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, 2001
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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, 2001:
Common stock, $1.00 Par Value - 59,666,799 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,
2001 2000 2001 2000
---- ---- ---- ----
<s> <c> <c> <c> <c>
Net Sales $426,212 $363,093 $1,214,529 $1,134,850
Operating Costs and Expenses:
Cost of sales 282,714 245,043 799,109 749,292
Selling, general and
Administrative 79,306 65,995 223,027 203,876
Depreciation and amortization 17,268 14,375 52,947 41,113
-------- -------- -------- --------
379,288 325,413 1,075,083 994,281
Operating Profit 46,924 37,680 139,446 140,569
Other Income (Expense):
Interest income 407 276 880 1,052
Interest expense (5,985) (5,077) (15,915) (16,990)
Miscellaneous - net (14,598) 55 (16,522) 24,436
-------- -------- -------- --------
(20,176) (4,746) (31,557) 8,498
Income Before Taxes 26,748 32,934 107,889 149,067
Provision for Income Taxes 8,879 11,525 37,278 52,173
-------- -------- -------- --------
Net Income $17,869 $21,409 $70,611 $96,894
========= ========= ========= ========
Basic Net Income Per Share:
Net Income $.30 $.35 $1.18 $1.59
====== ====== ======= ======
Average Basic Shares Outstanding 59,656 60,674 59,868 61,077
Diluted Net Income Per Share:
Net Income $.30 $.35 $1.17 $1.57
====== ====== ======= ======
Average Diluted Shares Outstanding 60,475 61,168 60,306 61,540
Dividends Per Share $.10 $.10 $.30 $.30
See Notes to Consolidated Financial Statements
-2-
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,
2001 2000 2000
---- ---- ----
Assets
<s> <c> <c> <c>
Current Assets
Cash and cash equivalents $ 20,927 $ 2,609 $ 10,926
Accounts receivable 281,728 224,849 209,817
Inventories:
Finished goods 82,742 84,013 87,118
Finished parts and subassemblies 52,064 52,612 53,361
Work in process 34,755 28,489 24,749
Raw materials 91,761 69,933 71,101
-------- -------- --------
263,322 235,047 236,329
Other Current Assets 59,976 38,827 43,080
-------- -------- --------
Total Current Assets 625,953 501,332 500,152
Property, Plant and Equipment:
Cost 635,539 587,688 589,433
Less accumulated depreciation 378,537 343,286 343,322
--------- --------- --------
257,002 244,402 246,111
Other Assets 64,268 37,579 39,116
Intangibles 34,546 40,486 39,599
Cost in excess of net assets acquired 398,034 322,593 318,873
--------- --------- --------
$1,379,803 $1,146,392 $1,143,851
============ ============ ==========
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,
2001 2000 2000
---- ---- ----
Liabilities and Shareholders Equity
<s> <c> <c> <c>
Current Liabilities
Current maturities of long-term debt $ 375 $ 328 $ 326
Loans payable 9,376 7,841 14,532
Accounts payable 99,288 90,059 92,249
Accrued liabilities 144,310 108,258 104,361
U.S. and foreign taxes on income 36,499 14,924 20,509
-------- -------- --------
Total Current Liabilities 289,848 221,410 231,977
Long-Term Debt 352,289 252,784 213,790
Deferred Income Taxes 28,377 26,528 28,386
Other Liabilities 23,019 24,924 22,746
Accrued Postretirement Benefits 27,989 30,537 29,653
Accrued Pension Liability 18,574 11,054 10,536
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 101,144 98,289 101,144
Retained earnings 776,220 699,940 720,864
Accumulated other comprehensive loss (30,043) (33,671) (31,096)
Common stock held in treasury (280,040) (257,829) (256,575)
--------- --------- ---------
Total Common Shareholders' Equity 639,707 579,155 606,763
--------- --------- --------
$1,379,803 $1,146,392 $1,143,851
=========== =========== ==========
Common Stock Issued 72,426 72,426 72,426
Less Common Stock held in Treasury (12,759) (12,075) (12,000)
-------- -------- --------
Common Stock Outstanding 59,667 60,351 60,426
=========== ========== ==========
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,
2001 2000
---- ----
<s> <c> <c>
Operating activities:
Net income $70,611 $96,894
