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, 2000
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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
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(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 office) (Zip Code)
(203) 363-7300
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(Registrant's telephone number, including area code)
(Not Applicable)
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(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
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The number of shares outstanding of the issuer's classes of common stock, as of
October 31, 2000:
Common stock, $1.00 Par Value - 60,377,782 shares
Part I - Financial Information
Item 1. Financial Statements
Crane Co. and Subsidiaries
Consolidated Statements of Income
(In Thousands, Except Per Share Amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
Net Sales $363,190 $384,193 $1,134,850 $1,189,507
Operating Costs and Expenses:
Cost of sales 245,231 270,683 749,371 797,344
Selling, general and
administrative 65,995 66,019 203,876 203,257
Depreciation and amortization 14,296 15,171 41,034 46,191
------- ------- ------- ---------
325,522 351,873 994,281 1,046,792
Operating Profit 37,668 32,320 140,569 142,715
Other Income (Expense):
Interest income 553 2,068 1,052 8,079
Interest expense (5,349) (6,068) (16,990) (21,339)
Miscellaneous - net 61 (15) 24,436 4,819
------- ------- ------- -------
(4,735) (4,015) 8,498 (8,441)
Income Before Taxes 32,933 28,305 149,067 134,274
Provision for Income Taxes 11,526 9,958 52,173 47,394
------ ------ ------ ------
Income from Continuing Operations 21,407 18,347 96,894 86,880
Income from Discontinued Operations - 4,008 - 8,452
-------- -------- -------- --------
Net Income $ 21,407 $ 22,355 $ 96,894 $ 95,332
======== ======== ======== ========
Basic Net Income Per Share:
Income from Continuing Operations $.35 $.27 $1.59 $1.28
Income from Discontinued Operations - .06 - .13
------ ------ ------ ------
Net Income $.35 $.33 $1.59 $1.41
====== ====== ====== ======
Average Basic Shares Outstanding 60,674 67,346 61,077 67,810
Diluted Net Income Per Share:
Income from Continuing Operations $.35 $.27 $1.57 $1.27
Income from Discontinued Operations - .06 - . 12
------ ------ ------ ------
Net Income $.35 $.33 $1.57 $1.39
====== ====== ====== ======
Average Diluted Shares Outstanding 61,168 67,853 61,540 68,370
Dividends Per Share $.10 $.10 $.30 $.30
See Notes to Consolidated Financial Statements
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Part I - Financial Information
Item 1. Financial Statements
Crane Co. and Subsidiaries
Consolidated Balance Sheets
(In Thousands, Except Share and Per Share Amounts)
(Unaudited)
September 30, December 31,
2000 1999 1999
---- ---- ----
Assets
Current Assets
Cash and cash equivalents $ 2,609 $ 15,013 $ 3,245
Accounts receivable 224,849 227,945 206,468
Inventories:
Finished goods 84,013 105,720 107,006
Finished parts and subassemblies 52,612 56,193 57,667
Work in process 28,489 27,252 23,471
Raw materials 69,933 71,351 71,330
------- ------- -------
235,047 260,516 259,474
Net Assets of Discontinued Operations - 142,954 -
Other Current Assets 38,827 37,764 35,973
------- ------- -------
Total Current Assets 501,332 684,192 505,160
Property, Plant and Equipment:
Cost 587,688 582,683 579,263
Less accumulated depreciation 343,286 322,542 322,614
------- ------- -------
244,402 260,141 256,649
Other Assets 37,579 30,876 45,771
Intangibles 40,486 44,741 43,796
Cost in excess of net assets acquired 322,593 308,626 329,321
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$1,146,392 $1,328,576 $1,180,697
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See Notes to Consolidated Financial Statements
-3-
Part I - Financial Information
Item 1. Financial Statements
Crane Co. and Subsidiaries
Consolidated Balance Sheets
(In Thousands, Except Share and Per Share Amounts)
(Unaudited)
September 30, December 31,
2000 1999 1999
---- ---- ----
Liabilities and Shareholders Equity
Current Liabilities
Current maturities of long-term debt $ 328 $ 429 $ 385
Loans payable 7,841 26,632 13,271
Accounts payable 90,059 93,569 87,611
Accrued liabilities 108,258 120,183 116,098
U.S. and foreign taxes on income 14,924 15,606 16,150
------- ------- -------
Total Current Liabilities 221,410 256,419 233,515
Long-Term Debt 252,784 313,209 286,772
Deferred Income Taxes 26,528 26,096 25,866
Other Liabilities 24,924 22,380 25,927
Accrued Postretirement Benefits 30,537 32,183 31,709
Accrued Pension Liability 11,054 3,570 8,798
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 98,289 96,262 98,289
Retained earnings 699,940 650,668 623,421
Accumulated other comprehensive loss (33,671) (18,835) (22,481)
Common stock held in treasury (257,829) (125,802) (203,545)
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Total Common Shareholders' Equity 579,155 674,719 568,110
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$1,146,392 $1,328,576 $1,180,697
========== ========== ==========
Common Stock Issued 72,426 72,426 72,426
Less Common Stock held in Treasury (12,075) (5,699) (9,624)
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Common Stock Outstanding 60,351 66,727 62,802
====== ====== ======
See Notes to Consolidated Financial Statements
-4-
Part I - Financial Information (Cont'd.)
