FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 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
October 31, 1999:
Common stock, $1.00 Par Value - 65,891,262 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 Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net Sales $384,193 $393,229 $1,189,507 $1,163,806
Operating Costs and Expenses:
Cost of sales 270,683 255,412 797,275 761,510
Selling, general and
Administrative 66,019 71,183 203,257 203,260
Depreciation and amortization 15,171 14,032 46,260 40,325
------- ------- --------- ---------
351,873 340,627 1,046,792 1,005,095
Operating Profit 32,320 52,602 142,715 158,711
Other Income (Expense):
Interest income 2,068 2,417 8,079 6,622
Interest expense (6,068) (7,142) (21,339) (19,335)
Miscellaneous - net (15) 46 4,819 (53)
------- ------- ------- --------
(4,015) (4,679) (8,441) (12,766)
Income Before Taxes 28,305 47,923 134,274 145,945
Provision for Income Taxes 9,958 16,253 47,394 51,396
------ ------ ------ ------
Income from Continuing Operations 18,347 31,670 86,880 94,549
Income from Discontinued Operations 4,008 5,105 8,452 8,683
------ ------ ------ ------
Net Income $ 22,355 $ 36,775 $ 95,332 $103,232
======== ======== ======== ========
Basic Net Income Per Share:
Income from Continuing Operations $.27 $.46 $1.28 $1.38
Income from Discontinued Operations .06 .08 .13 .13
Net Income $.33 $.54 $1.41 $1.51
Average Basic Shares Outstanding 67,346 68,670 67,810 68,543
Diluted Net Income Per Share:
Income from Continuing Operations $.27 $.46 $1.27 $1.36
Income from Discontinued Operations .06 .07 .12 .13
Net Income $.33 $.53 $1.39 $1.49
Average Diluted Shares Outstanding 67,853 69,407 68,370 69,415
Dividends Per Share $.10 $.10 $.30 $.27
See Notes to Consolidated Financial Statements
</TABLE>
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<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>
September 30, December 31,
1999 1998 1998
Assets
<S> <C> <C> <C>
Current Assets
Cash and cash equivalents $15,013 $ 17,377 $ 16,195
Accounts receivable 227,945 247,649 236,217
Inventories:
Finished goods 105,720 108,258 109,135
Finished parts and subassemblies 56,193 53,745 58,643
Work in process 27,252 45,683 36,571
Raw materials 71,351 88,156 82,865
------- ------- -------
260,516 295,842 287,214
Net Assets of Discontinued Operations 142,954 134,340 120,660
Other Current Assets 37,764 40,715 44,830
------- ------- -------
Total Current Assets 684,192 735,923 705,116
Property, Plant and Equipment:
Cost 582,683 564,559 574,329
Less accumulated depreciation 322,542 296,532 304,069
------- ------- -------
260,141 268,027 270,260
Other Assets 30,876 30,128 32,661
Intangibles 44,741 48,288 47,373
Cost in excess of net assets acquired 308,626 326,333 324,321
---------- ---------- ----------
$1,328,576 $1,408,699 $1,379,731
========== ========== ==========
See Notes to Consolidated Financial Statements
</TABLE>
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<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>
September 30, December 31,
1999 1998 1998
Liabilities and Shareholders Equity
<S> <C> <C> <C>
Current Liabilities
Current maturities of long-term debt $ 429 $ 481 $ 468
Loans payable 26,632 73,070 50,401
Accounts payable 93,569 104,184 87,665
Accrued liabilities 120,183 125,082 129,795
U.S. and foreign taxes on income 15,606 22,311 16,967
------- ------- -------
Total Current Liabilities 256,419 325,128 285,296
Long-Term Debt 313,209 382,221 357,710
Deferred Income Taxes 26,096 24,122 26,289
Other Liabilities 22,380 28,356 27,735
Accrued Postretirement Benefits 32,183 33,949 33,512
Accrued Pension Liability 3,570 6,540 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
200,000,000 shares authorized,
72,426,139 shares issued
Capital surplus 96,262 89,624 96,262
Retained earnings 650,668 545,152 574,797
Accumulated other comprehensive income (loss) (18,835) (20,677) (18,036)
Common stock held in treasury (125,802) (78,142) (82,215)
-------- ------- -------
Total Common Shareholders Equity 674,719 608,383 643,234
---------- ---------- ----------
$1,328,576 $1,408,699 $1,379,731
========== ========== ==========
Common Stock Issued 72,426 72,426 72,426
Less Common Stock held in Treasury (5,699) (3,801) (3,930)
------ ------ ------
Common Stock Outstanding 66,727 68,625 68,496
====== ====== ======
See Notes to Consolidated Financial Statements