Gain on sale of investments - (26,646)
Depreciation and amortization 51,783 41,113
Non-cash special charges - stock based retirement costs 6,132 -
Deferred income taxes 1,670 719
Cash provided from (used for) operating working capital 12,882 (14,036)
Other 1,197 (4,382)
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Total provided from Operating activities 144,275 93,662
Investing activities:
Capital expenditures (27,168) (20,599)
Payments for acquisitions (181,483) (8,500)
Equity investment in joint venture (12,000) -
Proceeds from sale of investments - 45,556
Proceeds from disposition of capital assets 7,843 434
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Total (used for)provided from Investing activities (212,808) 16,891
Financing activities:
Equity:
Dividends paid (17,950) (18,286)
Reacquisition of shares-open market (28,434) (60,633)
Reacquisition of shares-stock incentive programs (2,226) (3,711)
Stock options exercised 8,610 10,470
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Net equity (40,000) (72,160)
Debt
Proceeds from issuance of long-term debt 186,401 86,200
Repayments of long-term debt (55,127) (115,195)
Net decrease in short-term debt (13,422) (9,519)
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Net debt 117,852 (38,514)
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Total provided from (used for) Financing activities 77,852 (110,674)
Effect of exchange rate on cash and cash equivalents 682 (515)
-------- --------
Increase (decrease) in cash and cash equivalents 10,001 (636)
Cash and cash equivalents at beginning of period 10,926 3,245
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Cash and cash equivalents at end of period $ 20,927 $2,609
======== =======
Detail of Cash Provided from (Used for) Operating activities
Working capital:
Accounts receivable $(26,384) $(23,484)
Inventories 12,165 19,034
Other current assets 199 (1,381)
Accounts payable (4,690) 5,351
Accrued liabilities 15,636 (10,626)
U.S. and foreign taxes on income 15,956 (2,930)
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Total $12,882 $(14,036)
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Supplemental disclosure of cash flow information:
Interest paid $16,247 $17,493
Income taxes paid 19,771 57,951
See Notes to Consolidated Financial Statements
-5-
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 2001 presentation.
Theseinterim 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, 2000.
2. Net Sales, gross profit, operating profit and amortization of goodwill by
segment are as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
---- ---- ---- ----
<s> <c> <c> <c> <c>
(In Thousands)
Net Sales:
Engineered Materials $ 75,569 $ 81,378 $233,154 $270,998
Merchandising 55,392 53,917 167,216 167,426
Aerospace 101,437 84,475 305,546 256,027
Fluid Handling 168,696 114,756 425,820 349,309
Crane Controls 25,802 29,363 84,916 93,587
Other - - - -
Intersegment Elimination (684) (796) (2,123) (2,497)
--------- ---------- ----------- ----------
Total $426,212 $363,093 $1,214,529 $1,134,850
========= ========== =========== ==========
Gross Profit:
Engineered Materials $ 16,354 $ 17,740 $ 52,884 $ 66,630
Merchandising 17,229 16,589 53,779 56,365
Aerospace 45,906 36,204 137,002 111,880
Fluid Handling 43,028 25,720 108,695 83,562
Crane Controls 8,217 8,641 27,077 27,715
Other - - - -
Corporate (420) 8 (1,349) 64
--------- ---------- ----------- ----------
Total $130,314 $104,902 $378,088 $346,216
========= ========== =========== ==========
Operating Profit:
Engineered Materials $8,724 $9,762 $ 28,968 $ 41,244
Merchandising 6,479 6,427 21,642 24,994
Aerospace 25,710 19,402 77,071 61,616
Fluid Handling 11,441 6,348 31,146 23,780
Crane Controls 27 (932) 1,079 (1,231)
Other - - - -
Corporate (5,457) (3,327) (20,460) (9,834)
--------- ---------- ----------- ----------
Total $46,924 $37,680 $139,446 $140,569
========= ========== =========== ==========
-6-
Part I - Financial Information (Cont'd.)