Item 1. Financial Statements
Crane Co. and Subsidiaries
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
Nine Months Ended
September 30,
2000 1999
Operating activities:
Income from continuing operations $96,894 $86,880
Non-cash special charges - 16,299
Gain on sale of investments (28,418) (2,583)
Depreciation 27,996 27,699
Amortization 13,038 18,492
Deferred income taxes 719 2,247
Cash provided by (used for) operating working capital (14,036) 14,240
Other (2,531) (9,048)
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Total provided by Operating activities 93,662 154,226
Investing activities:
Capital expenditures (20,599) (21,542)
Purchase of investment - (2,029)
Sale of investments 45,556 5,361
Payments for acquisitions (8,500) -
Proceeds from divestitures - 447
Proceeds from disposition of capital assets 434 7,974
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Total provided by (used for) Investing activities 16,891 (9,789)
Financing activities:
Equity:
Dividends paid (18,286) (20,301)
Reacquisition of shares-open market (60,633) (47,415)
Reacquisition of shares-stock incentive programs (3,711) (756)
Stock options exercised 10,470 5,846
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Net equity (72,160) (62,626)
Debt
Proceeds from issuance of long-term debt 86,200 133,000
Repayments of long-term debt (115,195) (189,870)
Net decrease in short-term debt (9,519) (11,882)
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Net debt (38,514) (68,752)
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Total used for Financing activities (110,674) (131,378)
Cash Used in Discontinued Operations - (13,841)
Effect of exchange rate on cash and cash equivalents (515) (400)
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Decrease in cash and cash equivalents (636) (1,182)
Cash and cash equivalents at beginning of period 3,245 16,195
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Cash and cash equivalents at end of period $2,609 $15,013
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Detail of Cash Provided by (Used for) Operating Activities
Working capital:
Accounts receivable $(23,484) $ 7,322
Inventories 19,034 20,776
Other current assets (1,381) 6,601
Accounts payable 5,351 2,705
Accrued liabilities (10,626) (22,028)
U.S. and foreign taxes on income (2,930) (1,136)
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Total $(14,036) $14,240
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Supplemental disclosure of cash flow information:
Interest paid $17,493 $22,559
Income taxes paid 57,951 48,120
See Notes to Consolidated Financial Statements
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Part I - Financial Information (Cont'd.)
Notes to Consolidated Financial Statements (Unaudited)
1. The accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial reporting and the
instructions to Form 10-Q and, therefore reflect all adjustments which are,
in the opinion of management, necessary for a fair statement of the results
for the interim period presented. Certain prior period amounts have been
reclassified to conform to the 2000 presentation.
The Company began reporting its former Huttig Building Products subsidiary,
which was spun-off in December of 1999, as a discontinued operation in the
third quarter of 1999. 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".
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, 1999.
2. Net Sales, gross profit and operating profit by segment are as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
(In Thousands)
Net Sales:
Engineered Materials $ 81,358 $ 89,724 $ 270,998 $ 275,168
Merchandising 54,023 50,089 167,426 151,036
Aerospace 84,475 89,833 256,027 282,708
Fluid Handling 114,791 122,452 349,309 383,401
Crane Controls 29,364 30,115 93,587 91,261
Other - 3,149 - 9,669
Intersegment Elimination (821) (1,169) (2,497) (3,736)
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Total $363,190 $384,193 $1,134,850 $1,189,507
======== ======== ========== ==========
Gross Profit:
Engineered Materials $ 17,741 $ 22,471 $ 66,630 $ 70,481
Merchandising 16,593 19,098 56,365 58,369
Aerospace 36,176 33,397 111,880 123,414
Fluid Handling 25,787 17,608 83,967 72,164
Crane Controls 8,633 8,920 27,715 29,645
Other - (101) - 1,036
Corporate 70 (421) 63 (684)
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Total $105,000 $100,972 $346,620 $354,425
========== ======== ======== ========
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Part I - Financial Information (Cont'd.)
