 1998.
The effective tax rate decreased to 35.5% for the three months ended March 31,
1999 as opposed to 36.2% at March 31, 1998.
-9-
<PAGE>
Part I - Financial Information (Cont'd)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months Ended March 31, 1999 and 1998
Liquidity and Capital Resources
During the three months of 1999 the company generated $50.0 million of cash
from operating activities, compared to $41.7 million in 1998.
Net debt totaled 36.7 percent of capital at March 31, 1999 compared to 31.6% in
1998. The current ratio was 2.0 with working capital totaling $352.3 million at
March 31, 1999 compared to 2.2 and $363.3 million at March 31, 1998. The company
had unused credit lines of $516.1 million at March 31, 1999.
Year 2000 Readiness
The Year 2000 issue relates to most computer software programs using two digits,
rather than four, to define the applicable year for dates. Any of the company's
information technology (IT) and non-information technology (non-IT) systems and
its products may recognize a date using "00" as the year 1900, rather than the
year 2000. This could result in system failures or miscalculations, causing
disruptions in operations, including the inability to process transactions and
engage in similar normal business activities within the company and with third
parties.
Crane has implemented a Year 2000 program for its IT and non-IT systems and its
products consisting of four phases: 1) awareness, formation, planning and
management, 2) inventory, analysis, compliance testing, prioritization and
planning, 3) implementation and validation, and 4) Year 2000 compliance. The
company's senior management and Board of Directors receive regular updates on
the status of the company's Year 2000 program.
In addition, the company has contacted significant vendors and customers in
order to determine the risks to the company for a third party's failure to
remediate its own Year 2000 issues. While information obtained from these
contacts will be used to mitigate these risks, there can be no assurance that
any third party systems or products will be Year 2000 compliant on a timely
basis or that non-compliance by such third parties will not have a material
adverse effect on the company.
The company's Year 2000 Program was initiated in 1997. Virtually all
mission-critical systems, including IT and non-IT systems, are in the
implementation phase or are compliant. Non mission-critical systems are in
various phases of the program. It is expected that all mission-critical systems
will be implemented, tested and validated by September of 1999.
Year 2000 costs incurred to date are approximately $21.3 million, of which $7.2
million was expensed and $14.1 million was capitalized. Estimated future costs
to complete the Year 2000 program are $7.1 million, of which $3.9 million will
be expensed as incurred and the remaining $3.2 million will be capitalized.
These costs have been, and will continue to be, funded from normal operating
cash flows of the business. No other information technology projects have been
or are being delayed by this program.
-10-
<PAGE>
Part I - Financial Information (Cont'd)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months Ended March 31, 1999 and 1998
The company believes that completed and planned modifications and conversions of
its software and hardware systems, its products and its efforts to verify the
readiness and compliance of material third parties will allow it to meet its
Year 2000 compliance schedule. However, the success of the Year 2000 compliance
program is based on the availability of a variety of technical experts, expected
successful software modifications being performed by third parties, timely
delivery of new software and hardware systems, and other factors. A deficiency
with respect to any of these factors could cause a failure in the company's Year
2000 program, in whole or in part. The failure to correct a material Year 2000
problem could result in an interruption in, or a failure of, certain normal
business activities or operations, which could have a material adverse effect on
the company's results of operations, liquidity or financial condition. Due to
the inherent uncertainty in the Year 2000 problem, particularly in regard to
third party vendor and customer Year 2000 readiness, the company is unable to
determine at this time whether the consequences of any Year 2000 disruptions or
failures will have a material adverse effect on the company's results of
operations, liquidity or financial condition. However, based on current
information, the most reasonably likely worst case scenario would involve the
temporary disruption of the company's ability to fulfill customer orders and no
material adverse effect on the company's financial condition is expected from
this specific scenario.
Part II - Other Information
Item 1. Legal Proceedings
There have been no material developments in any of the legal
proceedings described in the company's Annual Report on Form 10-K
for the year ended December 31, 1998.
Item 4. Submission of Matters to a vote of Security Holders
A) The Annual Meeting of shareholders was held on April 5, 1999.
B) The following two Directors were reelected to serve for three
years until the Annual Meeting of 2002.
Mr. E. Thayer Bigelow
Vote for - 60,555,469
Vote withheld - 653,792
Mr. Charles J. Queenan, Jr.
Vote for - 60,523,804
Vote withheld - 685,457
The following Director was newly elected to serve for
three years until the Annual Meeting of 2002.
Mr. John J. Lee
Vote for - 60,549,550
Vote withheld - 659,711
-11-
<PAGE>
Part II - Other Information (cont'd)
Item 4. Submission of Matters to a vote of Security Holders (cont'd)
C) The shareholders approved the selection of Deloitte & Touche
LLP as independent auditors for the company for 1999.
Vote for - 60,718,609
Vote against - 230,356
Abstained - 260,296
D) The shareholders approved the proposal to increase the
number of authorized shares of Common Stock to 200,000,000
from 80,000,000.
Vote for - 45,154,003
Vote against - 15,588,051
Abstained - 467,207
Item 6. Exhibits and Reports on Form 8-K
11. Computation of earnings per share for the quarters March 31,
1999 and 1998.
27. Article 5 of Regulation S-X Financial Data Schedule for the first
quarter.
-12-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CRANE CO.
REGISTRANT
Date May 14, 1999 By /s/ D.S. Smith
------------ --------------------------
D.S. SMITH
Vice President and Chief
Financial Officer
Date May 14, 1999 By /s/ M.L. Raithel
------------ --------------------------
M.L. RAITHEL
Controller
-13-
<PAGE>
<TABLE>
Crane Co. and Subsidiaries
Exhibit 11 to Form 10-Q
Computation of Net Income per Common Share
(In Thousands, Except Per Share Amounts)
<CAPTION>
Three Months Ended
March 31,
1999 1998
<S> <C> <C>
Basic Net Income Per Share:
Net Income $33,666 $29,899
======= =======
Average Basic Shares Outstanding 68,218 68,387
Basic Net Income Per Share $ .49 $ .44
======= =======
Diluted Net Income Per Share:
Net Income $33,666 $29,899
======= =======
Average Basic Shares Outstanding 68,218 68,387
Add Diluted Effect of Stock Options 563 921
------ ------
Average Diluted Shares Outstanding 68,781 69,308
======= =======
Diluted Net Income Per Share $ .49 $ .43
======= =======
</TABLE>
-14-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER>1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> Mar-31-1999
<CASH> 24,355
<SECURITIES> 0
<RECEIVABLES> 314,222
<ALLOWANCES> 6,805
<INVENTORY> 328,302
<CURRENT-ASSETS> 710,242
<PP&E> 639,462
<DEPRECIATION> 337,071
<TOTAL-ASSETS> 1,457,089
<CURRENT-LIABILITIES> 357,944
<BONDS> 353,808
<COMMON> 72,426
0
0
<OTHER-SE> 576,275
<TOTAL-LIABILITY-AND-EQUITY> 1,457,089
<SALES> 574,821
<TOTAL-REVENUES> 574,821
<CGS> 517,980
<TOTAL-COSTS> 517,980
<OTHER-EXPENSES> (1,907)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,553
<INCOME-PRETAX> 52,195
<INCOME-TAX> 18,529
<INCOME-CONTINUING> 33,666
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 33,666
<EPS-PRIMARY> .49
<EPS-DILUTED> .49
</TABLE>