Three Nine
Months Months
Ended Ended
9/30/2001 9/30/2001
(In Thousands)
Goodwill Amortization:
Engineered Materials $ 1,602 $ 4,803
Merchandising 710 2,129
Aerospace 685 2,057
Fluid Handling 1,099 2,918
Crane Controls 475 1,422
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Total $4,571 $13,329
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Notes to Consolidated Financial Statements (Unaudited)
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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 $20.3 million at September 30, 2001, $22.3 million at
September 30, 2000, and $21.4 million at December 31, 2000.
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 $23.4 million at September 30, 2001, $25.8 million at
September 30, 2000 and $25.4 million at December 31, 2000. At September 30,
2001 $5.0 million of intangible assets were written off as part of the sale
of Powers Process Controls.
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 $82.8 million
at September 30, 2001, $66.2 million at September 30, 2000 and $69.5
million at December 31, 2000. In February of 2001, Ventech Controls, Inc
and Laminated Profiles Ltd. were acquired. In April and June 2001, the
Industrial Flow Group of Alfa Laval AB and Xomox valve business,
respectively, were acquired. Preliminary estimates of cost in excess of net
assets acquired recorded relating to these 2001 acquisitions totaled
approximately $90 million.
6. Total comprehensive income for the three-month and nine-month period
ended September 30, 2001 and 2000 was as follows:
(In thousands) Three Months Ended Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
---- ---- ---- ----
<s> <c> <c> <c> <c>
Net Income $17,869 $21,409 $70,611 $96,894
Foreign currency translation adjustments 9,610 (5,126) 1,053 (11,190)
------- ------- ------- -------
Comprehensive Income $27,479 $16,283 $71,664 $85,704
======= ======= ======= =======
-7-
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, 2001
This 10-Q 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, 2000 filed
with the Securities and Exchange Commission.
Results from Operations
Third Quarter of 2001 Compared to Third Quarter of 2000
Net income for the third quarter of 2001 was $26.4 million or $.44 per
share (excluding a loss on disposal of a business of $8.5 million or $.14 per
share), compared with $21.4 million or $.35 per share for the third quarter of
2000.
Operating profit for the third quarter of 2001 increased 25% to $46.9
million on sales of $426.2 million compared with $37.7 million on sales of
$363.1 million for the third quarter of 2000. Operating profit margins were
11.0% for the third quarter of 2001 compared with 10.4% for the third quarter of
2000.
Business Disposals
On September 28, 2001 the Company sold Powers Process Controls for its
carrying value.
The Company has also sold its Canadian Crane Plumbing business recording an
after-tax loss of approximately $8.5 million from this transaction in the third
quarter 2001. Other current assets include $20.5 million of assets held for
disposition because this transaction was not closed until October 2001.
Both Powers Process Controls and Crane Plumbing were not considered
strategic core businesses.
Joint Venture
During the third quarter of 2001, Emerson Electric Co. and Crane announced
the formation of a joint venture involving Emerson's Commercial Cam unit and
Crane's Ferguson business unit. Emerson and Crane contributed their respective
operations into a new company, Industrial Motion Control Holdings, LLC. Crane
also contributed $12 million of cash into the venture. The new company will
continue to go to market under the CAMCO and Ferguson brand names. The
Ferguson/Camco joint venture will be accounted for on the equity basis.
