Crane Co.
Financial Highlights
(In thousands except per share data)
1994 1993 1992 1991 1990
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Net Sales $1,653,466 $1,310,205 $1,306,977 $1,302,532 $1,438,248
Operating Profit 109,889 85,856 45,244 78,902 113,311
Income before Taxes 91,227 79,818 38,689 72,405 102,488
Provision for Income Taxes (35,294) (30,925) (14,403) (27,412) (39,753)
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Income from Operations $ 55,933 $ 48,893 $ 24,286 $ 44,993/(a)/ $ 62,735
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Per Primary Share:
Income from Operations $ 1.86 $ 1.62 $ .79 $ 1.42/(a)/ $ 1.96
Cash Dividends Per Common Share $ .75 $ .75 $ .75 $ .75 $ .75
Average Primary Shares Outstanding 30,146 30,217 30,845 31,628 32,057
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/(a)/ Income before cumulative effect of a change in accounting for
postretirement benefits other than pensions of $22,341 ($.70 per share).
TABLE OF CONTENTS
1 Financial Highlights
2 Letter to Shareholders
4 Description of Business Units
8 Management's Discussion
and Analysis of Operations
15 Financial Statements
20 Financial Review
28 Segment Data
30 Management's Responsibility/
Independent Auditors' Report
32 Shareholder Information
Back Directors and Officers
Cover
1
A Letter to Our Shareholders
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OVERALL RESULTS
1994 was a successful and exciting year for Crane, characterized by improvements
in sales, profitability, productivity, and cash flow. Sales and operating profit
increased 26% and 28%, respectively. Net earnings increased 15% to $1.86 per
share. Cash flow per share, measured as net income plus depreciation and
amortization, increased 29% to $3.34 during the year. In 1994 three major
acquisitions were completed for $240 million, adding to the two acquisitions
made at the end of 1993. These acquisitions have added significantly to our
market positions. Our company enters the new year with a better mix of
businesses, better growth opportunities, and stronger cash flow and earnings
potential than ever.
The acquisitions led us to realign the company into six business segments:
Fluid Handling, Aerospace, Engineered Materials, Crane Controls, Merchandising
Systems, and Wholesale Distribution. Crane's new segment reporting has received
a favorable reaction from the investment community and I hope you will find it
helpful in understanding our company.
PHILOSOPHY
Crane's philosophy is to enhance long-term shareholder value through effective
use of its strong cash flow and financial position. We believe the role of
management is to carefully select among alternative uses of discretionary cash
flow: investments in core businesses for product development and productivity
improvement, acquisitions, share repurchases, dividends, and debt repayment.
Over the eleven year period I have been Chairman, Crane stock has had an average
annual compound rate of return of 20%, assuming reinvestment of dividends,
compared to the S&P 500 return of 14.5% calculated on the same basis.
Our incentive compensation system is designed to link management's
interests directly to shareholders' interests. It measures performance on true
economic earnings and value added based upon cash flow returns in excess of our
cost of capital. Our system uses the prior year as a benchmark with incentive
awards paid over several years. This focuses managers on continuous improvement
over the long term since awards are subject to adjustment based on subsequent
years' performance. This system is firmly established throughout Crane and
continues to promote individual excellence, team collaboration and enhanced
productivity.
STRATEGY
Crane's strategy is a simple one: grow the earnings of niche businesses with
high market share; build an aggressive and committed management team whose
interests are directly aligned to those of the shareholders; and maintain a
focused, efficient corporate structure. This will result in consistent excess
cash flow which will be used to further enhance shareholder value.
This strategy has produced tangible results. Crane enjoys strong niche
market positions with businesses serving the aerospace, automated merchandising,
truck/trailer and recreational vehicle, fluid handling and housing industries.
We have the strongest management team since I have been with Crane, and our
corporate expense has declined to only 0.7% of sales. In 1994, we continued to
benefit from this strategy as evidenced by the following highlights.
HIGHLIGHTS
ELDEC Corporation, a new addition to Crane in 1994, had an impressive debut.
Under the leadership of Arlan VanKoevering, ELDEC has produced increasingly
profitable results in every month since acquisition. Arlan was instrumental
in reorganizing ELDEC's management and right-sizing the
2
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organization, reducing its work force by 22% and selling off $14.3 million in
excess assets in the process. We welcome Arlan and ELDEC to Crane with high
expectations for future earnings growth.
National Vendors, under the effective leadership of Robert Muller,
continued to develop new product innovations and take global marketing
initiatives. National Vendors introduced the Cafe System "7" in 1994 to
penetrate the office coffee services market, and it became National Vendors'
most successful product introduction to date. A renewed focus on national
accounts resulted in a two-year exclusive agreement with the largest food
service organization in the United States.
Hydro-Aire's technical leadership continued in 1994, in spite of the
downturn in the aerospace industry, with a 100% win rate on all new anti-skid
braking programs awarded during the year. Hydro-Aire was selected as the system
supplier on Boeing's 737-700, Bombardier's Global Express, McDonnell F-18,
Gulfstream V, and Lockheed's new military transport. Raymond Boushie, who joined
the company in September as President, has already had a positive impact. Ray's
experience in this industry will help position the company to build value in the
future.
Kemlite's President, Richard Schueller, recognized the synergies to be
realized through the acquisition of Filon. The benefits of this acquisition were
most evident in 1994 as Kemlite capitalized upon its expertise in fiberglass-
reinforced plastic panel production and increased its operating leverage. New
market penetration and improved manufacturing efficiencies brought record
profits and a record backlog of orders.
Under the leadership of William Landholt, who joined Crane in February 1994
as president of Crane Valves worldwide, the Mark Controls Valve business was
integrated into Crane Valves, which was reorganized on a global basis. This has
allowed us to greatly expand our sales distribution channels, eliminate
overlapping coverage, and leverage our purchasing power through global sourcing.
Synergies from this acquisition will become increasingly evident in 1995.
Burks Pumps, purchased in December 1993, brought a talented operating team
led by Paul Baldetti who had guided Burks through a series of acquisitions
focusing on strong brand recognition and cost reductions. All pump businesses
are now managed by Paul under Crane Pumps & Systems, with worldwide
responsibility for the manufacturing and marketing of our Chempump, Deming,
Barnes, Burks, Weinman and Prosser/Enpo product lines.
L. Hill Clark was promoted to Executive Vice-President of Crane in early
1994. Hill has responsibility for our aerospace and pump businesses and was
instrumental in our acquisition and integration of ELDEC Corporation and
bringing new management to Hydro-Aire and ELDEC.
David Smith was elected to the position of Vice President-Finance and Chief
Financial Officer in April 1994. Prior to this promotion, David was responsible
for corporate development and played a key role in Crane's recent acquisitions.
David's charge is to assure that Crane's cash flow and financial resources are
focused on taking advantage of future opportunities to create shareholder value.
I would like to take this opportunity to thank Arthur A. Seeligson, Jr. for
his contributions to Crane Co. during his thirteen year tenure as a member of
our Board of Directors. He will retire at this year's Annual Meeting. His wise
counsel and insights will be missed.
I also want to thank all my Crane colleagues who, by listening to our
customers' needs, continue to provide increased value, quality, and service
which improve our economic prospects.
Sincerely,
/s/ R. S. Evans
Robert S. Evans
Chairman, Chief Executive
Officer and President
February 14, 1995
3
Crane Co.
UNIT AND LOCATION
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FLUID HANDLING
- --------------
Crane Valves
North America
Crane Ltd.
United Kingdom
Pacific Valves
Long Beach, CA
Flowseal/Centerline
Long Beach, CA
Empire Foundry
Tulsa, OK
Westad Industri A/S
Geithus, Norway
Crane Australia Pty., Ltd.
Sydney, Australia
PRODUCTS
- --------
Gate, Globe, Check, Butterfly and Ball valves in all size ranges made from
Bronze, Cast Iron, Steel, Stainless Steel, and other special corrosion resistant
alloys
Pressure seal design valves for high pressure and temperature service
High performance and resilient butterfly valves, HF Acid Valves; extensive
repair, contract maintenance and "in-line" service capabilities, pipe fittings
manufactured in United Kingdom
MARKETS SERVED
- --------------
Hydrocarbon Processing industries: Refining, Petrochemical, Oil and Gas
Production and Distribution; Chemical Processing; Pulp and Paper; Power
Generation including "co-gen" and Nuclear applications; Shipbuilding, Commercial
Construction, HVAC, Water and Sewage, Building and Engineering services
BUSINESS HIGHLIGHTS
- -------------------
The acquisition of Mark Controls and the integration of the Crane and Mark
Controls Valve businesses under one management. A global focus, greatly
expanding sales distribution channels worldwide.
The elimination of redundant product lines and expansion of low-cost
suppliers in China, South Korea, India and Romania.
BUSINESS OUTLOOK
- ----------------
Sales and profits expected to increase significantly with full year Mark
Controls results, expanded distribution in Europe, Middle East and Asia,
strong steel valve demand and benefits from cost reduction actions taken in
1994.
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UNIT AND LOCATION
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FLUID HANDLING
- --------------
Crane Pumps &
Systems, Inc.
Piqua, OH
Barnes Pumps
Burks Pumps
Deming Pump
Prosser/Enpo
Weinman
Chempump
Sellers
PRODUCTS
- --------
Submersible Wastewater Regenerative Turbine and End Suction Centrifugal,
Horizontal & Vertical Centrifugal, Standard Vertical Turbine and Air-Operated
Diaphragm, Submersible Dewatering, Split Case, End Suction, In-Line,
Leakproof Centrifugal, Metering, Rotary Tank Cleaners and Steam Injectors
MARKETS SERVED
- --------------
Municipal, Industrial and Commercial Wastewater, Specialty Industrial Markets,
Original Equipment Manufacturers, Power and Construction Industries; Government
Contracts, Commercial HVAC Industry, Chemical and Hydro-Carbon Processing
Industries
Engineered Cleaning Equipment for General Industry
BUSINESS HIGHLIGHTS
- -------------------
Acquired Burks Pumps in December 1993.
The integration of Burks Pumps, Deming and Chempump into Crane Pumps and
Systems tripled Crane's pump business to $93 million in 1994.
Reorganized production facilities to focus on manufacturing specific ranges
of products, reducing costs and sourcing of common components.
BUSINESS OUTLOOK
- ----------------
Profit expected to improve in 1995 based on cost reductions achieved in 1994 and
an integrated and focused marketing effort in 1995 for the Barnes, Burks,
Deming, Prosser, Weinman and Chempump product lines.
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UNIT AND LOCATION
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FLUID HANDLING
- --------------
Cochrane Environmental Systems
King of Prussia, PA
PRODUCTS
- --------
Deaerators, Steam Specialty, Ion Exchangers, Softening Filtration, Clarification
and Condensate Polishing
MARKETS SERVED
- --------------
Most Industries Requiring Water and Wastewater Treatment
BUSINESS HIGHLIGHTS
- -------------------
Management reorganization
BUSINESS OUTLOOK
- ----------------
Market for water treatment and deaerator equipment has become global.
Cochrane has redeployed its resources to take advantage of growing markets.
4
UNIT AND LOCATION
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AEROSPACE
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ELDEC Corporation
Lynnwood, WA
PRODUCTS
- --------
Position Indication and Control Systems, Proximity Switches and Components,
True Mass Fuel Flowmeters, Power Conversion Components and Systems
MARKETS SERVED
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Commercial, Business and Military Aerospace Industries
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UNIT AND LOCATION
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AEROSPACE
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Hydro-Aire
Burbank, CA
PRODUCTS
- --------
Anti-Skid and Automatic Braking Systems, Fuel and Hydraulic Pumps, Coolant
Pumps and Systems, Hydraulic and Pneumatic Valves and Regulators, Actuators
and Solid State Components
MARKETS SERVED
- --------------
Commercial, Business and Military Aerospace Industries
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UNIT AND LOCATION
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AEROSPACE
- ---------
Lear Romec
Elyria, OH
PRODUCTS
- --------
Lubrication Pumps and Fuel Pumps for Aircraft and Aircraft Engines
MARKETS SERVED
- --------------
Commercial and Military Aircraft, Ground Vehicles, Land and Marine Applications
and Missiles
BUSINESS HIGHLIGHTS
- -------------------
The March 1994 acquisition of ELDEC Corporation brought Crane a strong
technology base, high market share and established products on all major
commercial and business aircraft.
Hydro-Aire was selected for all anti-skid braking system programs awarded
in 1994, including: Boeing 737-700, Bombardier Global Express, McDonnell F-18,
Gulfstream V and Lockheed's new military transport.
Lear Romec received a sole source contract with Rolls Royce to produce lube
oil pumps for the Trent Engine production program.
BUSINESS OUTLOOK
- ----------------
Sales and profits are expected to rise with the addition of ELDEC for a full
year and as a result of the management actions in 1994.
The OEM business appears to be flat for 1995 therefore we expect the two
other units to remain flat.
Promising new products are in development including an infrared-based gate
to aircraft highspeed data link as well as new applications of our core power
conversion technology within the telecommunications and industrial markets.
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UNIT AND LOCATION
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ENGINEERED MATERIALS
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Kemlite Company, Inc.