Notes to Consolidated Financial Statements (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
(In Thousands)
Operating Profit (Loss):
Engineered Materials $9,762 $14,799 $ 41,244 $ 46,090
Merchandising 6,428 10,007 24,994 30,787
Aerospace 19,393 16,246 61,616 71,166
Fluid Handling 6,282 (3,913) 23,780 6,137
Crane Controls (935) (631) (1,231) 1,180
Other - (156) - (435)
Corporate (3,324) (3,988) (9,851) (12,065)
Intersegment Elimination 62 (44) 17 (145)
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Total $37,668 $32,320 $140,569 $142,715
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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 $22.3 million at September 30, 2000, $27.5 million at
September 30, 1999, and $23.1 million at December 31, 1999.
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 $24.8 million at September 30, 2000, $21.1 million at
September 30, 1999 and $22.0 million at December 31, 1999
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 $72.7
million at September 30, 2000, $56.2 million at September 30, 1999 and
$60.1 million at December 31, 1999. In March of 2000, Streamware
Corporation was acquired. The cost in excess of net assets resulting from
this acquisition will be amortized over 15 years using the straight-line
method.
6. Miscellaneous Net
Included in this caption is a pre-tax gain from the sale of investments of
$28.4 million and $2.6 million for the nine months ended September 30,
2000 and 1999, respectively.
7. Total comprehensive income for the three and nine-month periods
ended September 30, 2000 and 1999 was as follows:
(In thousands) Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
Net Income $21,407 $22,355 $96,894 $95,332
Foreign currency translation adjustments (5,126) 3,402 (11,190) (799)
-------- ------- -------- --------
Comprehensive Income $16,281 $25,757 $85,704 $94,533
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-7-
Part I - Financial Information (Cont'd.)
Notes to Consolidated Financial Statements (Unaudited)
8. Special Charges
The pre-tax special charges of $35.0 million taken in 1999 were
principally for a series of actions to reduce the fixed cost base in
Engineered Materials, Aerospace, Fluid Handling and Controls by closing or
consolidating facilities, reducing staff, rationalizing product lines and
for other unusual items. In total, five manufacturing facilities have been
closed or ceased production. A summary of the liability balances included
in accrued liabilities relating to severance and facility closure costs at
September 30, 2000 is as follows:
Liability Liability
Balance at Balance at
December 31, September 30,
(In thousands) 1999 Deductions 2000
---- ----
Severance costs $1,327 $1,327 $ -
Facility closure costs 1,695 1,695 -
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Total $3,022 $3,022 $ -
====== ====== ====
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, 2000
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 10-Q, except to the extent that they contain
historical facts, are forward-looking and accordingly involve estimates,
assumptions, judgments and uncertainties. There are a number of factors that
could cause actual results or outcomes to differ materially from those addressed
in the forward-looking statements. Such factors are detailed in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1999 filed
with the Securities and Exchange Commission.
Results from Operations
Third Quarter of 2000 Compared to Third Quarter of 1999
Income from continuing operations for the third quarter was $21.4 million, or
$.35 per diluted share outstanding, compared with $18.3 million, or $.27 per
diluted share outstanding for the third quarter of 1999 (after special charges
of $18.4 million pre-tax, $11.9 million after-tax or $.18 per diluted share
outstanding in the third quarter of 1999).
-8-
Part I - Financial Information (Cont'd)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months Ended September 30, 2000
Operating profit for the third quarter was $37.7 million on sales of $363.2
million compared with $32.3 million (after special charges of $18.4 million in
the third quarter of 1999) on sales of $384.2 million in 1999. Operating profit
margins were 10.4% for the third quarter 2000 compared with 8.4% in the third
quarter 1999 (after special charges). Orders received during the third quarter
2000 increased over the orders received during the third quarter 1999 by $8.2
million, or 2%, to $394.7 million. Net sales from domestic businesses were 74%
of total net sales in 2000 compared with 73% in the same three-month period of
1999. Operating profit from domestic businesses was 85% and 91%(after special
charges) of total operating profit for 2000 and 1999, respectively. Operating
profit margins for domestic businesses were 11.4% in 2000 compared with 10.1% in
1999(after special charges). Operating profit margins for non-US businesses were
5.9% in 2000 versus 2.7% in 1999(after special charges).