Acquisitions
During the third quarter of 2001 the Company acquired Resistoflex GmbH and
the aerospace hose product line of Teleflex Fluid Systems in transactions
totaling approximately $11 million. Resistoflex GmbH is a manufacturer of
Teflon-lined piping products serving the chemical and pharmaceutical markets in
Europe. The hose product line will be integrated into Crane Resistoflex's
Jacksonville, Florida facility during the fourth quarter of 2001.
-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, 2001
Aerospace sales increased $17.0 million or 20% to $101.4 million for the
third quarter of 2001 compared with the third quarter of 2000. Operating profit
increased $6.3 million or 33% to $25.7 million in the third quarter of 2001
versus $19.4 million in the third quarter of 2000. Operating profit margins were
25.3% in the third quarter of 2001 compared with 23.0% in the third quarter of
2000 due to increased high margin aftermarket sales. Interpoint benefited from
increased higher-margin power product sales.
Engineered Materials sales decreased $5.8 million or 7% to $75.6 million
for the third quarter of 2001 compared with the third quarter of 2000 primarily
due to the soft transportation market for Kemlite and the weak chemical
processing market for Resistoflex. Segment operating profit decreased $1.1
million, or 11%, to $8.7 million in the third quarter of 2001 versus $9.8
million in the third quarter of 2000. Operating profit margins were 11.5%
compared with 12.0% in the third quarter of 2000. Kemlite's operating profit
remained flat on a 5% decline in sales as strict cost controls and material cost
reductions resulted in improved operating margins. Results at Resistoflex were
negatively affected by lower shipments to the chemical process industry,
lowering operating profit by $.6 million compared to the same quarter in 2000.
Crane Plumbing's sales were down $2.7 million compared with the third quarter of
2000 resulting in an operating loss for the third quarter of 2001.
Merchandising Systems sales increased $1.5 million or 3% to $55.4 million
for the third quarter of 2001 compared with the third quarter of 2000. Segment
operating profit was equal to the $6.5 million in the third quarter of 2001 as
continued strong results at NRI were offset by lower results at National
Vendors. Operating profit margins were 11.7% in the third quarter of 2001
compared with 11.9% in the third quarter of 2000. National Vendors sales were
off 23% from the comparable 2000 results. The unit operated at a loss in the
quarter as it aggressively took actions to rationalize its product offerings,
reduce inventory and bring its production level in line with the current
economic environment. NRI's sales increased $11.8 million to $21.2 million and
operating profit more than tripled from the prior year level due to strong
demand in anticipation of the conversion to the euro in January 2002.
Fluid Handling sales increased $53.9 million, or 47%, to $168.7 million for
the third quarter of 2001 compared with the third quarter of 2000. Operating
profit increased $5.1 million to $11.4 million in the third quarter of 2001
versus $6.3 million in the third quarter of 2000. Operating profit margins were
6.8% in the third quarter of 2001 compared with 5.5% in the third quarter of
2000. Crane's valve businesses increased sales by $58.9 million and operating
profit by $6.7 million of which $4.0 million was contributed by the 2001
acquisitions of Xomox and the Industial Flow Group of Alfa Laval and the
remainder was improved performance at the existing valve business units.
-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, 2001
Controls sales decreased $3.6 million or 12% to $25.8 million for the third
quarter of 2001 compared with the third quarter of 2000. Operating profit
increased $1.0 million to breakeven in the third quarter of 2001 versus a loss
in the third quarter of 2000, principally as a result of increased shipments to
the oil and gas market by Azonix. Ferguson and Powers Process Controls combined
for an operating loss of $.9 million for the third quarter 2001.
Results from Operations
Nine Months Ended September 30, 2001 Compared to Nine Months Ended September
30,2000
For the nine months ended September 30, 2001, net income (excluding a
non-cash special charge and a loss on disposal of a business aggregating $12.5
million or $.21 per share) was $83.1 million or $1.38 per share an increase of
5% over the $1.31 per share for the nine months ended September 30, 2000 ($96.9
million or $1.57 per share including non-operating gains). The special charge
relates to the retirement of R. S. Evans as the Company's Chief Executive
Officer and represents stock-based retirement costs that previously were being
amortized to an anticipated retirement at age 65. The loss on disposal of a
business relates to the disposal of the Crane Plumbing business in Canada.