</TABLE>
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<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>
Nine Months Ended
September 30,
1999 1998
<S> <C> <C>
Cash flows from Operating activities:
Income from Continuing Operations $86,880 $94,549
Special Charges 16,299 -
Depreciation 27,699 25,943
Amortization 18,561 14,382
Deferred income taxes 2,247 (169)
Cash provided by (used for) operating working capital 14,240 (7,015)
Other (9,897) (219)
------- -------
Total provided by operating activities 156,029 127,471
Cash flows used for Investing activities:
Capital expenditures (21,542) (39,235)
Purchase of equity investment (2,029) -
Sale of equity investment 5,361 -
Payments for acquisitions - (178,763)
Proceeds from disposition of capital assets 6,618 5,007
-------- ---------
Total used for investing activities (11,592) (212,991)
Cash flows (used for) provided by Financing activities:
Equity:
Dividends paid (20,301) (18,331)
Reacquisition of shares-open market (47,415) (6,323)
Reacquisition of shares-stock incentive programs (756) (10,922)
Stock options exercised 5,846 8,633
-------- --------
Net equity (62,626) (26,943)
Debt
Proceeds from issuance of long-term debt 133,000 142,580
Repayments of long-term debt (189,870) (5,358)
Net decrease in short-term debt (11,882) 28,439
-------- -------
Net debt (68,752) 165,661
--------- -------
Total (used for) provided by financing activities (131,378) 138,718
Cash Used in Discontinued Operations (13,841) (45,061)
Effect of exchange rate on cash and cash equivalents (400) 718
------- -----
Increase (decrease) in cash and cash equivalents (1,182) 8,855
Cash and cash equivalents at beginning of period 16,195 8,522
------- -------
Cash and cash equivalents at end of period $15,013 $17,377
======= =======
Detail of Cash Provided by (Used for) Operating Activities
Working capital:
Accounts receivable $ 7,322 $(11,615)
Inventories 20,776 (18,544)
Other current assets 6,601 4,383
Accounts payable 2,705 3,232
Accrued liabilities (22,028) 4,992
U.S. and foreign taxes on income (1,136) 10,537
------- --------
Total $14,240 $(7,015)
======= ========
Supplemental disclosure of cash flow information:
Interest paid $22,559 $17,921
Income taxes paid 48,120 43,388
See Notes to Consolidated Financial Statements
</TABLE>
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<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.
As explained in the Management's Discussion and Analysis of Financial
Condition section, the company began reporting its Huttig Building
Products subsidiary as a discontinued operation this quarter. In this
accounting treatment, the total net assets of Huttig are shown on the
balance sheet as "net assets of discontinued operations", and on the
statement of operations only the net income of Huttig is shown, as
"income from discontinued operations". Prior year amounts have been
reclassed to conform to this treatment.
Theseinterim consolidated financial statements should be read in
conjunction with the Consolidated Financial Statements and Notes to
Consolidated Financial Statements in the companys 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 Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
(In Thousands)
Net Sales:
Fluid Handling $122,452 $135,344 $383,401 $416,743
Aerospace 89,833 102,458 282,708 297,410
Engineered Materials 89,724 72,992 275,168 198,373
Crane Controls 30,115 32,294 91,261 102,514
Merchandising Systems 50,089 49,039 151,036 145,052
Other 3,149 3,108 9,669 9,984
Intersegment Elimination (1,169) (2,006) (3,736) (6,270)
-------- -------- ---------- ----------
Total $384,193 $393,229 $1,189,507 $1,163,806
======== ======== ========== ==========
Operating Profit (Loss):
Fluid Handling $(3,913) $ 4,736 $6,137 $ 24,024
Aerospace 16,246 31,680 71,166 88,212
Engineered Materials 14,799 10,979 46,090 28,224
Crane Controls (631) 2,277 1,180 8,254
Merchandising Systems 10,007 8,244 30,787 26,655
Other (156) (212) (435) (438)
Corporate (3,988) (5,117) (12,065) (16,223)
Intersegment Elimination (44) 15 (145) 3
------- ------- -------- --------
Total $32,320 $52,602 $142,715 $158,711
======= ======= ======== ========
</TABLE>
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<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 $27.5 million at
September 30, 1999, $28.8 million at September 30, 1998, and $27.5
million at December 31, 1998.