Engineered Materials sales decreased by $8.4 million, or 9%, to $81.4 million
for the third quarter of 2000 compared with the third quarter of 1999. Operating
profit decreased $5.0 million, or 34%, to $9.8 million in 2000 versus $14.8
million in 1999 (after special charges of $.7 million in the third quarter of
1999). Operating profit margins for the segment declined to 12.0% compared with
16.5% in 1999 (after special charges). The decrease in results was driven by
Kemlite, which experienced a sales decline of $ 9.8 million, or 16%, to $51.0
million and an operating profit decline of $4.6 million, or 36%, to $8.1 million
for the quarter compared with the third quarter of 1999. Kemlite continues to be
adversely affected by the downturn in the transportation and recreational
vehicle markets and increased raw material costs. Order backlog decreased by
$5.5 million to $18.6 million from September 30, 1999.
Merchandising Systems sales increased by $3.9 million, or 8%, to $54.0 million
for the third quarter of 2000 compared with the third quarter of 1999. Operating
profit decreased $3.6 million, or 36%, to $6.4 million in 2000 versus $10.0
million in 1999. Operating profit margins for the segment were 11.9% in 2000
compared with 20.0% in 1999. National Vendors' sales increased $5.7 million, or
15%, to $44.5 million, with the 1999 Stentorfield acquisition contributing $7.9
million of this increase. National Vendors' operating profit decreased $3.1
million, or 40%, to $4.7 million. National Vendors' operating profit was
impacted by costs associated with production inefficiencies and the weakened
euro and British pound. NRI's (Germany) sales decreased by $1.8 million, or 16%,
to $9.5 million and operating profit decreased $.5 million, or 21%, to $1.9
million due to unfavorable U.S. dollar-to-euro exchange rates and delayed demand
for euro-based coin validators. Order backlog increased by $12.5 million to
$30.9 million from September 30, 1999.
Aerospace sales decreased by $5.4 million, or 6%, to $84.5 million for the third
quarter of 2000 compared with the third quarter of 1999. Operating profit
increased $3.2 million, or 19%, to $19.4 million in 2000 versus $16.2 million in
1999 (after special charges of $6.8 million in the third quarter of 1999).
Operating profit margins for the segment were 23.0% compared with 18.1% in 1999
(after special charges). Results were affected by lower sales volume in the
commercial aerospace market and Interpoint's power market. Interpoint is
experiencing production delays due to a customer-supplied design and shortages
of key electronic components. The overall stabilization of the aerospace markets
served by this segment is evidenced by the $45.9 million increase in order
backlog from September 30, 1999, to $297.8 million. ELDEC and Interpoint
contributed $32.3 million and $14.9 million of the increase, respectively.
-9-
Part I - Financial Information (Cont'd)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months Ended September 30, 2000
Fluid Handling sales declined $7.7 million, or 6%, to $114.8 million for the
third quarter of 2000 compared with the third quarter of 1999. Operating profit
increased $10.2 million to $6.3 million in 2000 versus a $3.9 million loss in
1999 (after special charges of $8.9 million in the third quarter of 1999).
Operating profit margins improved to 5.5% compared with (3.2%) in 1999 (after
special charges). On a comparable basis, Commercial Valves' operating profit
improved by $1.5 million to $1.1 million on a $6.3 million, or a 20%, sales
reduction to $25.5 million. Engineered Valves' operating profit, on a comparable
basis, increased $2.0 million to $1.7 million on a $4.1 million increase in
sales to $27.3 million as the result of increased shipments of high-margin
pressure-seal valves to the power generation market. The segment's backlog
decreased by $2.7 million to $87.7 million from September 30, 1999.
Controls sales decreased $.8 million, or 2%, to $29.4 million for the third
quarter of 2000 compared with the third quarter of 1999. Operating loss
increased $.3 million to a $.9 million loss in 2000 versus $.6 million loss in
1999 (after special charges of $1.6 million in the third quarter of 1999).
Operating profit margins were (3.2%) versus (2.1%) in 1999 (after special
charges). The bulk of the operating loss increase resulted from continuing
operational inefficiencies at Ferguson following consolidation of manufacturing
at its St. Louis facility. Order backlog decreased by $2.1 million to $27.6
million from September 30, 1999.