Joliet, IL
PRODUCTS
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Fiberglass-Reinforced Plastic Panels used as Truck Interior Wall Liners and
Roofs; Recreational Vehicle Sidewall and Roofs; and Wall and Ceiling Systems
for the Building Market
MARKETS SERVED
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Truck, Trailer, Recreational Vehicle and Commercial Construction
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UNIT AND LOCATION
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ENGINEERED MATERIALS
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Cor Tec
Washington Court
House, OH
PRODUCTS
- --------
Fiberglass-Reinforced Polyester Resin Laminated Panels for Transportation,
Construction, Marine, Signage and Sound Barrier Applications
MARKETS SERVED
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Truck and Trailer Manufacturers, Infrastructure Construction
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UNIT AND LOCATION
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ENGINEERED MATERIALS
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Resistoflex
Marion, NC
PRODUCTS
- --------
Corrosion Resistant Plastic-Lined Pipe, Fittings, Valves, Bellows and Hose
Assemblies, High Performance Separable Fittings for Operating Pressures to 8,000
PSI and Flexible, Plastic-Lined Assemblies
MARKETS SERVED
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Pharmaceutical, Chemical Processing, Pulp and Paper, Petroleum Distribution,
Waste Management Industries, Military and Aerospace Contractors
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UNIT AND LOCATION
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ENGINEERED MATERIALS
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Crane Plumbing
Montreal, Canada
PRODUCTS
- --------
Manufacturer of Plumbing Fixtures
MARKETS SERVED
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Residential, Industrial, Commercial and Institutional Construction in Canada
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UNIT AND LOCATION
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ENGINEERED MATERIALS
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Polyflon
New Rochelle, NY
PRODUCTS
- --------
Radio Frequency and Microwave Components, Capacitors, Circuit Processing,
Substrates; Resonating Structures, Antennas
MARKETS SERVED
- --------------
Magnetic Resonance Imaging, Radar and Microwave Manufacturers
BUSINESS HIGHLIGHTS
- -------------------
The Filon acquisition in October 1993 established Kemlite as the leading
supplier of FRP panels to the recreational vehicle market.
Kemlite fully integrated the Filon panel product line in Jonesboro which
increased sales and reduced inventories.
Kemlite completed a new 20,000 square foot office facility next to the
Joliet, Illinois plant.
Resistoflex introduced IsoBend(TM), a specialty PTFE lined piping system
which reduces the number of flanges needed in a pipe run. IsoBend(TM) is a 1994
plant engineering "Product of the Year" finalist. Resistoflex was awarded the
largest US PTFE lined pipe contract in history by Hoffman-La-Rouche.
Crane Plumbing was able to increase market share by taking advantage of a
strike by a major competitor.
BUSINESS OUTLOOK
- ----------------
Solid results are expected to continue, primarily due to demand in end markets.
In 1995 a world-wide shortage of glass fiber reinforcement has caused this key
raw material to be allocated.
Kemlite's markets will remain strong in 1995 and the company will
concentrate on the key customer partnerships that will allow Kemlite to maintain
its leadership position.
New FRP trailer orders are up at CorTec increasing its order backlog to
record levels.
New product introductions will continue to increase sales at Resistoflex in
1995.
Crane Plumbing results will increase due to improved capacity utilization
at its potteries and favorable pricing due to currency exchange rates.
5
Crane Co.
UNIT AND LOCATION
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CRANE CONTROLS
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Barksdale, Inc.
Los Angeles, CA
PRODUCTS
- --------
Pressure Switches and Transducers, Temperature Switches and Directional Control
Valves
MARKETS SERVED
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Manufacturer of Compressors, Machine Tools, Trucks and Spa Heaters
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UNIT AND LOCATION
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CRANE CONTROLS
- --------------
Powers Process
Controls
Skokie, IL
PRODUCTS
- --------
Process Controllers and Instrumentation, Control Valves, Temperature Regulators,
Water Mixing and Thermal Shock Protection Shower Valves, Plumbing Brass
MARKETS SERVED
- --------------
Chemical Process Industry, Food Processing, Pharmaceuticals, Water Waste
Treatment, and Institutional Construction
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UNIT AND LOCATION
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CRANE CONTROLS
- --------------
Dynalco Controls
Ft. Lauderdale, FL
PRODUCTS
- --------
Rotational Speed Sensors, Instruments, Control Systems
MARKETS SERVED
- --------------
Stationary Engines, Pipelines, Construction and Agriculture Equipment
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UNIT AND LOCATION
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CRANE CONTROLS
- --------------
Azonix, Inc.
Billerica, MA
PRODUCTS
- --------
Data Acquisition Products, Control Systems and Operator Interfaces
MARKETS SERVED
- --------------
Chemical, Petrochemical Power and Automotive
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UNIT AND LOCATION
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CRANE CONTROLS
- --------------
Ferguson
St. Louis, MO
PRODUCTS
- --------
Index Drives and Tables, Mechanical Parts Handlers, In-Line Transfer
Machines, Rotary Tables, Press Feeds, Custom Cams, Special Intermittent Motion
Machines
MARKETS SERVED
- --------------
Industrial and Commercial Machinery
BUSINESS HIGHLIGHTS
- -------------------
The acquisition of Mark Controls in April 1994 created a new business by
adding four profitable niche control businesses with both excellent internal
growth and additional acquisition opportunities.
The consolidation of the Canadian Plumbing Brass business with Powers
Process Controls resulted in a strong institutional distribution network.
The decision was made to consolidate the European operation of Ferguson
Machine into one facility in Belgium.
Two new index drives were introduced at Ferguson Machine, making its inline
transfer product more competitive.
Barksdale added 30 new sales representatives.
BUSINESS OUTLOOK
- ----------------
Sales and profit expected to increase significantly as the result of:
Full year Mark Control results
New products and added distribution at Barksdale
The addition of Plumbing Brass product at Powers Process will allow us to
increase our market share in North America
New products introduced in 1994 at Dynalco Controls and Azonix
The consolidation of the Ferguson European facilities
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UNIT AND LOCATION
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MERCHANDISING SYSTEMS
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National Vendors
Bridgeton, MO
PRODUCTS
- --------
Electronic Vending Machines for Snack Foods and Confections, Cold Drinks, Hot
Beverages, Refrigerated Food and Frozen Food; Coin and Currency Changers
MARKETS SERVED
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Automated Merchandising
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UNIT AND LOCATION
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MERCHANDISING SYSTEMS
- ---------------------
National Rejectors, Inc.
GmbH
Buxtehude, Germany
PRODUCTS
- --------
Electronic Validators, Magnetic Card Cashless Payment Systems
MARKETS SERVED
- --------------
Automated Merchandising
BUSINESS HIGHLIGHTS
- -------------------
1994 was a record sales year for National Vendors.
The Cafe System "7" was introduced to service the office coffee service
market and became National Vendors most successful new product introduction.
A national accounts program was introduced and a two year exclusive sales
agreement was reached with the largest food service organization in the United
States.
National Vendors began production of its new Ice Cream Unit, an
electronically controlled dispenser of novelty ice cream.
BUSINESS OUTLOOK
- ----------------
The National Vendors plant expansion and integration program that began in
December 1992 will be completed during 1995.
This program will improve product quality, reduce production costs and
increase manufacturing flexibility.
Operating results should improve in 1995 on the strength of products
introduced in 1994 and expanded distribution to the Pacific Rim and Latin
America.
6
UNIT AND LOCATION
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WHOLESALE DISTRIBUTION
- ----------------------
Huttig Sash & Door Company
Chesterfield, MO
PRODUCTS
- --------
Distributor of Doors, Windows, Millwork, Specialty Construction Materials and
Related Products
MARKETS SERVED
- --------------
Building Products Retailers and Contractors
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UNIT AND LOCATION
- -----------------
WHOLESALE DISTRIBUTION
- ----------------------
Crane Supply
Montreal, Canada
PRODUCTS
- --------
Distributor of Pipe, Valves, Fittings, Plumbing Fixtures
MARKETS SERVED
- --------------
Industrial, Municipal, Commercial and Institutional Construction
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UNIT AND LOCATION
- -----------------
WHOLESALE DISTRIBUTION
- ----------------------
Valve Systems and
Controls
Houston, TX
PRODUCTS
- --------
Industrial Distributor of Automated Valves
and Integrated Control Systems
MARKETS SERVED
- --------------
Petroleum, Chemical, Power and General Processing Industries
BUSINESS HIGHLIGHTS
- -------------------
Huttig Sash & Door Co. acquired a wood moulding plant located in Prineville,
Oregon. This facility will allow Huttig to expand its market presence in the
high-end specialty millwork market.
Huttig sold its window manufacturing facility in South Carolina, which lost
$2.1 million in 1994.
Huttig consolidated operations in Iowa and Florida eliminating a total of
three operations while maintaining market share. It also reduced working
capital and facilities requirements.
BUSINESS OUTLOOK
- ----------------
1995 profit expected to improve due to:
Full year operating results of Huttig's new specialty wood moulding
facility
The elimination of losses at Huttig window manufacturing
New management organization at Valve Systems and Controls
Improved industrial economy in Canada and lower costs
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UNIT AND LOCATION
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OTHER
- -----
Crane Defense
Conroe, TX
PRODUCTS
- --------
Specialized Handling Systems, Elevators, Winches, Ground Support Equipment,
Cranes and Associated Electronics
MARKETS SERVED
- --------------
Shipbuilding, Aerospace and Commercial Construction
BUSINESS HIGHLIGHTS
- -------------------
Entered into Bioremediation market and vehicle component market.
BUSINESS OUTLOOK
- ----------------
Slow growth through diversification from core business to environmental and
vehicular components.
7
Management's Discussion and Analysis of Operations
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RESULTS OF OPERATIONS
CONSOLIDATED
(In millions) 1994 1993 1992
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Sales $1,653.5 $1,310.2 $1,307.0
Operating Profit $109.9 $ 85.9 $ 45.2
Operating Margin 6.6% 6.6% 3.5%
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During 1994, our strategy of obtaining economic returns greater than our cost
of capital was evidenced by the acquisition of companies which complement
existing businesses and have leading positions in niche markets. This
contributed substantially to repositioning the company. Three significant
acquisitions were made during the first six months of 1994, ELDEC Corporation,
Mark Controls Corporation and a moulding and millwork operation in Prineville,
Oregon. In addition, Burks Pumps, Inc. and Filon were acquired in the fourth
quarter of 1993. These five acquisitions, for a total purchase price of $336
million, had sales of approximately $400 million in the year preceding their
acquisition and made a major contribution to the improved 1994 results.
As a result of these acquisitions, the company realigned its business
segments during 1994, to provide investors with a clearer view of Crane's
businesses. The newly aligned segments are Fluid Handling, Aerospace,
Engineered Materials, Crane Controls, Merchandising Systems, Wholesale
Distribution, and Other. Results of operations from the 1994 and 1993
acquisitions are included in the new segments as follows: ELDEC Corp.
(Aerospace), Mark Controls Corp. (Fluid Handling and Crane Controls),
Prineville operation (Wholesale Distribution), Burks Pumps, Inc. (Fluid
Handling), and Filon (Engineered Materials).
Sales increased $343 million in 1994 to a record of $1.65 billion. Of this
increase, $308 million is attributable to the recent acquisitions. Excluding
acquisitions, revenues increased 5 percent in Fluid Handling, 7 percent in
Engineered Materials, 1 percent in Merchandising Systems and 5 percent in
Wholesale Distribution which more than offset the 14 percent decline in
Aerospace. Sales in 1993 were slightly higher than the 1992 level as stronger
sales in Merchandising Systems and Wholesale Distribution offset a 26 percent
decline in Aerospace revenues and a 9 percent decline in Fluid Handling
shipments.
Operating profit improved significantly in 1994 to $109.9 million, an
increase of $24 million. As evidence of the effectiveness of Crane's strategy,
the acquisitions contributed $35.4 million to profit while Merchandising Systems
and Fluid Handling reported increases in profits of 29 percent and 13 percent,
respectively. However, these strong results were adversely impacted by the
continued weakness in the Aerospace industry.
Operating profit in 1993 was $85.9 million compared to 1992 results of
$45.2 million which included a $39.4 million charge for environmental expenses
and asset write-downs associated with Unidynamics/Phoenix, which was sold in
1993, product liability exposure and excess facility costs, and costs related to
the settlement of an anti-trust lawsuit involving a previously discontinued
operation. Engineered Materials, Wholesale Distribution, and Merchandising
Systems had improved operating results in 1993 which more than offset declines
at Fluid Handling, Crane Controls and Aerospace. 1992 profits for Aerospace were
impacted by a $20.1 million charge for environmental expenses and asset
write-downs, referred to above.
Net interest expense increased $13.6 million to $20.6 million in 1994
because the acquisitions were debt financed. Net interest costs totalled $6.9
million in 1993, down $2.6 million from the 1992 level as a result of lower
borrowing levels and lower interest rates.
Miscellaneous income totalled $1.9 million in 1994, compared to $.9 million
in 1993, resulting from the sale of facilities and an equity investment in
Germany. In 1992, $2.9 million of miscellaneous income consisted primarily of a
$3.7 million gain from the sale of an equity investment.
The company's effective tax rate was 38.7 percent in 1994 and 1993, and
37.2 percent in 1992. Net income totalled $55.9 million in 1994 compared to
$48.9 million in 1993 and $24.3 million in 1992.
Net income per share increased 15 percent to $1.86 compared to $1.62 in
1993 and $.79 in 1992.
FLUID HANDLING
(In millions) 1994 1993 1992
- ------------------------------------------------------------------------------
Sales $310.0 $197.7 $218.1
Operating Profit $ 19.1 $ 8.9 $ 11.9
Operating Margin 6.1% 4.5% 5.5%
- ------------------------------------------------------------------------------
The Fluid Handling segment consists of a valve business that serves the global
valve market and a pump business which manufactures pumps used in the chemical,
general industrial, and commercial industries. The Crane
8
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Valve business with manufacturing facilities in North America, the United
Kingdom and Australia, sells a wide variety of valves and fluid control products
for the chemical and hydrocarbon processing, power, general industrial and
commercial construction industries. The North American unit also provides a full
range of valve aftermarket services including parts, repairs and modifications.