4. Intangibles Intangible assets are amortized on a straight-line basis
over their estimated useful lives, which range from five to twenty
years. Accumulated amortization was $22.9 million at September 30,
1999, $19.6 million at September 30, 1998 and $20.2 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 $56.4 million at September 30,
1999, $40.1 million at September 30, 1998 and $44.6 million at
December 31, 1998.
6. Total comprehensive income for the three and nine-month periods ended
September 30, 1999 and 1998 was as follows:
<TABLE>
<CAPTION>
(In thousands) Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net Income $22,355 $36,775 $95,332 $103,232
Other comprehensive income, net of tax
Foreign currency translation adjustments 3,402 164 (799) (4,127)
------- ------- ------- -------
Comprehensive Income $25,757 $36,939 $94,533 $99,105
======= ======= ======= =======
</TABLE>
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<PAGE>
Part I - Financial Information (Cont'd)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months Ended September 30, 1999
This 10Q may contain forward-looking statements as defined by the Private
Securities Litigation Reform Act of 1995. These statements present managements
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
Third Quarter of 1999 Compared to Third Quarter of 1998
Net income for the quarter ended September 30, 1999 was $22.4 million, or $.33
per diluted share outstanding (after a special charge of $18.4 million pre-tax
($11.9 million after-tax) or $.18 per diluted share outstanding) compared to
$36.8 million, or $.53 per diluted share outstanding, for the third quarter of
1998. Operating profit for the third quarter was $32.3 million (after the
special charge) versus $52.6 million in 1998 on a sales decrease of 2%.
Operating margins were 8.4% (13.2% before the special charge) compared to 13.4%
in the third quarter of 1998.
Engineered Materials sales increased by 23%, or $16.7 million, to $89.7 million.
Operating profit increased 41% to $15.4 million from the third quarter of 1998
before a special charge of $.7 million. The improved results were due to strong
growth in Kemlite's transportation, recreational vehicle and building products
markets, the Plastic Lined Pipe and Sequentia acquisitions completed in the
third quarter of 1998, and continued operational improvement at Resistoflex and
Crane Plumbing. Before the special charge, operating profit margins increased to
17.2% of sales compared to 15.0% in 1998. Order backlog increased $.2 million
from June 30, 1999, to $24.1 million.
Merchandising Systems sales increased 2%, from $49.0 million to $50.1 million,
and operating profit increased 21%, from $8.2 million to $10.0 million,
respectively. NRI's 13% sales increase and near doubling in operating profit
were driven by high demand for its new Euro-capable coin validators and four
tube coin changer. National Vendors sales were flat but operating profit
increased by 11%. Operating margins increased to 20.0% of sales compared to
16.8% in 1998. Order backlog declined $3.2 million from June 30,1999, to $18.1
million.
Aerospace sales decreased 12%, or $12.6 million, to $89.8 million in the quarter
with all businesses except Lear Romec being negatively impacted by slowing
aerospace markets. Before the special charge of $6.7 million (which included $3
million in warranty costs), operating profit decreased 27%, or $8.7 million, to
$23.0 million, with Hydro-Aire and ELDEC results being negatively affected by
lower commercial OEM and aftermarket revenues. Operating margins before the
special charge were 25.6% of sales, compared to 30.9% in the third quarter of
1998. It is expected that $7.1 million will be saved annually in payroll costs
as a result of the restructuring actions taken this quarter. Order backlog
increased $1.1 million from June 30,1999, to $252.0 million.
-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 September 30, 1999
Fluid Handling sales declined 10%, or $12.9 million, to $122.5 million. Before a
special charge for restructuring of $8.8 million, which is expected to generate
annual savings of $4.4 million, operating profit increased slightly to $4.9
million from $4.7 million in 1998. This segment remains weak with a 40% decrease
in Cast Steel valve shipments, a 33% decrease in Quarter Turn valves and a 28%
decrease of Wafer Check valve sales, due to continued weak demand from the oil
and gas industry and in Asian markets. Partially offsetting these declines,
Crane Nuclear, Cochrane and Crane Supply achieved higher third quarter operating
profits. Crane Supply is now reported as part of the Fluid Handling segment in
recognition of the nature of its product line and its close alignment with the
rest of that segment's businesses. Before the restructuring charge, operating
profit margins were 4.0% versus 3.5% in 1998. Overall Fluid Handling order
backlog $90.4 million at September 30, 1999.