Nine Months Ended September 30, 2000 Compared to Nine Months Ended
September 30,1999
For the nine months ended September 30, 2000, income from continuing operations
was $96.9 million, or $1.57 per diluted share outstanding, compared with $86.9
million, or $1.27 per diluted share outstanding for the nine months ended
September 1999 (after special charges of $18.4 million pre-tax, $11.9 million
after-tax or $.18 per diluted share outstanding in the nine months ended
September 30, 1999). Included in the results for the nine-month period ended
September 30, 2000 were a non-operating gain from the sale of an investment and
non-operating expenses accounting for $.26 per diluted share as compared to a
non-operating gain of $.03 per diluted share for the nine months ended September
30,1999. Operating profit for the nine months ended September 30, 2000, was
$140.6 million on sales of $1.135 billion compared with $142.7 million (after
special charges) on sales of $1.190 billion in 1999. Operating profit margins
for the nine months ended September 30, 2000, were 12.4% compared with 12.0% for
the nine months ended September 30, 1999 (after special charges).
Orders continued to increase, improving by $54.8 million, or 5%, to $1.215
billion during the nine-month period ended September 30, 2000 over the same
period a year ago. Net sales from domestic businesses were 75% of total net
sales in 2000 compared with 74% in the same nine-month period of 1999. Operating
profit from domestic businesses was 87% and 92% (after special charges) of total
operating profit for 2000 and 1999, respectively. Operating profit margins for
domestic businesses were 13.9% in 2000 compared with 14.6% in 1999(after special
charges). Operating profit margins for non-US businesses were 6.1% in 2000
versus 3.5% (after special charges) in 1999.
-10-
Part I - Financial Information (Cont'd)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Nine Months Ended September 30, 2000
Engineered Materials sales decreased by 2%, or $4.2 million, to $271.0 million
versus the same nine-month period in 1999. Gross profit decreased 5% to $66.6
million for the nine-month period compared with 1999(after special charges).
Operating profit decreased 11%, or $4.8 million, to $41.2 million (after special
charges of $.7 million in the third quarter of 1999). Operating profit margins
for the segment decreased to 15.2% of sales compared to 16.8% in 1999(after
special charges) as a result of lower shipments at Kemlite and higher material
costs at Plumbing, Kemlite and Resistoflex, which offset improvement in
operating margins at Cortec.
Merchandising Systems sales increased 11%, or $16.4 million, to $167.4 million
for the nine-month period compared with the same period in 1999. Gross profit
decreased 3% to $56.4 million versus 1999. Operating profit decreased 19%, or
$5.8 million, to $25.0 million. Operating profit margins were 14.9% in 2000
compared with 20.4% in 1999, due to a brief strike during the first quarter at
National Vendors' St. Louis facility, higher shipping costs, lower results in
Europe and a favorable legal settlement of $1.3 million in 1999. In addition,
results in 2000 include costs related to National Vendors' acquisition of
Streamware Corporation in late March. National Vendors' sales increased $21.5
million, with the 1999 Stentorfield acquisition contributing $20.7 million of
the sales increase. NRI sales decreased 15%, or $5.1 million, due to an
unfavorable U.S. dollar to Euro exchange rate, and operating profit decreased
6%, or $.4 million, due to the lower sales volume.
Aerospace sales decreased by 9%, or $26.7 million, to $256.0 million compared
with 1999. Gross profit decreased 9% to $111.9 million versus the same
nine-month period of 1999(after special charges). Operating profit decreased
13%, or $9.5 million, to $61.6 million (after special charges of $6.8 million in
the third quarter of 1999). Operating profit margins were 24.1% compared to
25.2% in 1999 (after special charges). Sales were lower due to a slowdown in the
commercial transport aerospace market that began in the second half of 1999 and
lower shipments of standard and custom products at Interpoint. Operating profit
at ELDEC and Hydro-Aire was negatively impacted by lower commercial OEM and
aftermarket spares revenues while Interpoint's operating profit declined
compared with 1999 due to lower revenues.
Fluid Handling sales declined 9%, or $34.1 million, to $349.3 million for the
nine-month period compared with the same period in 1999. Gross profit increased
16% to $84.0 million versus 1999(after special charges). Operating profit
increased $17.6 million, to $23.8 million in 2000 (after special charges of $8.9
million in the third quarter of 1999). Operating profit margins for the segment
improved to 6.8% of sales compared to 1.6% in 1999 partially as a result of the
special charges and related actions taken in 1999. On a comparable basis,
Commercial Valves operating profit improved by $9.4 million on a 15%, or $14.1
million, sales reduction as this business returned to profitability and
operating margins improved to 4.9%. The sales decline resulted principally from
increased discipline in pricing and order acceptance. Pumps sales increased by
$.9 million, resulting in increased operating profit of $.1 million, while Crane
Supply's operating profit increased by 10%, or $.6 million, on a comparable
basis, on a 5% decrease in sales, due to cost efficiencies. Valve Services'
shipments decreased by $10.9 million and operating profit decreased by $.6
million due to a decline in nuclear services as a result of fewer extended
shutdowns and outages. Engineered Valves' operating profit increased $1.2
million on a $5.8 million decrease in sales, on a comparable basis, as the
result of increased shipments of
-11-
Part I - Financial Information (Cont'd)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Nine Months Ended September 30, 2000
higher-margin pressure seal valves to the power generation market and the
closure of a steel valve facility in the U.K, partially offset by lower
quarter-turn valve shipments.