During the nine months ended September 30, 2000, a minority investment in a
telecommunications power supply venture was sold, generating a non-operating
gain of $16.2 million or $.26 per share.
Operating profit for the nine months ended September 30, 2001 was $145.6
million (excluding the special charge) on sales of $1.2 billion compared with
$140.6 million on sales of $1.1 billion in 2000. Operating profit margins for
the nine months ended September 30, 2001, excluding the special charge, were
12.0% compared with 12.4% for the nine months ended September 30, 2000. Order
backlog at September 30, 2001 totaled $518.6 million, an increase of $55.8
million, or 12%, from September 30, 2000 and generally unchanged from the June
30, 2001 level.
Net sales from domestic businesses were 72% of the nine months total net
sales in 2001 compared with 78% in the same nine-month period of 2000. Operating
profit from domestic businesses was 71% and 88% of total operating profit for
2001 and 2000, respectively. Operating profit margins for domestic businesses
were 11.8% in 2001 compared with 14.6% in 2000. Operating profit margins for
non-US businesses were 12.6% in 2001 versus 7.2% in 2000.
-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, 2001
Aerospace sales increased $49.5 million or 19% to $305.5 million for the
nine months of 2001 compared with the same period of 2000. Operating profit
increased $15.5 million or 25% to $77.1 million in the nine months of 2001.
Operating profit margins were 25.2% for the nine months ended September 30, 2001
compared with 24.1% for the nine months ended September 30, 2000. All business
units improved lead by Hydro-Aire and ELDEC. Order backlog for the segment was
$285.7 million at September 30, 2001, a decrease of $12.1 million, or 4%, from
September 30, 2000 and $29.1 million from June 30, 2001. The events of September
11th are having an immediate and severe impact on the commercial aerospace
industry. Aftermarket spare orders have been cancelled or deferred by many
airlines and commercial and regional aircraft production levels are being
reduced. Aggressive actions are being taken to reduce costs, restructure the
business and re-size it for this downturn. Operating results are expected to be
down approximately 40% in the fourth quarter, including $2.0 million of
severance cost, compared with the third quarter results.
Engineered Materials sales decreased $37.8 million or 14% to $233.2 million
for the nine months of 2001 compared with the nine months of 2000 primarily due
to weak transportation, recreational vehicle and chemical processing markets.
Segment operating profit decreased $12.3 million, or 30% to $29.0 million for
the nine months ended September 30, 2001. Operating profit margins were 12.4% in
2001 compared with 15.2% in 2000 for the nine-month period. Kemlite sales
declined $27.3 million to $162.2 million and operating profit declined $8.8
million for the nine months of 2001 compared with the nine months of 2000 as
truck trailer and recreational vehicle production decreased compared with the
nine months ended September 30, 2000. Results at Resistoflex were affected by
lower shipments to the chemical process industry of $3.7 million, lowering
operating profit by $2.2 million compared to the same nine-month period in 2000.
Order backlog at September 30, 2001 was $14.6 million, a decrease of $4.1
million or 22% from September 30, 2000, and a $.3 million decrease from June 30,
2001. Reduced order rates in the transportation, recreational vehicle and
petrochemical markets since September 11th will result in lower fourth quarter
earnings of approximately 25% when compared to the prior year level.