Crane Controls sales decreased 7%, or $2.2 million, to $30.1 million. Before a
special charge for restructuring of $1.6 million, which will reduce costs $.9
million annually, operating profit declined 56%, or $1.3 million, to $1.0
million. All business units except Barksdale had lower operating profit as a
result of continued weak demand for their products from the oil and gas,
chemical process and general industrial markets. Operating profit margins before
the special charge declined to 3.4% of sales from 7.1% in the third quarter of
1998. Order backlog increased $1.2 million from June 30, 1999, to $29.7 million.
During the quarter, the company took a special charge of $18.4 million pre-tax
($11.9 million after tax), principally for a series of actions to close and
consolidate 5 facilities, reduce staff, and to rationalize product lines in the
Fluid Handling, Aerospace and Control businesses. These actions are expected to
improve annual operating results by $12.6 million when fully implemented. Of the
$18.4 million charge, $9.8 million are cash expenditures and $8.6 million
relates to non-cash asset write-offs. Additional charges are expected in the
fourth quarter of 1999 to complete these actions.
As previously announced the Company intends to spin-off its Huttig Building
Products subsidiary by year-end. On October 20, 1999, Crane announced the
execution of a Share Exchange Agreement whereby, immediately after being
spun-off, Huttig would acquire Rugby USA, the building products distribution
business of U.K. based Rugby PLC, for 32% of the outstanding stock of Huttig.
Crane is seeking confirmation in a ruling from the Internal Revenue Service that
the spin-off of Huttig will be treated as a tax-free transaction to the Company
and its shareholders. When this ruling is received, as anticipated, the
transactions will be completed and Huttig Building Products is expected to trade
on the New York Stock Exchange before the end of the year, with Crane
shareholders owning 68% of the new company. Additional information about the
spin-off and acquisition can be found in the amended Form 10 filed by Huttig
with the Securities and Exchange Commission. As a result of these plans, Crane
began reporting Huttig as a discontinued operation this quarter. In this
accounting treatment the total net assets of Huttig are shown on the balance
sheet as "net assets of discontinued operations", and on the statement of
operations only the net income of Huttig is shown as "income from discontinued
operations". Huttig contributed earnings of $4.0 million or $.06 per diluted
share outstanding in the quarter compared to $5.1 million and $.07 per share
last year. For the nine months this contribution was $8.5 million or $.12 per
diluted share outstanding compared to $8.7 million and $.13 per share last year.
During the quarter, the company reduced net debt by $24.8 million and net
interest expense by 14% due to these decreased debt levels.
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<PAGE>
Part I - Financial Information (Cont'd)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Nine Months Ended September 30, 1999
Nine Months Ended September 30,1999 Compared to Nine Months Ended September
30,1998
For the nine months ended September 30, 1999, net income decreased 8% (net
income before the special charge of $11.9 million (after tax) increased 4%) to
$95.3 million, or $1.39 per diluted share outstanding ($1.57 without the special
charge), from the $103.2 million, or $1.49 per diluted share outstanding, in the
comparable 1998 period. Operating profit for the nine months decreased 10% to
$142.7 million on a sales increase of 2% to $1.2 billion. Cash flow (net income
plus depreciation and amortization) per diluted share was $2.07, the same as in
1998.
Engineered Materials sales increased by 39%, or $76.8 million, to $275.2 million
and operating profit increased 66% to $46.7 million before a special charge of
$.7 million, versus the same nine month period in 1998 with the Sequentia and
Plastic-Lined Piping Products acquisitions contributing to these increases.
Kemlite's transportation, recreational vehicle and building products markets
continued their strong growth, with sales up 14% and operating profit up 50%
over 1998. Operating profit margins increased to 17.0% of sales before the
special charge, compared to 14.2% in 1998.