Controls sales increased 3%, or $2.3 million, to $93.6 million for the nine
months ended September 30, 2000 versus the same period in 1999. Gross profit
decreased 7% to $27.7 million in 2000 compared with 1999(after special charges).
Operating profit decreased $2.4 million, to a loss of $1.2 million (after
special charges). Operating profit(loss) margins declined to (1.3%) versus 1.3%
in 1999(after special charges). Dynalco and Azonix achieved higher operating
profit, which was more than offset by declines at Ferguson resulting from
production problems caused by the integration of its Greenwood, Mississippi
production into its St. Louis facility.
Liquidity and Capital Resources
For the nine-month period ended September 30, 2000, the Company generated $93.7
million of cash from operating activities, versus $154.2 million in 1999. Net
debt totaled 30.8% of capital at September 30, 2000 compared with 32.5% at
September 30,1999. The current ratio at September 30, 2000 was 2.3 with working
capital totaling $279.9 million compared with 2.7 and $427.8 at September 30,
1999. The Company had unused credit lines of $450.5 million available at
September 30, 2000. During the first nine months of 2000, the Company paid $60.6
million for the repurchase of 2.9 million shares of Crane common stock at an
average price of $20.93 per share and $18.3 million for the payment of
dividends. Debt repayment totaled $38.5 million. Average diluted shares
outstanding decreased by 6.7 million from the third quarter of 1999 due to the
Company's share repurchases.
The Company's cash flows and earnings are subject to fluctuations from changes
in interest rates and foreign currency exchange rates. The Company manages its
exposures to these market risks through internally established policies and
procedures and, when deemed appropriate, through the use of interest rate swap
agreements and forward exchange contracts. Of the $253.1 million in long-term
debt outstanding at September 30, 2000, 78.6% was at fixed rates of interest
ranging from 6.75% to 8.50%. At September 30, 2000, no interest rate swap
agreements were outstanding and the amounts outstanding for forward exchange
contracts were not material. The Company does not enter into derivatives or
other financial instruments for trading or speculative purposes.
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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, 2000
New Accounting Pronouncements
In 1998, the Financial Accounting Standards Board (FASB) issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities" (FAS 133),
which establishes accounting and reporting standards for derivative instruments
and hedging activities. FAS 133 requires an entity to recognize all derivatives
as either assets or liabilities in the statement of financial position and
measure those instruments at fair value. In June 2000, the FASB issued Statement
No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities" (FAS 138), an amendment of FAS 133. Crane Co. historically has made
limited use of derivative instruments and financial hedges to reduce its
exposure to exchange rate risk on foreign source income and purchases. FAS 133
as amended under FAS 138 is effective for fiscal years beginning after December
15, 2000. The Company does not expect this statement to have a significant
impact on the results of operations or financial position and related disclosure
requirements.
In December 1999, the Securities and Exchange Commission staff released Staff
Accounting Bulletin No.101, "Revenue Recognition in Financial Statements," (SAB
101) which provides guidance on the recognition, presentation and disclosure of
revenue in financial statements. SAB 101B issued in June 2000 delayed the
effective date of SAB 101 to the fourth quarter of 2000. Crane Co. is required
to adopt SAB 101 in the fourth quarter of 2000 (retroactive to January 1, 2000).
Management does not expect SAB 101 to have a material effect on Crane Co.
financial position or results of operations and related disclosure requirements.
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, 1999.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
Exhibit 27. Article 5 of Regulation S-X Financial Data Schedule for the first
quarter.
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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 7, 2000 By /s/ M. L. Raithel
---------------- -------------------------------
M. L. Raithel
Vice President and Chief
Financial Officer
Date November 7, 2000 By /s/ T. M. Noonan
---------------- -------------------------------
T. M. Noonan
Vice President, Controller
and Chief Tax Officer
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