-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, 2001
Merchandising Systems sales decreased $.2 million to $167.2 million for the
nine months of 2001 compared with the nine months of 2000. Segment operating
profit decreased $3.4 million or 13% to $21.6 million for the nine months ended
September 30, 2001 as continued strong results at NRI were more than offset by
lower results at Crane Merchandising Systems. Operating profit margins were
12.9% for the nine months ended September 30, 2001 compared with 14.9% for the
nine months ended September 30, 2000. Crane Merchandising Systems' sales
declined 20% for the nine months of 2001 compared with the same prior year
period which resulted in an operating profit decline of $16.0 million. NRI's
sales increased $27.3 million, to $57.5 million and operating profit increased
$12.7 million due to the strong demand in anticipation of the conversion to the
euro in January 2002. Order backlog at September 30, 2001 was $46.4 million a
decrease of $18.2 million from June 30, 2001 as advance orders placed at NRI in
anticipation of the introduction of the euro in January 2002 are shipped.
Operating profit for the segment is anticipated to be lower in the fourth
quarter of 2001 compared with the fourth quarter of 2000 as a further decline in
orders experienced in September at National Vendors and additional actions
required to reduce costs in the fourth quarter 2001 will more than offset a
continued strong performance at NRI.
Fluid Handling sales increased $76.5 million or 22% to $425.8 million for
the nine months of 2001 compared with the nine months of 2000. Operating profit
increased $7.4 million to $31.1 million for the nine months ended September 30,
2001. Operating profit margins were 7.3% for the nine months ended September 30,
2001 compared with 6.8% for the nine months ended September 30, 2000. Crane's
valve businesses increased sales by $90.4 million and operating profit by $11.3
million as a result of improved Valve Services market, the Marine markets and
the acquisitions of Xomox and Crane Process Flow Technologies. Crane Pumps'
operating profit decreased $2.6 million due to a $9.0 million decrease in sales
and increased severance costs for the nine months ended September 30, 2001
compared with the same prior year period. Order backlog at September 30, 2001
was $150.6 million, an increase of $62.7 million or 71% from September 30, 2000
due to the addition of the Xomox and the Industrial Flow Group of Alfa Laval
backlog of $41.0 million and valve orders from the power generation and marine
markets. Fourth quarter results for this segment will be negatively impacted by
costs associated with the consolidation of the Crane Pumps Decatur, Illinois
facility into the Piqua, Ohio facility which will total $1.2 million and lower
orders in the short cycle businesses sold through distribution. Overall segment
results should show improvement in the fourth quarter of 2001 over the prior
year reflecting a strong order backlog in the marine and power generation
markets, higher valve service revenue and the addition of Xomox and the
Industrial Flow Group of Alfa Laval.
Controls sales decreased $8.7 million or 9% to $84.9 million for the nine
months of 2001 compared with the nine months of 2000. Operating profit increased
$2.3 million to $1.1 million for the nine months ended September 30, 2001
primarily from the sharp reduction in Ferguson's operating loss. Order backlog
at September 30, 2001 was $21.3 million; a decrease of $5.8 million from
September 30, 2000 and $2.3 million decrease from June 30, 2001. Controls'
operating results are expected to be profitable in the fourth quarter compared
to a loss in 2000.
-12-
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, 2001
Liquidity and Capital Resources
For the nine months ended September 30, 2001, the Company generated $144.3
million of cash from operating activities, versus $93.7 million in 2000. Net
debt totaled 34.8% of capital at September 30, 2001 compared with 30.8% at
September 30, 2000. The current ratio at September 30, 2001 was 2.2 with working
capital totaling $336.1 million compared with 2.3 and $279.9 million at
September 30, 2000. The Company had unused credit lines of $333.3 million
available at September 30, 2001. During the first nine months of 2001, the
Company paid $28.4 million for the repurchase of 1.07 million shares of Crane
common stock at an average price of $26.48 per share, $18.0 million for the
payment of dividends and $12.0 for the investment in the joint venture. Debt
increased by $117.9 million due to the 2001 acquisitions mentioned below.
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 $352.3
million in long-term debt outstanding at September 30 2001, $200 million was at
fixed rates of interest ranging from 6.75% to 8.50% while $139 million was at a
weighted average rate of 3.26% from the revolving credit agreement. At September
30, 2001, 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.