Merchandising Systems sales increased 4%, from $145.1 million to $151.0 million,
and operating profit increased 16%, from $26.7 million to $30.8 million,
respectively. Driven by high demand for its new Euro-capable coin validators and
four tube coin changer, NRI posted a 16% increase in sales and, combined with
lower costs, a 52% increase in operating profit. National Vendors sales
increased 2% compared to last year's level and operating profit increased by 1%
as the company continued to invest in new product development. Operating margins
increased to 20.4% of sales compared to 18.4% in 1998.
Aerospace sales decreased 5%, or $14.7 million, to $282.7 million during the
nine-month period with the segment being negatively impacted by reduced
commercial, after-market, government and military aerospace sales. Also, sales
decreased due to lower shipments at Interpoint. Operating profit before a
special charge of $6.7 million (which included $3.0 million of warranty costs)
decreased 12%, or $10.3 million, to $77.9 million, due to the lower sales
volumes mentioned above. Operating margins before the special charge were 27.6%
of sales, compared to 29.7% in the same nine-month period of 1998.
Fluid Handling sales declined 8%, or $33.3 million, to $383.4 million. Operating
profit before a special charge of $8.8 million decreased 38% to $15.0 million.
These declines were due continued weak demand at the Commercial Valve, Cast
Steel and Quarter Turn businesses. Crane Pumps and Systems sales were in line
with last year but operating profit decreased due to competitive conditions.
Partially offsetting this, Crane Nuclear and Crane Supply increased sales and
achieved higher operating profits. Operating profit margins were 3.9% before the
special charge, versus 5.8% in 1998.
Crane Controls sales decreased 11%, or $11.3 million, to $91.3 million and
operating profit before a special charge of $1.6 million declined 66%, or $5.4
million, to $2.8 million. All business units except Dynalco reported lower sales
and all had lower 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 before the special charge declined to 3.1% of
sales from 8.1% compared to 1998.
Net interest expense for the nine months ended September 30, 1999 increased 4%,
due to increased financing costs for acquisitions made in 1998. Miscellaneous
net income of $4.8 million consisted of gains from the sale of land and equity
investments in the first nine months of 1999.
The effective tax rate increased to 35.3% for the nine months ended September
30, 1999 compared to 35.2% at September 30, 1998.
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<PAGE>
Part I - Financial Information (Cont'd)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Nine Months Ended September 30, 1999
Liquidity and Capital Resources
During the nine months of 1999 the company generated $156.0 million of cash from
operating activities, compared to $127.5 million in 1998.
Net debt totaled 32.5% of capital at September 30, 1999 compared to 41.9% in
1998. The current ratio was 2.7 with working capital totaling $427.8 million at
September 30, 1999 compared to 2.3 and $410.8 million at September 30, 1998. The
company had unused credit lines of $403.2 million at September 30, 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. Substantially all
mission-critical systems, including IT and non-IT systems, are compliant. Non
mission-critical systems are in various phases of completion and an immaterial
amount of work on them is expected to continue into the year 2000. The companys
business units substantially completed the Year 2000 implementation phase on
schedule in the third quarter. The company continues to address supply chain
issues, develop Year 2000 contingency plans in identified areas and make
preparations for the January 1st transition.
Year 2000 costs incurred to date are approximately $27.5 million, of which $9.6
million was expensed and $17.9 million was capitalized. Estimated future costs
to complete the Year 2000 program are $.8 million, of which $.4 million will be
expensed as incurred and the remaining $.4 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.
The company believes that 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
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<PAGE>
Part I - Financial Information (Cont'd)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Nine Months Ended September 30, 1999
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
Therehave been no material developments in any of the legal proceedings
described in the company's Annual Report on Form 10-K for the year
ended December 31, 1998.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27. Article 5 of Regulation S-X Financial Data Schedule for the third quarter.
(b) Report on Form 8-K:
On October 21, 1999, the Company filed a Current Report on Form 8-K,
reporting on Item 5 thereof, the unaudited pro forma consolidated
balance sheet of the Registrant as of June 30, 1999 and the unaudited
pro forma consolidated statements of income for the six-month period
ended June 30, 1999 and for the year ended December 31, 1998. These
pro forma financial statements reflect the pro forma impact of the
anticipated Huttig Building Products, Inc. spin-off.
-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 November 15, 1999 By /s/ D.S. Smith
D.S. SMITH
Vice President and Chief
Financial Officer
Date November 15, 1999 By /s/ M.L. Raithel
M.L. RAITHEL
Vice President and Controller
-13-
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