The company's subsidiary in the United Kingdom also maintains repair and service
facilities for valves, compressors, heat exchangers and similar equipment. In
1994, the company purchased Mark Controls, whose valve products are sold under
the Pacific Valves and Flowseal/Centerline brands. Crane Pumps & Systems, Inc.,
which includes Burks Pumps purchased in December 1993, manufactures pumps used
in the chemical, power, hydrocarbon processing, municipal, general industrial
and commercial industries. The company's Cochrane Environmental Systems division
designs and markets water and wastewater equipment for almost every major
industry.
The Fluid Handling segment's 1994 operating profit increased $10.2 million
on a 57 percent increase in sales. The improved sales and operating profit
performance was due to the Burks Pumps acquisition at the end of 1993, and the
valve business acquired with Mark Controls at the end of April 1994. These
acquisitions added $101.5 million to sales and $9.0 million to operating profit
for 1994. Operating profit of $8.9 million in 1993 was 26 percent lower than the
prior year level of $11.9 million with sales declining 9 percent from 1992.
The Mark Controls acquisition strengthened the Crane Valve business. This
acquisition brings to Crane the Flowseal and Centerline brand of quarter turn
valves and the Pacific pressure seal and HF Acid valves. Synergies from this
acquisition will become increasingly evident in 1995. To focus resources, the
Crane Valve business was reorganized on a global basis under one management
structure in 1994. This has allowed Crane to greatly expand sales distribution
channels world-wide and eliminate overlapping coverage. This is especially true
of the Mark Controls quarter turn line where distribution channels have been
expanded to Europe, the Middle East, Asia, and Australia through Crane's
established network.
The Burks Pumps acquisition in December 1993 tripled Crane's pump business
to $93 million in 1994. The pump business has been consolidated under a new
entity named Crane Pumps & Systems with world-wide responsibility for the
manufacturing and marketing of our Chempump, Deming, Barnes, Burks, Weinman and
Prosser/Enpo product lines.
During the year, steps were taken to streamline administrative and
operating facilities. We closed the Mark Controls corporate headquarters and
Centerline's Tulsa operation, saving over $3 million per year. Redundant product
lines for both pumps and valves were eliminated allowing Crane to offer its
best products to customers. In addition, Crane expanded its low-cost base of
foreign suppliers in China, South Korea, India, Mexico and Romania in 1994, and
joint ventures in Indonesia and China are planned for 1995.
AEROSPACE
(In millions) 1994 1993 1992
- ------------------------------------------------------------------------------
Sales $160.8 $99.6 $135.2
Operating Profit $ 31.3 $31.2 $ 22.0
Operating Margin 19.5% 31.3% 16.3%
- ------------------------------------------------------------------------------
The Aerospace segment consists of: Hydro-Aire, the world leader in the design
and manufacture of electronically controlled anti-skid braking systems; Lear
Romec, a leading supplier of oil lubrication and fuel boost pumps; and ELDEC,
which designs and manufactures position indication and control systems,
proximity switches, true mass fuel flowmeters and power conversion systems.
Sales improved $61.2 million in 1994 due entirely to the ELDEC acquisition
in March 1994 which added $75.7 million to revenue. A difficult aerospace market
continued to adversely impact Hydro-Aire and Lear Romec where revenues were down
12 percent from 1993. Operating profit totalled $31.3 million in 1994, up $.1
million from the 1993 level as additional ELDEC earnings offset lower results at
the other Aerospace units.
Sales were down 26 percent in 1993 due to the downturn in the aerospace
industry and the sale of Unidynamics/Phoenix. 1993 profits improved 42 percent
due to the $20.1 million charge for environmental expenses and asset write-downs
in 1992.
The Aerospace market has continued to decline over the last three years. It
is expected that this trend will bottom out in 1995 as Crane units ship products
for new airframes, including the Boeing 777. Crane will also benefit
substantially from the inclusion of full year ELDEC results and improved cost
positions and aftermarket sales efforts at Hydro-Aire and Lear Romec.
The ELDEC acquisition brings a strong technology base and high market
share, with established products on all major commercial and business aircraft.
In 1994 the management team was reorganized and the organization right-sized
resulting in a 22% work force reduction. This produced profitable results in
every month since the acquisition compared to marginal profitability in the
prior three years. In addition, excess assets were sold for $14.3 million
lowering the effective purchase price. Continued improvement is expected in 1995
as ELDEC completes its consolidation and reorganization of manufacturing
facilities.
Although Hydro-Aire sales declined in 1994 it was selected for all new
anti-skid braking system programs awarded in 1994 including: Boeing's 737-700,
Bombardier Global Express, McDonnell F-18, Gulfstream V, and Lockheed's new
military transport.
9
Management's Discussion and Analysis of Operations (continued)
- --------------------------------------------------------------------------------
ENGINEERED MATERIALS
(In millions) 1994 1993 1992
- ------------------------------------------------------------------------------
Sales $201.9 $161.8 $161.7
Operating Profit $ 23.0 $ 15.5 $ 6.1
Operating Margin 11.4% 9.6% 3.8%
- ------------------------------------------------------------------------------
The Engineered Materials segment consists of five businesses: Kemlite, the
world's largest manufacturer of fiberglass-reinforced plastic panels, serving
the transportation, building products, and recreational vehicles markets; Cor
Tec, a manufacturer of fiberglass-reinforced laminated panels which are used
primarily by the truck and trailer industry; Resistoflex, a manufacturer of
corrosion-resistant, plastic-lined pipes, fittings and valves used in chemical
process and pharmaceutical plants, as well as separable high-performance, high
pressure fittings and hose for the aerospace industry; Polyflon, which
manufactures high-performance substrate and high voltage, high-frequency
capacitors; and Crane Plumbing, which offers a full array of plumbing products
for residential as well as commercial building markets in Canada.
The Engineered Materials segment operating profit increased $7.5 million or
48 percent in 1994 on a sales increase of 25 percent due to Kemlite's Filon
acquisition in October 1993, strength in Kemlite's transportation markets, and
improvement at Crane Plumbing in Canada. The Filon acquisition which established
Kemlite as the leading supplier of FRP panels to the recreational vehicle
industry, accounted for $29.3 million of the sales increase in 1994. In 1993
operating profit increased $9.4 million on a slight increase in sales due to
strong results at Kemlite and Cor Tec, and the $5.7 million charge in 1992 for
product liability exposure and environmental expenses. Operating margins have
increased steadily over the last three years from 3.8 percent in 1992 to 9.6 in
1993 to 11.4 percent in 1994.
Kemlite is the major contributor to operating profit for Engineered
Materials, and is the dominant manufacturer of FRP panels serving the
transportation and recreational vehicle markets. Operating profit doubled in
1994 after increases of 36 percent and 149 percent in 1993 and 1992,
respectively. Sales increased 68 percent in 1994 compared to increases of 18
percent in 1993 and 25 percent in 1992. Operating margins have improved from 13
percent of sales in 1992 to 18 percent in 1994 - the result of improved
manufacturing performance, operating leverage, and acquisition synergies.
Kemlite's translucent roof panel continued to gain market share, displacing
aluminum sheet roofs in dry van trailer applications due to safety and
productivity features. Kemlite ended 1994 with a record order backlog.
Cor Tec's sales totalled $18.6 million, down 9 percent from 1993. The
decline in 1994 sales was due to a trucker strike which forced the largest FRP
fleet operator to suspend trailer purchases in 1994. Although operating profit
was down slightly in 1994, gross margins improved. 1993 operating profit was
double the prior year level on lower sales due to margin improvement. Cor Tec
has essentially committed its production capacity for 1995, ending the year with
a record backlog.
Resistoflex Industrial and Resistoflex Defense were consolidated into one
operation in 1994, with combined sales totalling $28.7 million. Sales and
operating profit in 1994 were down $1.2 million and $1.1 million, respectively,
due to the decline in the defense and aerospace industries. Industrial sales and
operating profit were both slightly improved from the prior year level.
Operating profit in 1993 was $1.9 million below the prior year level on a $2.9
million sales decline, both the result of competitive pricing pressures in 1993.
Resistoflex expanded its rotational molding capabilities in 1994 which
expands the available market by allowing Resistoflex to line all shapes of metal
fittings with thermoplastic resins. Resistoflex also developed and introduced
Iso-Bend(TM), a specialty PTFE lined piping system which reduces the need for
flanges, helping their customers comply with stringent emissions regulations.
Polyflon sales totalled $1.6 million in 1994, down 32 percent from 1993.
Polyflon operated at a loss in 1994.
Crane Plumbing's shipments increased 7 percent in 1994, primarily due to
increased market penetration partly related to a strike at a competitor.
Operating profit increased $.7 million in 1994 following a small profit in 1993,
and an operating loss in 1992. Sales totalled $53.5 million in 1994.
Growth in the Engineered Materials segment is expected to continue,
primarily due to strong end markets.
CRANE CONTROLS
(In millions) 1994 1993 1992
- ------------------------------------------------------------------------------
Sales $ 88.0 $ 35.0 $ 40.1
Operating Profit $ 4.4 $ .9 $ 2.6
Operating Margin 5.0% 2.5% 6.5%
- ------------------------------------------------------------------------------
This segment consists primarily of businesses acquired with Mark Controls
Corporation in April 1994. Barksdale produces pressure and temperature switches,
transducers and directional control valves. Powers Process Controls produces
electronic sensors, balancing valves, shower valves and systems. Azonix produces
data acquisition products and control systems. Dynalco produces rotational speed
sensors, instruments and control systems.
10
- --------------------------------------------------------------------------------
Also included in this segment is Ferguson which has a complete line of products
for transferring and positioning components on assemblies in an automated
process.
Sales and operating profit in the Controls segment were up sharply in 1994
mainly due to the inclusion of the controls businesses of Mark Controls
Corporation, which increased sales and operating profit by $51.1 million and
$4.6 million respectively.
Ferguson's index and cams volume increased over 10 percent from 1993, but
the increase was primarily in the lower margin units. Operating profit at
Ferguson's domestic operation in 1994 improved 21 percent over the 1993 level.
However, this improvement was offset by continued losses in its European
operation. In 1994, the decision was made to consolidate the European operation
into one facility in Brussels, which resulted in a $1.2 million charge in 1994.
Ferguson's profit decreased $1.7 million in 1993 on an 11 percent drop in sales
due to weakness in the general industrial market in the U.S. and Europe. This
compared to a profit increase of $2.3 million in 1992 on 9 percent higher sales.
The Crane plumbing brass business was combined with Powers Process Controls
strong institutional distribution network on January 1, 1995. This should allow
an increase in North American market share for this product line.
MERCHANDISING SYSTEMS
(In millions) 1994 1993 1992
- ------------------------------------------------------------------------------
Sales $168.5 $166.7 $151.1
Operating Profit $ 23.2 $ 18.0 $ 16.6
Operating Margin 13.7% 10.8% 11.0%
- ------------------------------------------------------------------------------
This segment consists of two businesses: National Vendors, which is the industry
leader in the design and manufacture of vending machines for the automated
merchandising industry in the United States; and National Rejectors, GmbH, which
designs and manufactures coin validation systems for the automatic vending
market throughout Europe.
Merchandising Systems profits increased 29 percent in 1994 to $23.2 million
on slightly higher sales. In 1993 profits increased 8 percent on 10 percent
higher sales. 1992 profits were off 18 percent on 5 percent higher sales, the
result of an operating loss at National Rejectors, GmbH in Europe, compared to a
$6 million profit in 1991.
National Vendors achieved record sales for the fourth consecutive year
reaching $132 million. The improvement in 1994 was the result of new product
introductions, expanded distribution channels, and a national accounts program.
National Vendors introduced the Cafe System "7" in 1994 designed as an
alternative to traditional batch brew coffee services. It has enabled National
Vendors to penetrate the office coffee service market. Cafe System "7" sales in
1994 exceeded expectations and became National Vendors most successful product
introduction to date. National Vendors also introduced its Ice Cream Center, a
single serve dispenser of novelty ice cream products.
National Vendors expanded its sales distribution channels to the Pacific
Rim and Latin American markets in 1994. Introduced in 1993, the Glasco product
line, which adds domestic distribution channels to National Vendors traditional
direct sales force, continued to be a success. National Vendors' renewed focus
on national accounts resulted in a two year exclusive agreement with the largest
food service organization in the United States. National Vendors' profits
increased 19 percent in 1994, 15 percent in 1993 and 37 percent in 1992.
Included in the 1994 results was the reversal of $1.5 million of the $3.5
million charge recorded in 1993 for an unfavorable jury verdict.
National Vendors' two year $25 million plant expansion and cost reduction
project will be completed in the first half of 1995. Full benefits should be
realized in 1996. This was the largest single capital project ever undertaken by
Crane.
The depressed European economy has resulted in operating losses for
National Rejectors, GmbH for the past three years. The 1994 and 1993 results
included severance costs of $1.7 million and $.6 million, respectively. National
Rejectors, GmbH has reduced its work force 40 percent since the end of 1991 and
when market conditions improve, these cost reductions should result in
substantially higher profits.
Merchandising Systems earnings are expected to improve in 1995 based on the
strong market position of National Vendors' existing products, gains in market
share for the Cafe System "7" product line, a new contract with the Post Office
for postal commodity vendors, and improved results at National Rejectors, GmbH.