Acquisitions
In the first nine months of 2001, the Company acquired Ventech Controls, Inc.,
Laminated Profiles, Ltd., the Industrial Flow Group of Alfa Laval AB, the Xomox
valve business of Emerson Electric Co., Resistoflex GmbH and the aerospace hose
product line of Teleflex Fluid Systems. Total consideration paid in connection
with these acquisitions was $201 million. All of the acquisitions were accounted
for under the purchase method of accounting. Final allocation of the purchase
price to the assets acquired and liabilities assumed has not been completed for
these acquisitions. Final determination of the fair values to be assigned may
result in adjustments to the preliminary values assigned at the dates of
acquisition. Preliminary estimates of goodwill recorded for these acquisitions
aggregated approximately $90 million.
On April 1, 2001, the Company acquired for approximately $37 million plus
working capital, the Industrial Flow Group of Alfa Laval Holding AB (renamed
Crane Process Flow Technologies) which had annual sales of $77 million in 2000.
On June 29, 2001, the Company completed the acquisition of the Xomox valve
business from Emerson Electric Co., for a purchase price of $145 million. Xomox,
with annual sales of approximately $150 million, is a leading global supplier of
sleeved plug valves, quarter-turn valves and actuators under the Tufline and
Matryx brand names.
During the third quarter of 2001 the Company acquired Resistoflex GmbH and the
aerospace hose product line of Teleflex Fluid Systems in transactions totaling
approximately $11 million. The hose product line will be integrated into Crane
Resistoflex's Jacksonville, Florida facility during the fourth quarter of 2001.
Resistoflex GmbH is a manufacturer of Teflon-lined piping products serving the
chemical and pharmaceutical markets in Europe.
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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, 2001
New Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 141 ("SFAS 141"), "Business Combinations."
SFAS 141 requires the purchase method of accounting for business combinations
initiated after June 30, 2001 and eliminates the pooling-of-interests method.
The adoption of SFAS 141 will not have a significant impact on the Company
financial statements.
In July 2001, the FASB issued Statement of Financial Accounting Standards No.
142 ("SFAS 142"), "Goodwill and Other Intangible Assets", which is effective
January 1, 2002. SFAS 142 requires the discontinuance of goodwill amortization.
In addition, the SFAS 142 includes provisions for the reclassification of
certain existing recognized intangibles as goodwill, reassessment of the useful
lives of existing recognized intangibles, reclassification of certain
intangibles out of previously reported goodwill and the identification of
reporting units for purposes of assessing potential future impairments of
goodwill. SFAS 142 also requires the Company to complete a transitional goodwill
impairment test six months from the date of adoption. The Company is currently
assessing but has not yet determined the impact of SFAS 142 on its financial
position and results of operations.
In August 2001, the FASB issued SFAS No. 143 - Accounting for Asset Retirement
Obligations. SFAS 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. This statement becomes effective for
financial statements issued for fiscal years beginning after June 15,2002. The
Company is assessing but has not yet determined the impact that the adoption of
SFAS 143 will have on its financial position and results of operations.
In October 2001, the FASB issued SFAS No. 144 - Accounting for Impairment or
Disposal of Long-Lived Assets, which replaces SFAS No. 121 - Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.
SFAS No. 144 resolves implementation issues previously experienced under SFAS
No. 121 and broadens the reporting of discontinued operations. This statement
becomes effective for financial statements issued for fiscal years beginning
after December 15, 2001. The Company is currently assessing but has not yet
determined the impact that the adoption of SFAS 144 will have on its financial
position and results of operations.
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, 2000.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
1.) 8-K filed July 12, 2001 regarding acquisition of the Xomox valve
business from Emerson Electric Co.
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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 12,2001 By /s/ M. L. Raithel
---------------- ---------------------------
M. L. Raithel
Vice President and Chief
Financial Officer
Date November 12,2001 By /s/ T. M. Noonan
---------------- --------------------------
T. M. Noonan
Vice President, Controller
and Chief Tax Officer
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