11
Management's Discussion and Analysis of Operations (continued)
- --------------------------------------------------------------------------------
WHOLESALE DISTRIBUTION
(In millions) 1994 1993 1992
- ------------------------------------------------------------------------------
Sales $730.6 $655.2 $608.5
Operating Profit $ 20.0 $ 22.7 $ 13.6
Operating Margin 2.7% 3.5% 2.2%
- -----------------------------------------------------------------------------
Wholesale Distribution consists of: Huttig Sash and Door Company, the largest
nationwide distributor of millwork, windows, doors, and related products in
the United States, serving building product retailers and building
contractors; Valve Systems and Controls, an industrial distributor of automated
valves and flow control systems to the petrochemical, oil refining, and pipeline
transmission industries; and Crane Supply, a distributor of pipes, valves,
fittings, plumbing fixtures and supplies, serving the industrial, municipal, and
institutional construction industries.
This segment's operating profit declined 12 percent in 1994 on a 12 percent
increase in sales. Sales were up due to acquisitions and improvement in the
markets served by Huttig Sash and Door. Operating profit was down in 1994 due to
losses at two of Huttig's manufacturing operations, lower results at Valve
Systems, and the inclusion in 1993 of a pension curtailment gain. 1993 results
were a significant improvement over 1992 due to a strong housing market in the
U.S. and the curtailment gain at Crane Supply.
Huttig Sash and Door Company's operating profit of $19.5 million was $.2
million above the prior year level, with shipments increasing $74.5 million.
Results for 1994 included the acquisition of a specialty millwork manufacturer
in Prineville, Oregon which contributed $41.9 million in sales and $1.2 million
in operating profit. Operating profit for 1993 of $19.3 million was $5.6 million
above 1992 on an 11 percent increase in sales due to a strong residential
construction market. In December 1994, Huttig sold its window manufacturing
business, which incurred a loss of $2.1 million in 1994.
Valve Systems and Controls sales in 1994 totalled $27.9 million, an
increase of 5 percent from 1993. Valve Systems has operated at a loss the last
two years after break-even results in 1992 due to a very competitive market
place. The unit closed its California branch in the fourth quarter of 1994 and
is focused on reducing costs to achieve profitable results.
Crane Supply operated at a profit of $1.6 million in 1994, down 59 percent
from last year due to the inclusion in 1993 of a pension curtailment gain. Sales
of $104 million were slightly below 1993. Operating profit in 1993 totalled $3.8
million on a small improvement in sales. During 1992 the unit operated at a loss
of $1.2 million on an 11 percent decline in sales in the industrial sector.
OTHER
The Other segment consists of Crane Defense Systems, which is the only Crane
business primarily focused on defense industry products. Sales of $12.5 million
were down $2.4 million in 1994 due to reduction of contracts. Operating profit
declined by $1.5 million as a result of the decrease in sales.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW
Cash provided from operations was $117 million in 1994 up significantly from
$71 million in 1993, aided by the cash contribution of the company's newly
acquired operations in 1994. The company made five major acquisitions during
the period October 1993 to May 1994 for an aggregate purchase price of $336
million, which resulted in net debt reaching a high of $438.4 million in June
1994. The company reduced its net debt by $87 million over the last six
months to $351.5 at year-end 1994.
Capital investments reflect spending primarily for cost reductions and
process improvements. These expenditures amounted to $28 million in 1994,
compared to $38.8 million in 1993. Capital expenditures are expected to increase
over the next several years to fund manufacturing efficiencies and joint
ventures in Asia and Eastern Europe.
Crane Co. will rely on cash generated from operations to fund future
working capital, capital expenditures and joint venture investments needed to
support continued growth and expansion. Funds available from unused bank credit
facilities will be used primarily to fund working capital during the year when
receivables and inventory rise to meet seasonal operating requirements.
At December 31, 1994, the net debt to capital ratio was 52 percent compared
to 41 and 28 percent in 1993 and 1992, respectively. The company's working
capital totalled $236 million compared to $122 million in 1993, with the current
ratio at 2:1 compared to 1.4:1 in 1993. Interest coverage was 4.8 times interest
expense for 1994 compared to 8.0 and 3.7 for 1993 and 1992, respectively.
12
- --------------------------------------------------------------------------------
LONG-TERM DEBT
As of December 31, 1994, Crane Co. had $200 million in contractually committed
lines of credit, under a long-term bank credit facility which expires in April
1997. There were no borrowings outstanding under this facility at year-end 1994.
Commitments under the facility are for general corporate purposes and to provide
bridge financing for acquisitions. In addition, the company has other
international long-term credit arrangements with banks totaling $36 million of
which $13 million was available at December 31, 1994.
The effective interest rates at December 31, 1994 were 6.38 percent and 7.1
percent on the domestic and foreign bank loans, respectively.
The long-term credit facilities contain certain financial and restrictive
covenants, including limitations on indebtedness and liens.
In June 1994, the company issued $150 million 7 1/4% Senior Notes due 1999.
Incorporating the effects of underwriting fees, original issue discount and the
cost of a treasury lock agreement, the-all-in cost of this financing was 7.6
percent. This public debt was issued under the company's $300 million shelf
registration as filed with the Securities and Exchange Commission in May 1994.
In March 1992, the company issued $100 million 8 1/2% Senior Notes due
2004. Proceeds of this debt offering were used for the early redemption of two
public debentures in addition to general corporate purposes. Incorporating the
effects of fees and original issue discount, the-all-in cost of this financing
was 8.65 percent. The effect of the previous swap transactions lowered this
effective rate to 8.5% in 1994.
SHORT-TERM DEBT
As of December 31, 1994, the company also had $248 million in domestic and
foreign uncommitted, unsecured money market bid rate lines of credit of which
$175 million was unused. The weighted average interest rate for short-term
borrowings at December 31, 1994 and 1993 was 6.7% and 4.7%, respectively.
These lines of credit are typically available for borrowings up to 364 days
and are renewable at the option of the lender.
FINANCIAL STRATEGY
After fully funding investments in its core business and key strategic
initiatives, and maintaining the capital structure, in management's opinion,
necessary to sustain adequate access to capital markets, Crane Co. returned a
portion of its cash flow to shareholders by paying cash dividends of $22.5
million or $.75 per common share during 1994. This return amounted to 40
percent of income compared with 46 percent in 1993. Crane Co. expects to
continue paying cash dividends in the future. Excess cash may also be used to
repurchase shares of Crane Co.'s common stock depending upon prevailing
market conditions.
During 1994, the company did not repurchase any shares of its common stock
in open market transactions. The company did purchase 6,990 shares in connection
with the vesting of certain restricted stock awards and stock option exercises.
FINANCIAL INSTRUMENTS
The company uses financial instruments from time to time, including interest
rate swaps, to manage the effect of fluctuating interest rates on our
outstanding debt. Net interest paid or received on the interest rate swap
contracts is included in interest expense.
No new interest rate swap contracts were executed in 1994. At December 31,
1994, the company had no interest rate swap contracts outstanding. In 1993, five
separate interest rate swap agreements were entered into by the company. No
funds under the swap contracts were actually borrowed or were to be repaid. At
December 31, 1993, the company had interest rate swap contracts outstanding with
a total notional principal amount equivalent to $49.1 million.
Several major financial institutions have been counterparties to the
company's financial instruments; it is company practice to monitor the financial
standing of these counterparties on an on-going basis. The company has sought to
minimize counterparty exposure by including in each contract provisions for the
right of off-set and collateral requirements in the event of material credit
downgrades of its counterparties.
ACQUISITIONS AND DIVESTITURES
Acquisitions and business combinations have been, and are expected to be, an
important part of the company's strategy for growth and its ability to service
customer needs. In the future, the company will continue to review potential
acquisition candidates with market and technology positions that
13
Management's Discussion and Analysis of Operations (continued)
- --------------------------------------------------------------------------------
provide meaningful opportunities in the markets in which it already has a
presence, or which afford significant financial reward, and may possibly dispose
of operations when consistent with its overall goals and strategies.
During 1994, the company completed three acquisitions at a cost of $240
million including debt. On May 17, the company, through its wholly-owned
subsidiary Huttig Sash & Door Company, acquired a moulding and millwork
manufacturing operation in Prineville, Oregon. On April 28, the company
purchased Mark Controls Corporation, a manufacturer of automatic and manually-
operated valves, specialized electronic and mechanical instruments and controls,
regulators, and pneumatic and electronic controllers. On March 18, the company
acquired ELDEC Corp. whose products are used worldwide on nearly every aircraft
model and include: proximity switches and sensing systems; power conversion
equipment; fuel flow measurement systems; data acquisition, monitoring and
control equipment; flat panel displays; and integrated modular systems. For the
year ended December 31, 1993, these three acquired entities had aggregate net
sales of approximately $300 million.
In 1993, the company completed five acquisitions at a total cost of
approximately $106 million. In December, the company acquired Burks Pumps, Inc.,
which provides engineered pumps for an array of specialized commercial,
industrial and municipal fluid handling applications. Their products are
marketed under the Barnes, Burks, Weinman and Prosser brand names. Also included
was a line of tank cleaning equipment sold under the Sellers brand name for the
industrial clean-in-place market. This acquisition substantially increased the
company's involvement in niche markets in the pump industry. For the year ended
December 31, 1993, Burks Pumps had net sales of approximately $55.5 million. In
October 1993, the company acquired Filon, a manufacturer of fiberglass-
reinforced plastic (FRP) panels. Filon was integrated with Kemlite which
produces FRP panels for the transportation, building products, and recreational
vehicle markets. For the year ended December 31, 1993, Filon had net sales of
approximately $34.7 million. The three remaining acquisitions included two
Huttig distribution businesses and the Perflow purchase by Crane U.K. Ltd.
In 1994, the company sold Modulinc, the fiber optic channel product line of
ELDEC and excess ELDEC facilities for $14.3 million. In December, 1994, Huttig
sold its window manufacturing business for $2.4 million. The transaction
excluded real estate and receivables.
In March 1993, the company sold the precision ordnance business of its
subsidiary, Unidynamics/Phoenix, Inc. for $6.0 million.
ENVIRONMENTAL
The company is involved in the environmental remediation of various sites
directed or supervised by the Environmental Protection Agency ("EPA"),
equivalent state agencies or as required by law. In most instances, the
involvement is either on a de minimis basis or the required remedial actions
being implemented or engineered are not individually or in the aggregate
expected to be material. Crane recovered $9 million in 1994 from its insurance
carriers after litigation to cover its environmental costs on certain sites.
Estimated future environmental remediation cost (principally for 6 sites) was
$21 million at December 31, 1994 which was fully accrued. Not included in the
above amount is the cost of cleaning one site for approximately $3.6 million for
which a full escrow was established when the property was acquired. However, all
environmental sites by their nature are subject to uncertainties including
uncertainties about the status of the law, regulations, technology, and
information related to the individual site.
The company spent $5 million on environmental costs in 1994 and expects to
pay approximately $7 million in 1995.
OTHER
The adoption of SFAS No. 112 "Employers Accounting for Postemployment Benefits"
in 1994 and of SFAS No. 109 "Accounting For Income Tax" in 1993 had an
immaterial impact on reported results.
14
Crane Co.
Consolidated Statements of Income (In thousands except per share data)
For Years Ended December 31, 1994 1993 1992
- --------------------------------------------------------------------------------------------
NET SALES $1,653,466 $1,310,205 $1,306,977
OPERATING COSTS AND EXPENSES:
Cost of sales 1,253,412 1,016,548 1,045,453
Selling, general and administrative 245,474 178,381 187,750
Depreciation and amortization 44,691 29,420 28,530
- --------------------------------------------------------------------------------------------
1,543,577 1,224,349 1,261,733
- --------------------------------------------------------------------------------------------
OPERATING PROFIT 109,889 85,856 45,244
OTHER INCOME (DEDUCTIONS):
Interest expense-net of interest income
of $3,616, $4,465 and
$4,979 in 1994, 1993 and 1992 (20,555) (6,931) (9,485)
Miscellaneous-net 1,893 893 2,930
- --------------------------------------------------------------------------------------------
(18,662) (6,038) (6,555)
- --------------------------------------------------------------------------------------------
INCOME BEFORE TAXES 91,227 79,818 38,689
PROVISION FOR INCOME TAXES 35,294 30,925 14,403
- --------------------------------------------------------------------------------------------
NET INCOME $ 55,933 $ 48,893 $ 24,286
- --------------------------------------------------------------------------------------------
PRIMARY NET INCOME PER SHARE $ 1.86 $ 1.62 $ .79
Average primary shares outstanding 30,146 30,217 30,845
FULLY DILUTED NET INCOME PER SHARE $ 1.85 $ 1.61 $ .78
Average fully diluted shares outstanding 30,250 30,404 31,080
CASH DIVIDENDS DECLARED PER COMMON SHARE $ .75 $ .75 $ .75
- --------------------------------------------------------------------------------------------
See Financial Review
15
Consolidated Balance Sheets (In thousands except share data)
Balance December 31, 1994 1993
- --------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,072 $ 12,592
Accounts receivable, less allowance of $3,693 ($3,054 in 1993) 234,695 178,767
Inventories, at lower of cost, principally LIFO, or market;
replacement cost would be higher by $52,739 ($54,470 in 1993):
Finished goods 116,625 119,014
Finished parts and subassemblies 30,556 24,261
Work in process 39,286 22,516
Raw materials and supplies 50,598 27,908
- --------------------------------------------------------------------------------------------------------------
Total inventories 237,065 193,699
Other current assets 6,407 8,488
- --------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 480,239 393,546
PROPERTY, PLANT AND EQUIPMENT AT COST:
Land 38,841 22,525
Buildings and improvements 157,513 137,640
Machinery and equipment 316,994 261,543
- --------------------------------------------------------------------------------------------------------------
Gross Property, Plant and Equipment 513,348 421,708
Less accumulated depreciation 250,350 222,314
- --------------------------------------------------------------------------------------------------------------
NET PROPERTY, PLANT AND EQUIPMENT 262,998 199,394
OTHER ASSETS 30,173 31,563
INTANGIBLES, less accumulated amortization of $7,716 ($4,822 in 1993) 63,434 6,579
COST IN EXCESS OF NET ASSETS ACQUIRED, less accumulated
amortization of $16,730 ($11,812 in 1993) 171,201 113,083
- --------------------------------------------------------------------------------------------------------------
$1,008,045 $744,165
==============================================================================================================
16 See Financial Review
Crane Co.
Balance December 31, 1994 1993
- --------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 1,272 $ 3,852
Loans payable 20,986 108,048
Accounts payable 95,211 73,385
Accrued liabilities 119,382 81,107
U.S. and foreign taxes on income 7,444 5,291
- --------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 244,295 271,683
LONG-TERM DEBT 331,289 105,557
OTHER LIABILITIES 20,159 20,631
ACCRUED POSTRETIREMENT BENEFITS 43,066 42,570
ACCRUED PENSION LIABILITIES 8,804 6,767
DEFERRED INCOME TAXES 32,440 6,138
PREFERRED SHARES, par value $.01 - 5,000,000 shares authorized _ _
COMMON SHAREHOLDERS' EQUITY:
Common shares, par value $1.00: Authorized -80,000,000 shares,
Outstanding -30,047,355 shares (29,863,044 in 1993) after
deducting 18,351,321 shares in treasury (18,540,813 in 1993) 30,047 29,863
Capital surplus 12,766 10,160
Retained earnings 296,268 263,666
Cumulative currency translation adjustment (11,089) (12,870)
- --------------------------------------------------------------------------------------------------------------
TOTAL COMMON SHAREHOLDERS' EQUITY 327,992 290,819
- --------------------------------------------------------------------------------------------------------------
$1,008,045 $744,165
==============================================================================================================
17
Consolidated Statements of Cash Flows (In thousands) Crane Co.
For Years Ended December 31, 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 55,933 $ 48,893 $ 24,286
Non-cash charge -- -- 29,284
Depreciation 35,453 24,144 23,719
Amortization 9,238 5,276 4,811
Deferred income taxes (3,283) 980 (8,157)
Cash provided from (used for) operating working capital 17,550 (3,400) (11,725)
Other 2,443 (4,874) 1,866
- --------------------------------------------------------------------------------------------------------------------
TOTAL FROM OPERATING ACTIVITIES 117,334 71,019 64,084
- --------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (28,199) (38,838) (23,174)
Proceeds from disposition of capital assets 16,058 986 1,264
Purchase of equity investments -- -- (10,000)
Sale of equity investments 49 -- 3,733
Payments for acquisitions net of liabilities assumed of $138,797
and $18,802 in 1994 and 1993, respectively (161,424) (111,457) (4,002)
Proceeds from divestitures 2,580 6,029 --
- --------------------------------------------------------------------------------------------------------------------
TOTAL USED FOR INVESTING ACTIVITIES (170,936) (143,280) (32,179)
- --------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
EQUITY:
Dividends paid (22,518) (22,511) (22,999)
Reacquisition of shares (186) (10,405) (25,060)
Stock options exercised 1,267 3,322 3,592
- --------------------------------------------------------------------------------------------------------------------
(21,437) (29,594) (44,467)
- --------------------------------------------------------------------------------------------------------------------
DEBT:
Proceeds from issuance of long-term debt 230,105 -- 99,000
Repayments of long-term debt (76,911) (11,737) (70,462)
Net (decrease) increase in short-term debt (88,774) 77,123 10,705
64,420 65,386 39,243
- --------------------------------------------------------------------------------------------------------------------
TOTAL PROVIDED FROM (USED FOR) FINANCING ACTIVITIES 42,983 35,792 (5,224)
- --------------------------------------------------------------------------------------------------------------------
Effect of exchange rate on cash and cash equivalents 99 (43) (158)
- --------------------------------------------------------------------------------------------------------------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (10,520) (36,512) 26,523
Cash and cash equivalents at beginning of year 12,592 49,104 22,581
- --------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,072 $ 12,592 $ 49,104
====================================================================================================================
DETAIL OF CASH PROVIDED FROM (USED FOR) OPERATING
WORKING CAPITAL (NET OF EFFECTS OF ACQUISITIONS):
Accounts receivable $ (11,004) $ (8,503) $ 4,909
Inventories 15,285 (10,581) 9,845
Other current assets 2,406 (454) (737)
Accounts payable 10,358 9,895 (2,264)
Accrued liabilities 1,743 2,055 (8,052)
U.S. and foreign taxes on income (1,238) 4,188 (15,426)
- --------------------------------------------------------------------------------------------------------------------
TOTAL $ 17,550 $ (3,400) $(11,725)
====================================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 24,947 $ 17,418 $ 19,395
Income taxes paid $ 32,855 $ 34,721 $ 35,650
- --------------------------------------------------------------------------------------------------------------------
18 See Financial Review
Consolidated Statements of Changes in Common Crane Co.
Shareholders' Equity (In thousands except share data)
Currency Total Common
Common Capital Retained Translation Shareholders'
Shares Surplus Earnings Adjustment Equity
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1991 $30,743 $34,780 $233,975 $ 980 $300,478
Net income -- -- 24,286 -- 24,286
Cash dividends -- -- (22,999) -- (22,999)
Reacquisition of 1,062,413 shares (1,062) (23,748) -- -- (24,810)
Exercise of stock options, 237,597 shares 237 3,355 -- -- 3,592
Conversion of debentures, 11,971 shares 12 38 -- -- 50
Restricted stock awarded, 28,750 shares, net 28 827 1,213 -- 2,068
Currency translation adjustment -- -- -- (11,313) (11,313)
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1992 29,958 15,252 236,475 (10,333) 271,352
Net income -- -- 48,893 -- 48,893
Cash dividends -- -- (22,511) -- (22,511)
Reacquisition of 394,220 shares (394) (10,011) -- -- (10,405)
Exercise of stock options, 216,792 shares 217 3,105 -- -- 3,322
Conversion of debentures, 25,962 shares 26 78 -- -- 104
Restricted stock awarded, 56,040 shares, net 56 1,736 809 -- 2,601
Currency translation adjustment -- -- -- (2,537) (2,537)
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1993 29,863 10,160 263,666 (12,870) 290,819
Net income -- -- 55,933 -- 55,933
Cash dividends -- -- (22,518) -- (22,518)
Reacquisition of 6,990 shares (7) (179) -- -- (186)
Exercise of stock options, 82,942 shares 83 1,184 -- -- 1,267
Conversion of debentures, 71,569 shares 71 232 -- -- 303
Restricted stock awarded, 36,790 shares, net 37 1,369 (813) -- 593
Currency translation adjustment -- -- -- 1,781 1,781
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1994 $30,047 $ 12,766 $296,268 $(11,089) $327,992
================================================================================================================================
See Financial Review 19
Financial Review
- --------------------------------------------------------------------------------
ACCOUNTING POLICIES
Principles of Consolidation--The consolidated financial statements include
all subsidiaries. All significant intercompany items have been eliminated.
Certain prior year amounts have been reclassified to conform with the 1994
presentation.
Cash Equivalents--Highly liquid investments with original maturities of
three months or less are considered cash equivalents.
Inventories--Inventories are stated at the lower of cost or market
principally on the last-in, first-out (LIFO) method of inventory valuation.
The reduction of inventory quantities has resulted in a liquidation of LIFO
inventories acquired at lower costs prevailing in prior years. Liquidations
have reduced costs of sales by $3,300,000, $1,500,000, and $2,500,000 in
1994, 1993 and 1992, respectively.
Property, Plant and Equipment--Depreciation was provided primarily by the
straight-line method over the estimated useful lives of the respective assets
which range from three to twenty-five years.
Intangibles--Cost in excess of net assets acquired is being amortized on a
straight-line basis ranging principally from fifteen to forty years.
Intangible assets are being amortized on a straight-line basis over their
estimated useful lives which range from five to twenty years.
The company periodically evaluates the recoverability of goodwill and other
intangible assets by assessing whether the unamortized intangible asset can be
recovered over its remaining life through cash flows.
Income Taxes--The company changed its method of accounting for income
taxes, effective January 1, 1993, to conform with SFAS No. 109, "Accounting for
Income Taxes." The Statement requires the recognition of deferred tax assets and
liabilities for the future tax consequences attributable to differences between
the financial carrying amounts of existing assets and liabilities and their
respective tax bases. Prior to 1993, provisions were made for deferred income
taxes where differences existed between the time that transactions affected
taxable income and the time that these transactions entered into the
determination of income for financial statement purposes.
Interest Rate Swap Agreements--The company enters into interest rate swap
agreements to moderate its exposure to interest rate changes and to lower the
overall cost of borrowings. The differential to be paid or received is
accrued as interest rates change and is recognized in income over the life of
the agreements. No new interest rate swap agreements were executed in 1994.
Net Income Per Share--Primary earnings per share calculations are based
upon the weighted average number of common shares outstanding after giving
effect to dilutive stock options. Fully diluted earnings per share gives effect
to the assumed conversion of convertible debentures and the effect of dilutive
stock options.
Revenues--Revenues are generally recorded when title passes to the
customer. Revenues on long-term contracts are recognized under the
percentage-of-completion method of accounting and are measured principally on
either a cost-to-cost or a unit of delivery basis. These contracts represent
approximately 1% of sales this year. Accounts receivable include unreimbursed
costs and accrued profits to be billed of $4,893,000, and $4,615,000 at December
31, 1994 and 1993, respectively.
CHARGE TO OPERATIONS IN 1992
The 1992 operating profit included a charge of $39.4 million, or 78 cents per
share, including $20.1 million of environmental expenses and asset
write-downs associated with Unidynamics/Phoenix, $12.1 million primarily
related to product liability exposure and excess facility costs, and $7.2
million of costs related to the settlement of an anti-trust lawsuit involving
a previously discontinued business.
RESEARCH AND DEVELOPMENT
Product development and engineering costs aggregated approximately $46,400,000,
$18,400,000 and $23,300,000 in 1994, 1993, and 1992, respectively. Included in
these amounts were approximately $9,500,000, and $4,100,000 received in 1994 and
1992 respectively, for customer-sponsored research and development. The increase
in 1994 was mainly due to the ELDEC acquisition.
MISCELLANEOUS--NET
(In thousands) For Years Ended December 31, 1994 1993 1992
- -----------------------------------------------------------------------------
Gain (Loss) on disposal of capital assets $1,346 $425 $ (779)
Gain on investments 361 556 3,997
Other 186 (88) (288)
- -----------------------------------------------------------------------------
$1,893 $893 $2,930
=============================================================================
20
- --------------------------------------------------------------------------------
SUPPLEMENTARY INCOME STATEMENT INFORMATION
The company's repair and maintenance costs for 1994 were $19.5 million as
compared to $15.6 million and $17.2 million in 1993 and 1992, respectively.
Amounts for amortization of intangible assets, taxes other than payroll and
income taxes, royalties and advertising cost were less than 1 percent of
sales.
INCOME TAXES
The company adopted the provisions of SFAS 109 effective January 1, 1993. The
effect of adopting this standard was not material to the company's financial
statements.
A reconciliation between income taxes based on the application of the
statutory federal income tax rate to income before taxes and income taxes as
set forth in the Consolidated Statements of Income is as follows:
(In thousands) 1994 1993 1992
- -----------------------------------------------------------------------
Income before taxes:
Domestic $90,765 $83,296 $49,980
Foreign 462 (3,478) (11,291)
- -----------------------------------------------------------------------
91,227 79,818 38,689
- -----------------------------------------------------------------------
Statutory federal
tax at 35% (34% in 1992) 31,929 27,936 13,154
Increase (reduction) from:
Foreign and local taxes 5,117 4,756 1,551
Non-deductible goodwill 1,552 686 659
Non-taxable FSC income (1,343) (737) (804)
Effect of tax rate increase -- (510) --
Other (1,961) (1,206) (157)
- -----------------------------------------------------------------------
Provision for income taxes $35,294 $30,925 $14,403
=======================================================================
Percentage of income
before taxes 38.7% 38.7% 37.2%
=======================================================================
The foregoing provision includes (benefits)/charges for foreign taxes of
$1,926,000, $413,000 and ($4,235,000) and state taxes of $5,572,000, $5,140,000
and $3,352,000 in 1994, 1993 and 1992, respectively.
At December 31, 1994, the company had unremitted earnings of foreign
subsidiaries of $73 million for which a deferred tax liability has not been
recognized. It is the intention of the company to indefinitely reinvest these
earnings in foreign operations. The determination of the amount of the
unrecognized deferred tax liability for temporary differences related to
these foreign subsidiaries is not practicable.
Deferred income taxes at December 31:
(In thousands) 1994 1993
Assets Liabilities Assets Liabilities
- -----------------------------------------------------------------------------
Accelerated depreciation $ -- $15,620 $ -- $15,516
Difference between
book basis and the
tax basis of assets -- 19,041 -- 9,350
Intangibles -- 16,928 -- --
Postretirement benefits 16,815 -- 15,684 --
Inventory related 1,046 -- 1,388 --
Insurance related 8,132 -- 5,354 --
Environmental related 8,184 -- 5,414 --
Pension -- 3,396 -- 4,084
Deferred compensation 2,443 -- 1,790 --
Other 8,575 731 5,706 963
- -----------------------------------------------------------------------------
$45,195 $55,716 $35,336 $29,913
=============================================================================
At December 31, 1994 current deferred tax assets of $21.9 million ($12.6
million in 1993) were included in other receivables and in 1993 $1.1 million
of current deferred liabilities were included in income tax payable. Net
non-current deferred tax liabilities of $32.4 million ($6.1 million in 1993)
were included in deferred income taxes.
The provision for income taxes is composed of the following:
(In thousands) 1994 1993 1992
- ------------------------------------------------------------------------
Deferred income taxes $(3,283) $ 980 $(8,157)
Current income taxes 38,577 29,945 22,560
- ------------------------------------------------------------------------
$35,294 $30,925 $14,403
========================================================================
The components of deferred income tax are as follows:
(In thousands) 1994 1993 1992
- ------------------------------------------------------------------------
Depreciation $(2,960) $(1,829) $(3,109)
Reserves 295 2,271 (5,348)
Other (618) 538 300
- ------------------------------------------------------------------------
$(3,283) $ 980 $(8,157)
========================================================================
21
Financial Review (continued)
- --------------------------------------------------------------------------------
POSTRETIREMENT BENEFITS
Postretirement health care and life insurance benefits are provided for
certain domestic and foreign employees who meet minimum age and service
requirements. The company does not pre-fund these benefits and has the right
to modify or terminate the plan.
(In thousands) December 31, 1994 1993
- --------------------------------------------------------------------------
Accumulated postretirement benefit obligation:
Retirees $23,059 $24,807
Fully-eligible active plan participants 1,983 1,973
Other active plan participants 5,934 6,669
- --------------------------------------------------------------------------
Total 30,976 33,449
Unrecognized net gain 12,090 9,121
- --------------------------------------------------------------------------
Accrued postretirement benefit $43,066 $42,570
==========================================================================
Net periodic cost:
Service cost -benefits earned during the period $ 722 $ 850
Interest cost on accumulated benefit obligation 2,303 2,768
Amortization of gain (448) (182)
- --------------------------------------------------------------------------
Net cost 2,577 3,436
Benefits paid (2,411) (2,482)
Burks Pumps acquisition -- 2,218
Mark Controls acquisition 330 --
Accrued postretirement benefit - beginning of year 42,570 39,398
- --------------------------------------------------------------------------
Accrued postretirement benefit - end of year $43,066 $42,570
==========================================================================
In 1992 net periodic cost included service cost, interest cost and
amortization of $943, $2,772 and ($100), respectively.
The cost of covered benefits was assumed to increase 12% for 1994, and then
to decrease gradually to 6% by 2007 and remain at that level thereafter. In
1993, the cost of covered benefits was assumed to increase 13% for 1993, and
then to decrease gradually to 5% by 2007 and remain at that level thereafter. An
increase in the assumed health care cost trend rate by one percentage point
would increase the accumulated postretirement benefit obligation by
approximately $3.1 million and the net periodic cost by approximately $.4
million for the year. The discount rate used in determining the accumulated
postretirement benefit obligation was 8.25% in 1994, 7.25% in 1993, and 8.5% in
prior years.
The company participates in several multi-employer insurance plans, which
provide benefits to certain employees under collective bargaining agreements.
Total contributions to these plans were approximately $2,320,000 in 1994,
$2,193,000 in 1993, and $1,853,000 in 1992.
PENSIONS
The company and its subsidiaries have pension plans which cover substantially
all of their employees and non-employee directors. The plans generally
provide benefit payments using a formula based on length of service and final
average compensation, except for some hourly employees for whom the benefits
are a fixed amount per year of service. The company's policy is to fund at
least the minimum amount required by the applicable regulations. The pension
plan for salaried employees in Canada was changed in 1993 from a defined
benefit to a defined contribution money purchase plan, resulting in a
curtailment gain of approximately $3.1 million. The following table sets forth
net periodic pension costs.
(In thousands) 1994 1993 1992
- ---------------------------------------------------------------------------
Service cost-benefits
earned during the period $ 8,743 $ 7,305 $ 7,598
Interest cost on projected
benefit obligation 15,435 13,979 13,864
Actual loss (gain) on plan assets 6,678 (35,872) (14,368)
Net amortization and deferral (27,468) 13,443 (4,947)
- ---------------------------------------------------------------------------
Pension (income) expense
for company sponsored
pension plans $ 3,388 $ (1,145) $ 2,147
===========================================================================
22
- --------------------------------------------------------------------------------
The following table sets forth by funded status the amounts recognized in the
company's balance sheet at December 31, for company sponsored pension plans:
1994 1993
--------------------------------------------------
(In thousands) Overfunded Underfunded Overfunded Underfunded
- -----------------------------------------------------------------------------------------------------------------------------
Actuarial present value of benefit obligation:
Vested $168,177 $ 6,772 $153,497 $6,500
Non-vested 4,988 229 5,052 99
- -----------------------------------------------------------------------------------------------------------------------------
Accumulated benefit obligation 173,165 7,001 158,549 6,599
Effect of future pay increases 28,043 354 28,829 282
- -----------------------------------------------------------------------------------------------------------------------------
Projected benefit obligation 201,208 7,355 187,378 6,881
- -----------------------------------------------------------------------------------------------------------------------------
Assets and book accruals relating to such benefits:
Funded assets at fair value 239,104 5,448 232,475 5,890
Book accruals, net (8,863) 1,604 (5,830) 709
- -----------------------------------------------------------------------------------------------------------------------------
230,241 7,052 226,645 6,599
- -----------------------------------------------------------------------------------------------------------------------------
Assets and book accruals greater (less) than projected benefit obligations $ 29,033 $ (303) $ 39,267 $ (282)
=============================================================================================================================
Consisting of:
Unrecognized net asset (liability) at date of adoption less amortization $ 12,072 $ (561) $ 13,195 $ (675)
Unrecognized net gains (losses) 18,420 (1,269) 25,138 (396)
Unrecognized prior service cost (1,459) -- 934 --
Adjustment required to recognize minimum liability -- 1,527 -- 789
- -----------------------------------------------------------------------------------------------------------------------------
$ 29,033 $ (303) $ 39,267 $ (282)
=============================================================================================================================
The following rates were used to determine the projected benefit obligation:
1994 1993 1992
- -------------------------------------------------------------------------
U.S. Plans:
Discount rate 8.25% 7.25% 8.50%
Expected rate of return
on assets 8.75% 8.25% 9.50%
Rate of compensation 5.00% 4.75% 6.25%
Foreign Plans:
Discount rate 8.25%-8.50% 7.50%-8.25% 8.50%-9.00%
Expected rate of return
on assets 8.25%-9.00% 8.25%-9.00% 9.00%
Rate of compensation 7.5% 7.5% 6.25%-7.5%
=========================================================================
At December 31, 1994, substantially all plan assets are invested in listed
stocks and bonds. These investments include common stock of the company which
represents 4% of plan assets.
The company participates in several multi-employer pension plans, which
provide benefits to certain employees under collective bargaining agreements.
Total contributions to these plans were approximately $1,533,000 in 1994,
$1,482,000 in 1993, and $1,301,000 in 1992.
ELDEC Corporation has a non-contributory target benefit (defined
contribution) plan to provide retirement benefits for all eligible employees.
The annual contribution is aimed at funding targeted retirement benefits for
each eligible employee. The contributions for 1994, 1993 and 1992 were
$2,073,000 ($1,343,000 since acquisition), $2,451,000, and $2,756,000,
respectively.
The company sponsors savings and investment plans [401(k) Plans] which are
available to eligible non-bargaining and salaried employees of the company
and certain of its subsidiaries and to certain bargaining employees of a
subsidiary. For the non-bargaining plan, the company contributes, on a
matching basis, an amount equal to 50% of deferred savings up to 6% of each
participant's compensation, all of which is invested in company stock. In
1994, the company made contributions of approximately $2.6 million to the
non-bargaining 401(k) Plan ($2.4 million and $2.2 million in 1993 and 1992,
respectively).
23
Financial Review (continued)
- --------------------------------------------------------------------------------
ACCRUED LIABILITIES
(In thousands) December 31, 1994 1993
- -------------------------------------------------------------------------
Employee-related expenses $ 40,944 $27,209
Insurance 16,755 13,532
Environmental 10,876 5,295
Warranty 8,213 2,506
Sales allowances 5,458 4,693
Interest 4,087 4,004
Taxes other than income 3,055 2,532
Pensions 4,023 2,812
Other 25,971 18,524
- -------------------------------------------------------------------------
$119,382 $81,107
- -------------------------------------------------------------------------
OTHER LIABILITIES
(In thousands) December 31, 1994 1993
- -------------------------------------------------------------------------
Environmental $10,192 $ 8,669
Insurance 4,346 4,707
Warranty 2,533 4,494
Relocation 74 640
Employee benefits 665 602
Other 2,349 1,519
- -------------------------------------------------------------------------
$20,159 $20,631
- -------------------------------------------------------------------------
SHORT-TERM FINANCING
As of December 31, 1994, the company had $248 million in domestic and foreign
uncommitted, unsecured money market bid rate lines of credit of which $175
million was unused. The weighted average interest rate for short-term
borrowings at December 31, 1994 and 1993 was 6.7% and 4.7%, respectively.
These lines of credit are typically available for borrowings up to 364 days
and are renewable at the option of the lender.
LONG-TERM FINANCING
(In thousands) December 31, 1994 1993
- -------------------------------------------------------------------------
CRANE CO.:
Senior debt:
8 1/2% notes due 2004 $100,000 $100,000
Original issue discount (769) (852)
Deferred financing costs (630) --
- -------------------------------------------------------------------------
98,601 99,148
- -------------------------------------------------------------------------
7 1/4% notes due 1999 150,000 --
Original issue discount (308) --
Deferred financing costs (2,039) --
- -------------------------------------------------------------------------
147,653 --
- -------------------------------------------------------------------------
Subordinated debt:
5% Convertible debentures due 1994,
convertible at $4.26 -- 738
Various bank loans--6.38% 54,400 --
- -------------------------------------------------------------------------
TOTAL CRANE CO. 300,654 99,886
- -------------------------------------------------------------------------
SUBSIDIARIES:
Industrial revenue bonds 3,444 4,757
Capital lease obligations 2,831 3,284
Various bank loans--7.1% 24,372 --
Other 1,260 1,482
- -------------------------------------------------------------------------
TOTAL SUBSIDIARIES 31,907 9,523
- -------------------------------------------------------------------------
Total long-term debt 332,561 109,409
Less current portion 1,272 3,852
- -------------------------------------------------------------------------
Long-term debt net of current portion $331,289 $105,557
=========================================================================
At December 31, 1994, the principal amounts of long-term debt repayments
required for the next five years are $1,272,000 in 1995, $3,369,000 in 1996,
$55,441,000 in 1997, $926,000 in 1998, and $172,993,000 in 1999.
Short-term obligations of $58.8 million at December 31, 1994 were
classified as long-term debt. The company has entered into finance agreements
that permits it to refinance short-term obligations on a long-term basis. The
majority of these agreements terminate in 1997.
As of December 31, 1994, Crane Co. had $200 million in contractually
committed lines of credit, under a long-term bank credit facility which expires
in April 1997. There were no borrowings outstanding under this facility at year
end 1994. Commitments under the facility are for general corporate purposes and
to provide bridge financing for acquisitions. In addition, the company has other
international long-term credit arrangements with banks totaling $36 million of
which $13 million was available at December 31, 1994. Several of the company's
subsidiaries have the ability to borrow from long-term bank credit facilities
and other international credit arrangements.
24
- --------------------------------------------------------------------------------
The effective interest rates at December 31, 1994 were 6.38% and 7.1% on
the domestic and foreign bank loans, respectively. The long-term credit
facilities contain certain financial and restrictive covenants, including
limitations on indebtedness and liens.
In June 1994, the company issued $150 million 7 1/4% Senior Notes due 1999.
Incorporating the effects of underwriting fees, original issue discount and the
cost of a treasury lock agreement, the-all-in cost of this financing was 7.6%.
This public debt was issued under the company's $300 million shelf registration
as filed with the Securities and Exchange Commission in May 1994.
In March 1992, the company issued $100 million 8 1/2% Senior Notes due
2004. Proceeds of this debt offering were used for the early optional redemption
of two public debentures in addition to general corporate purposes.
Incorporating the effects of fees and original issue discount the-all-in cost of
this financing was 8.65%. The effect of the previous swap transactions lowered
this effective rate to 8.5% in 1994.
Financial Instruments--The company periodically enters into interest rate
swap agreements to manage its exposure to interest rate changes and to lower
the overall cost of borrowings. All interest rate swaps are subject to market
risk as interest rates fluctuate. No new interest rate swap agreements were
executed in 1994. At December 31, 1994, the company had no interest rate swap
contracts outstanding. Two outstanding agreements with notional amounts of
$20 million each which converted the company's interest rate exposure from
fixed to floating were terminated and recognized in 1994 at a loss of
$487,000.
During 1993, the company entered into five agreements. Two swap positions
which changed the company's interest rate exposure from fixed to floating were
terminated in August 1993 with realized gains. Two agreements with notional
amounts of $20 million each that convert the company's interest rate exposure
from fixed to floating were terminated in 1994. The company also entered into an
off-market swap to lock in the gain on an exposed swap position executed in
1992. The gain on this transaction is being amortized over the life of the
original agreement.
At December 31, 1993, the company had interest rate swap contracts
outstanding with a total notional principal amount of $49.1 million.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial instruments
was made in accordance with the requirements of SFAS No.107. The estimated
fair value amounts have been determined by the company using available market
information and appropriate valuation methodologies.
(In thousands) December 31, 1994 1993
- ----------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- ----------------------------------------------------------------------------
Assets:
Investments $ 10,000 $ 10,000 $ 10,000 $ 10,000
Liabilities:
Short-term debt 22,258 22,258 111,900 115,450
Long-term debt 331,289 322,059 105,557 118,707
Deferred gain on
interest rate swap
agreements-net -- -- 1,153 1,153
- ----------------------------------------------------------------------------
Investments-the company purchased the equivalent of 600,000 restricted
shares of Mid Ocean Reinsurance Company, Ltd. in 1992 for $10 million.This
investment is included in other assets on the balance sheet. At December 31,
1994 unrestricted shares of Mid Ocean Reinsurance traded for $27.25 per share.
Short-term and Long-term debt -rates currently available to the Company for
debt with similar terms and remaining maturities are used to estimate the fair
value for debt issues that are not quoted on an exchange.
Interest Rate Swap Agreements -the fair value of interest rate swaps is the
a mount at which they could be settled, based on estimates obtained from
dealers.
COMMITMENTS AND CONTINGENCIES
The company leases certain facilities, vehicles and equipment under capital and
operating leases with various terms. Certain leases contain renewal or purchase
options. Future minimum payments, by year, and in the aggregate, under these
leases with initial or remaining terms of one year or more consisted of the
following at December 31, 1994:
Minimum
Capital Operating Sublease
(In thousands) Leases Leases Income Net
- -----------------------------------------------------------------------------
1995 $ 661 $10,734 $ 968 $10,427
1996 554 9,054 513 9,095
1997 448 6,949 240 7,157
1998 365 5,374 106 5,633
1999 215 3,723 50 3,888
Thereafter 1,281 11,658 233 12,706
- -----------------------------------------------------------------------------
Total minimum
lease payments 3,524 $47,492 $2,110 $48,906
==================================
Interest (693)
- ------------------------------------
Present value $2,831*
====================================
*Includes $488 due within one year.
25
The weighted average interest rate for capital leases is 7.54%.
Rental expense for all operating leases was $16,164,000, $15,865,000 and
$17,081,000 for 1994, 1993 and 1992, respectively.
The cost of assets capitalized under leases is as follows at December 31:
(In thousands) 1994 1993
- ----------------------------------------------------------------------
Buildings and improvements $ 7,671 $11,223
Machinery and equipment 8,286 8,344
- ----------------------------------------------------------------------
15,957 19,567
Less accumulated depreciation 13,181 15,808
- ----------------------------------------------------------------------
$ 2,776 $ 3,759
======================================================================
The company has established insurance programs to cover product and general
liability losses. These programs have deductible amounts of $5 million before
coverage begins, with the exception of aircraft products which has first dollar
coverage. The company does not deem its deductible exposure to be material.
At December 31, 1994, the company had received certain proposed notices of
adjustment to federal income tax and was involved in various claims and legal
actions arising in the ordinary course of business. In the opinion of
management, the ultimate disposition of these matters will not have a material
adverse effect on the company's financial condition.
The company is involved in the environmental remediation of various sites
directed or supervised by the Environmental Protection Agency ("EPA"),
equivalent state agencies or as required by law. In most instances, the
involvement is either on a de minimis basis or the required remedial actions
being implemented or engineered are not individually or in the aggregate
expected to be material. Crane recovered $9 million in 1994 from its insurance
carriers after litigation to cover its environmental costs on certain sites.
Estimated future environmental remediation cost (principally for 6 sites) was
$21 million at December 31, 1994 which was fully accrued. Not included in the
above amount is the cost of cleaning one site for approximately $3.6 million for
which a full escrow was established when the property was acquired. However, all
environmental sites by their nature are subject to uncertainties including
uncertainties about the status of the law, regulations, technology, and
information related to the individual sites.
The company has also been advised by the EPA that it is a potentially
responsible party (PRP) with respect to the closed plant in Roebling, New
Jersey of a former subsidiary, CF&I Steel Corporation. The company has
advised the EPA that it was not an operator of the site and has rejected all
assertions of PRP status.
The company is a defendant in a law suit under the False Claims Act seeking
treble damages and attorneys' fees in connection with the assumption by the
Pension Benefit Guarantee Corporation of the unfunded pension liabilities of
CF&I Steel Corporation. The company believes the allegations are without merit
and will not have a material effect on the company's consolidated financial
statements.
ACQUISITIONS, DIVESTITURES AND INVESTMENTS
During 1994, the company completed three acquisitions at a cost of
approximately $240 million including debt. On May 17, the company, through
its wholly-owned subsidiary Huttig Sash & Door Company, acquired a moulding
and millwork manufacturing operation in Prineville, Oregon. On April 28, the
company purchased Mark Controls Corporation, a manufacturer of automatic and
manually-operated valves, specialized electronic and mechanical instruments
and controls, regulators, and pneumatic and electronic controllers. On March
18, the company acquired ELDEC Corp. whose products are used worldwide on
nearly every aircraft model and include: proximity switches and sensing
systems; power conversion equipment; fuel flow measurement systems; data
acquisition, monitoring and control equipment; flat panel displays; and
integrated modular systems. The net assets of these three acquisitions have
been included in the financial statements at values representing a
preliminary allocation of the purchase price. Although final valuations may
affect this allocation, they are not expected to have a material effect on the
financial statements. The purchase price exceeded the preliminary fair values
assigned by $61 million.
The acquisitions added $61 million to intangible assets in 1994. Included
in the additions for 1994 were $19.5 million for intellectual properties, $28.1
million for tradenames, $9.5 million for drawings and $1.6 million for patents.
In 1993, the company completed five acquisitions at a total cost of
approximately $106 million. In December, the company acquired Burks Pumps,
Inc., which provides engineered pumps for an array of specialized commercial,
industrial and municipal fluid handling applications. Their products are
marketed under the Barnes, Burks, Weinman and Prosser brand names. Also
included was a line of tank cleaning equipment sold under the Sellers brand
name for the industrial clean-in-place market. This acquisition substantially
increased the company's involvement in niche markets in the pump industry. In
October, the company acquired Filon, a manufacturer of fiberglass-reinforced
plastic (FRP) panels. Filon was integrated with Kemlite which produces FRP
panels for the transportation, building products, and recreational vehicle
markets. The three remaining acquisitions included two Huttig distribution
businesses and the Perflow purchase by Crane U.K. Ltd..
In 1992, certain assets of Jenkins Canada, Inc., a manufacturer of bronze
and iron valves, were acquired by the company for approximately $4 million.
All acquisitions were accounted for by the purchase method. Since Burks
Pumps was acquired at the end of December 1993, no operating results were
included in the company's 1993 income. The results of operations for all
26
- --------------------------------------------------------------------------------
other acquisitions have been included in the financial statements from their
respective dates of purchase.
Pro forma financial information assuming the acquisition of Mark Controls
Corporation and ELDEC Corporation had taken place as of the beginning of 1993
is provided below.
(In thousands except per share data--unaudited) 1994 1993
- --------------------------------------------------------------------------
Net Sales $1,722,128 $1,538,351
- --------------------------------------------------------------------------
Operating Profit 111,519 96,177
Net Income 55,016 44,598
- --------------------------------------------------------------------------
Income Per Share $ 1.83 $ 1.48
- --------------------------------------------------------------------------
In 1994, the company sold Modulinc, the fiber optic channel product line of
ELDEC and excess ELDEC facilities for $14.3 million. In December 1994, Huttig
sold its window manufacturing business for $2.4 million. The transaction did not
include real estate and receivables.
During March, 1993 the company sold the precision ordnance business of its
subsidiary, Unidynamics/Phoenix, Inc. for $6 million.
During 1992 the company purchased the equivalent of 600,000 restricted
shares of Mid Ocean Reinsurance Company, Ltd. for $10 million.
STOCK OPTIONS AND STOCK AWARD PLANS
A summary of stock option transactions follows:
Number of Shares 1994 1993 1992
- ------------------------------------------------------------------------
Outstanding January 1 1,273,674 1,215,966 1,230,438
Options granted 349,500 283,000 264,000
Options cancelled (38,563) (8,500) (40,875)
Options exercised (82,942) (216,792) (237,597)
- ------------------------------------------------------------------------
Outstanding December 31 1,501,669 1,273,674 1,215,966
========================================================================
At December 31, 1994, options for 959,044 shares were exercisable and
147,447 shares were available for grant. Per share option prices ranged from
$10.13 to $27.25.
The company's restricted stock award plan provides for awards of common
stock to key officers and employees, subject to resale restrictions. The current
restrictions on outstanding awards are scheduled to lapse upon the achievement
of certain performance objectives.
In 1993 the shareholders approved a proposal of the board of directors to
amend the company's restricted stock award plan, extending the expiration
date from April 30, 1993 to May 30, 1998 and increasing as of May 10, 1993 the
common shares available for grant to 500,000 shares. The company awarded
110,500 shares in 1994, and as of December 31, 1994, 316,500 shares are
available for future awards. Compensation expense is determined based on the
market value at the time of the award and is normally amortized over the five
year restriction period.
Pursuant to the Non-Employee Director Restricted Stock Plan, non-employee
directors received 3,040 shares of company stock in 1994 as a group. All
directors who are not full-time employees of the company are eligible to
participate in the plan. The shares are issued each year after the company's
annual meeting, are forfeitable if the director ceases to remain a director
until the company's next annual meeting, and may not be sold for a period of
five years, or until the director leaves the board.
PREFERRED SHARES PURCHASE RIGHTS
In July 1988, the company distributed one preferred share purchase right for
each outstanding share of common stock. The preferred rights were not
exercisable when granted and may only become exercisable under certain
circumstances involving actual or potential acquisitions of the company's
common stock by a person or affiliated persons. Depending upon the
circumstances, if the rights become exercisable, the holder may be entitled
to purchase shares of the company's Series A Junior Participating Preferred
Stock, or shares of common stock of the acquiring person. Preferred shares
purchasable upon exercise of the rights will not be redeemable. Each
preferred share will be entitled to preferential rights regarding dividend
and liquidation payments, voting power, and, in the event of any merger,
consolidation or other transaction in which common shares are exchanged,
preferential exchange rate. The rights will remain in existence until June 27,
1998, unless they are earlier terminated, exercised or redeemed. The company has
authorized five million shares of $.01 par value preferred stock.
ANALYSIS BY SEGMENT OF BUSINESS
Since October 1993, Crane Co. has acquired five companies for an aggregate
purchase price of approximately $336 million including debt. In the full year
preceding each of their acquisition dates, these businesses had combined
sales totalling approximately $400 million. Because of this major change, the
operating units of the former Engineered Industrial Products segment have
been realigned into six new segments: Fluid Handling, Aerospace, Engineered
Materials, Crane Controls, Merchandising Systems, and Other. The Wholesale
Distribution segment remains unchanged. The segment reporting realignment
will provide investors with a clearer view of Crane's manufacturing business.
An analysis of sales, operating profit, assets, capital expenditures and
depreciation and amortization appears on page 28 and 29.
27
Analysis by Segment (In thousands)
1994 1993 1992
--------------------------------------------------------
Amount % Amount % Amount %
- ---------------------------------------------------------------------------------------------------------------------
NET SALES:
Industry Segments:
Fluid Handling $ 309,969 18 $ 197,656 15 $ 218,062 17
Aerospace 160,843 10 99,587 7 135,218 10
Engineered Materials 201,868 12 161,759 12 161,658 12
Crane Controls 87,973 5 35,009 3 40,128 3
Merchandising Systems 168,543 10 166,668 13 151,125 11
Wholesale Distribution 730,646 44 655,218 49 608,519 46
Other 12,501 1 14,945 1 13,728 1
- ----------------------------------------------------------------------- --- ---------- --- ---------- ---
1,672,343 100 1,330,842 100 1,328,438 100
Intersegment Sales (18,877) (20,637) (21,461)
- ----------------------------------------------------------------------- ---------- ----------
$1,653,466 $1,310,205 $1,306,977
======================================================================= ========== ==========
Geographic Region:
United States $1,348,285 80 $1,031,724 77 $ 999,543 75
Canada 161,492 10 171,576 13 172,345 13
Other International 164,224 10 135,752 10 157,733 12
- ----------------------------------------------------------------------- --- ---------- --- ---------- ---
1,674,001 100 1,339,052 100 1,329,621 100
Interregional Sales (20,535) (28,847) (22,644)
- ----------------------------------------------------------------------- ---------- ----------
$1,653,466 $1,310,205 $1,306,977
======================================================================= ========== ==========
OPERATING PROFIT:
Industry Segments:
Fluid Handling $ 19,062 16 $ 8,855 9 $ 11,932 19
Aerospace 31,316 26 31,159 32 22,010 35
Engineered Materials 22,987 19 15,493 16 6,080 10
Crane Controls 4,438 4 865 1 2,609 4
Merchandising Systems 23,167 19 17,998 18 16,609 26
Wholesale Distribution 20,007 17 22,679 23 13,582 22
Other (749) (1) 789 1 (10,074) (16)
- ----------------------------------------------------------------------- --- ---------- --- ---------- ---
120,228 100 97,838 100 62,748 100
Corporate (10,347) (12,279) (17,732)
Intersegment Elimination 8 297 228
- ----------------------------------------------------------------------- ---------- ----------
$ 109,889 $ 85,856 $ 45,244
======================================================================= ========== ==========
Geographic Region:
United States $ 114,091 95 $ 94,751 97 $ 67,276 107
Canada 2,623 2 3,930 4 (7,091) (11)
Other International 3,522 3 (546) (1) 2,791 4
- ----------------------------------------------------------------------- --- ---------- --- ---------- ---
120,236 100 98,135 100 62,976 100
Corporate (10,347) (12,279) (17,732)
- ----------------------------------------------------------------------- ---------- ----------
$ 109,889 $ 85,856 $ 45,244
======================================================================= ========== ==========
28 See Financial Review
Crane Co.
1994 1993 1992
-------------------------------------------------
Amount % Amount % Amount %
- -----------------------------------------------------------------------------
ASSETS:
Industry Segments:
Fluid Handling $ 240,789 25 $174,789 25 $ 72,162 13
Aerospace 177,582 18 68,413 10 84,116 15
Engineered Materials 103,151 11 113,326 17 98,818 18
Crane Controls 122,353 13 21,321 3 24,956 5
Merchandising Systems 91,678 9 82,396 12 70,073 13
Wholesale Distribution 222,876 23 207,716 31 180,737 33
Other 13,444 1 12,638 2 17,919 3
- -------------------------------------- --- -------- --- -------- ---
971,873 100 680,599 100 548,781 100
Corporate 36,172 63,566 81,430
- -------------------------------------- -------- --------
$1,008,045 $744,165 $630,211
====================================== ======== ========
Geographic Region:
United States $ 796,165 82 $522,772 77 $394,276 72
Canada 83,653 9 84,194 12 83,354 15
Other International 92,055 9 73,633 11 71,151 13
- -------------------------------------- --- -------- --- -------- ---
971,873 100 680,599 100 548,781 100
Corporate 36,172 63,566 81,430
- -------------------------------------- -------- --------
$1,008,045 $744,165 $630,211
====================================== ======== ========
CAPITAL EXPENDITURES:
Industry Segments:
Fluid Handling $ 7,825 $ 5,935 $ 5,911
Aerospace 2,671 2,001 2,159
Engineered Materials 6,384 4,227 4,330
Crane Controls 2,043 880 1,488
Merchandising Systems 6,484 10,663 5,190
Wholesale Distribution 2,580 8,615 3,767
Other 112 169 132
Corporate 100 6,348 197
- -------------------------------------- -------- --------
$ 28,199 $ 38,838 $ 23,174
====================================== ======== ========
Geographic Region:
United States $ 19,176 $ 31,999 $ 13,616
Canada 2,726 3,182 4,263
Other International 6,297 3,657 5,295
- -------------------------------------- -------- --------
$ 28,199 $ 38,838 $ 23,174
====================================== ======== ========
DEPRECIATION AND AMORTIZATION:
Industry Segments:
Fluid Handling $ 10,029 $ 5,107 $ 4,775
Aerospace 9,260 3,452 3,952
Engineered Materials 6,558 5,896 6,320
Crane Controls 5,199 2,325 2,332
Merchandising Systems 4,736 3,605 3,438
Wholesale Distribution 6,493 5,279 4,406
Other 655 694 681
Corporate 1,761 3,062 2,626
- -------------------------------------- -------- --------
$ 44,691 $ 29,420 $ 28,530
====================================== ======== ========
Geographic Region:
United States $ 37,632 $ 22,372 $ 21,078
Canada 3,202 3,264 3,396
Other International 3,857 3,784 4,056
- -------------------------------------- -------- --------
$ 44,691 $ 29,420 $ 28,530
====================================== ======== ========
29
Management's Responsibility for Financial Reporting
- --------------------------------------------------------------------------------
The accompanying consolidated financial statements of Crane Co. and subsidiaries
have been prepared by management in conformity with generally accepted
accounting principles and, in the judgment of management, present fairly and
consistently the company's financial position and results of operations and cash
flows. These statements by necessity include amounts that are based on
management's best estimates and judgments and give due consideration to
materiality.
The accounting systems and internal accounting controls of the company are
designed to provide reasonable assurance that the financial records are reliable
for preparing consolidated financial statements and maintaining accountability
for assets and that, in all material respects, assets are safeguarded against
loss from unauthorized use or disposition. Qualified personnel throughout the
organization maintain and monitor these internal accounting controls on an
ongoing basis. In addition, the company's internal audit department
systematically reviews the adequacy and effectiveness of the controls and
reports thereon. The consolidated financial statements have been audited by
Deloitte & Touche, LLP, independent auditors, whose report appears on this page.
The Audit Committee of the Board of Directors, composed solely of outside
directors, meets periodically with management and with the company's internal
auditors and independent auditors to review matters relating to the quality
of financial reporting and internal accounting control and the nature, extent
and results of their audits. The company's internal auditors and independent
auditors have free access to the Audit Committee.
/s/ R. S. Evans
R. S. Evans
Chairman, Chief Executive Officer and President
/s/ David S. Smith
D. S. Smith
Vice President--Finance and Chief Financial Officer
Independent Auditors' Report
- --------------------------------------------------------------------------------
[LOGO OF DELOITTE & TOUCHE LLP APPEARS HERE]
TO THE SHAREHOLDERS OF CRANE CO.
We have audited the accompanying consolidated balance sheets of Crane Co. and
its subsidiaries as of December 31, 1994 and 1993, and the related
consolidated statements of income, cash flows and changes in common
shareholders' equity for each of the three years in the period ended December
31, 1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Crane Co. and its subsidiaries
at December 31, 1994 and 1993, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1994 in
conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Stamford, Connecticut
January 23, 1995
30
Five-year Summary of
Selected Financial Data (In thousands except per share data) Crane Co.
Years Ended December 31, 1994 1993 1992 1991 1990
- ------------------------------------------------------------------------------------------------------------------------------
NET SALES $1,653,466 $1,310,205 $1,306,977 $1,302,532 $1,438,248
Depreciation and Amortization 44,691 29,420 28,530 28,411 30,102
OPERATING PROFIT 109,889 85,856 45,244 78,902 113,311
Interest Expense 24,171 11,396 14,464 11,540 16,746
INCOME BEFORE TAXES 91,227 79,818 38,689 72,405 102,488
PROVISION FOR INCOME TAXES (35,294) (30,925) (14,403) (27,412) (39,753)
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS $ 55,933 $ 48,893 $ 24,286 $ 44,993/(a)/ $ 62,735
==============================================================================================================================
INCOME PER COMMON SHARE
Primary $ 1.86 $ 1.62 $ .79 $ 1.42/(a)/ $ 1.96
Fully Diluted 1.85 1.61 .78 1.41/(a)/ 1.94
CASH DIVIDENDS PER COMMON SHARE $ .75 $ .75 $ .75 $ .75 $ .75
ASSETS $1,008,045 $ 744,165 $ 630,211 $ 630,237 $ 664,811
LONG-TERM DEBT $ 331,289 $ 105,557 $ 111,048 $ 83,847 $ 104,143
- ------------------------------------------------------------------------------------------------------------------------------
/(a)/Income before cumulative effect of a change in accounting for
postretirement benefits other than pensions of $22,341 ($.70 per share).
Quarterly Results for the Year (In thousands except per share data)
Quarter Year
----------------------------------------------------------------
First Second Third Fourth
- --------------------------------------------------------------------------------------------------------------------
1994
Net Sales $331,705 $428,729 $451,108 $441,924 $1,653,466
Cost of Sales 259,754 324,769 339,806 329,083 1,253,412
Depreciation and Amortization 6,523 9,573 10,881 10,182 37,159
- --------------------------------------------------------------------------------------------------------------------
Gross Profit $ 65,428 $ 94,387 $100,421 $102,659 $ 362,895
- --------------------------------------------------------------------------------------------------------------------
Net Income $ 7,409 $ 15,666 $ 16,002 $ 16,856 $ 55,933
Primary Net Income Per Share $ .25 $ .52 $ .53 $ .56 $ 1.86
- --------------------------------------------------------------------------------------------------------------------
1993
Net Sales $312,313 $337,693 $337,924 $322,275 $1,310,205
Cost of Sales 241,804 259,455 263,867 251,422 1,016,548
Depreciation and Amortization 5,593 5,353 5,476 5,034 21,456
- --------------------------------------------------------------------------------------------------------------------
Gross Profit $ 64,916 $ 72,885 $ 68,581 $ 65,819 $ 272,201
- --------------------------------------------------------------------------------------------------------------------
Net Income $ 10,766 $ 15,726 $ 12,762 $ 9,639 $ 48,893
Primary Net Income Per Share $ .36 $ .52 $ .42 $ .32 $ 1.62
- --------------------------------------------------------------------------------------------------------------------
Market and Dividend Information--Crane Co. Common Shares
New York Stock Exchange Composite Price Per Share Dividends Per Share
- --------------------------------------------------------------------------------------------------------------------
1994 1993 1994 1993
- --------------------------------------------------------------------------------------------------------------------
Quarter High Low High Low
- --------------------------------------------------------------------------------------------------------------------
First $29 1/2 $24 3/4 $27 7/8 $22 5/8 $.1875 $.1875
Second 27 1/4 24 1/8 30 5/8 24 7/8 .1875 .1875
Third 27 1/4 24 1/4 30 7/8 26 5/8 .1875 .1875
Fourth 27 7/8 24 7/8 29 24 1/8 .1875 .1875
- --------------------------------------------------------------------------------------------------------------------
$.75 $.75
- --------------------------------------------------------------------------------------------------------------------
At December 31, 1994 there were approximately 6,500 holders of record of
Crane Co. common stock.
See Financial Review 31
Shareholder Information
- --------------------------------------------------------------------------------
FORM 10-K
Copies of Crane Co.'s report on Form 10-K for 1994 as filed with the
Securities and Exchange Commission are available upon written request from
the Secretary's Office at Crane Co., 100 First Stamford Place, Stamford, CT
06902
ANNUAL MEETING
The Crane Co. annual meeting of shareholders will be held at 10:00 a.m. on
Monday, May 8, 1995 at the Sheraton Stamford Hotel, One First Stamford Place,
Stamford, CT 06902 in the Freedom II meeting room.
STOCK LISTING
Crane Co. common stock is traded on the New York Stock Exchange, listed under
the symbol "CR."
AUDITORS
Deloitte & Touche LLP
Stamford Harbor Park
Stamford, CT 06902
EQUAL EMPLOYMENT OPPORTUNITY POLICY
Crane Co. is an equal opportunity employer. It is the policy of the company
to recruit, hire, promote and transfer to all job classifications without
regard to race, color, religion, sex, age, disability or national origin.
ENVIRONMENT, HEALTH & SAFETY POLICY
Crane Co. is committed to protecting the environment and will strive to
protect the biosphere by taking responsibility to prevent serious or
irreversible environmental degradation through efficient operations and
activities.
Crane Co. recognizes environmental management among its highest priorities
throughout the corporation, and has established policies and programs which
are integral and essential elements of the business plan of each of the
business units.
Crane Co. will strive to minimize environmental, health and safety risks to
all its employees, and to public health in the communities in which it operates
by utilizing safe technologies, training programs, and emergency preparedness.
Crane Co. will seek to continually improve the development, design and
operation of its facilities through the efficient use of energy and the
sustainable use of renewable resources, minimizing adverse environmental impact
through waste reduction, recycling and responsible waste disposal.
Crane Co. will manufacture and produce products or services that minimize
environmental impact and that are safe when properly used and maintained, and
will promote the adoption of these principles by its contractors and
suppliers.
Crane Co. will promptly communicate to all affected persons the known
hazards and safeguards associated with its manufacturing processes and
activities while utilizing good science and research to define and efficiently
manage all significant risks.
Crane Co. has committed management resources to these goals by adopting the
above policies, and by establishing the position of Vice President--
Environment, Health and Safety, which is responsible for assuring compliance,
measuring environmental performance, and conducting regular environmental audits
in order to provide appropriate information to the Crane Co. management team and
to regulatory authorities.
STOCK TRANSFER AGENT AND REGISTRAR OF STOCK
First Chicago Trust Company of New York
Customer Service: 1-201-324-0498
Non-Postal Deliveries
14 Wall Street; Ste. 4680
New York, NY 10005
Dividend Reinvestment
Optional Payments
P.O. Box 13531
Newark, NJ 07188-0001
General Correspondence &
Changes of Address
P.O. Box 2500
Jersey City, NJ 07303-2500
Transfer of Stock Certificates
P.O. Box 2506
Jersey City, NJ 07303-2506
BOND TRUSTEE AND DISBURSING AGENT
The Bank of New York
Corporate Trust Department: 1-800-438-5473
101 Barclay Street
New York, NY 10286
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
Crane offers shareholders the opportunity to participate in a Dividend
Reinvestment and Stock Purchase Plan. The plan provides two convenient
methods for increasing your investment in Crane Co. common shares, without
paying fees and commissions.
Dividend Reinvestment: for all or part of your dividends on Crane common
shares; and
Voluntary Cash Payments: of any amount from $10 to a maximum of $5,000 a
month.
Under terms of the Plan, First Chicago Trust Company of New York will act
as agent for shareholders interested in purchasing additional Crane common
shares automatically, on a regular basis.
The details of this plan and its benefits to you as a Crane shareholder are
described in a brochure available by writing to:
First Chicago Trust Company of New York
Dividend Reinvestment Plan
Crane Co.
Post Office Box 2598
Jersey City, NJ 07303-2598
32