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Proc-Type: 2001,MIC-CLEAR
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<SEC-DOCUMENT>0000950130-02-001812.txt : 20020415
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ACCESSION NUMBER: 0000950130-02-001812
CONFORMED SUBMISSION TYPE: 10-K405
PUBLIC DOCUMENT COUNT: 5
CONFORMED PERIOD OF REPORT: 20011231
FILED AS OF DATE: 20020322
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: CRANE CO /DE/
CENTRAL INDEX KEY: 0000025445
STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS FABRICATED METAL PRODUCTS [3490]
IRS NUMBER: 131952290
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K405
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-01657
FILM NUMBER: 02582493
BUSINESS ADDRESS:
STREET 1: 140 SYLVAN AVE
CITY: ENGLEWOOD
STATE: NJ
ZIP: 07632
BUSINESS PHONE: 2015850888
MAIL ADDRESS:
STREET 1: 100 FIRST STAMFORD PLACE
CITY: STAMFORD
STATE: CT
ZIP: 06902
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K405
<SEQUENCE>1
<FILENAME>d10k405.txt
<DESCRIPTION>FORM 10-K
<TEXT>
<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
-----------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2001
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission file number 1-1657
-----------------
CRANE CO.
(Exact name of registrant as specified in its charter)
Delaware 13-1952290
(State or other (I.R.S. Employer
jurisdiction of
incorporation or Identification No)
organization)
100 First Stamford Place, Stamford, CT 06902
(Address of principal executive offices, including zip code)
(203) 363-7300
(Registrant's telephone number, including area code)
-----------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on
------------------- which registered
Common Stock, par value New York Stock Exchange
$1.00
Preferred Share Purchase New York Stock Exchange
Rights
Securities registered pursuant to Section 12(g) of the Act:
81/2% senior notes due March 2004
63/4% senior notes due October 2006
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if the disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Based on the average stock price of $23.58 on January 31, 2002 the aggregate
market value of the voting stock held by nonaffiliates of the registrant was
$1,409,597,828.
The number of shares outstanding of the registrant's common stock, $1.00 par
value was 59,779,382 at January 31, 2002.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual report to shareholders for the year ended December
31, 2001 and portions of the proxy statement for the annual shareholders
meeting to be held on April 22, 2002 are incorporated by reference into Parts
I, II, III and IV of this Form 10-K Annual Report.
================================================================================
<PAGE>
PART I
Item 1. Business
Crane Co. ("Crane" or the "Company") is a diversified manufacturer of highly
engineered industrial products. Founded in 1855, Crane employs over 9,600
people in North America, Europe, Asia and Australia.
STRATEGY
The Company's strategy is to grow the earnings of niche businesses with high
market share, aggressively pursue operational and strategic linkages among our
businesses, build an aggressive and committed management team whose interests
are directly aligned to those of the shareholders, and maintain a focused,
efficient corporate structure.
ACQUISITIONS
In the past five years, the Company has completed 18 acquisitions.
During 2001, the Company completed seven acquisitions at a total cost of
$191 million. In February 2001, the Company acquired Ventech Controls, Inc.
located in Houston, Texas. This valve repair business provides both shop repair
and remanufacture of control valves and instruments. The acquisition of Ventech
significantly enhances Crane Valve Services' capabilities in the Houston
market, the largest valve service market in North America. Also in February
2001, the Company acquired the fiberglass reinforced panel business of UK-based
Laminated Profiles Ltd. as part of its strategic initiative to penetrate the
European transportation and recreational vehicle markets. This acquisition
provides the Company's Kemlite subsidiary with a quality manufacturing
facility, an established distribution system and an enhanced market position in
Europe. In April 2001, the Company acquired the Industrial Flow Group of Alfa
Laval Holding AB (renamed Crane Process Flow Technologies) which includes the
Saunders brand of diaphragm valves manufactured in the UK and India and the
DEPA brand of air operated diaphragm pumps manufactured in Germany. Crane
Process Flow Technologies focuses on the development, production and
distribution of valves, pumps and related components in high value-added
applications. In June 2001, the Company acquired the Xomox valve business from
Emerson Electric for $145 million. Xomox supplies high-end, application-driven,
sleeved-plug valves, lined valves, high performance butterfly valves, and
actuators to the chemical, pharmaceutical and other process industries. Xomox
has major manufacturing facilities in the United States, Mexico, Germany, and
Hungary and operates 22 service centers in the Americas, Europe and Asia. In
addition, Xomox holds a 49% interest in an Indian joint venture that
manufactures and markets plug valves for the Indian and other international
markets. The Xomox acquisition brings global brand names with strong market
positions that are complementary to the Company's existing product lines.
During the third quarter of 2001, the Company acquired the aerospace hose
product line of Teleflex Fluid Systems and Resistoflex GmbH. AeroHose, based in
Lantana, Florida, is a leading supplier of Teflon(R)-braided, high-pressure
hose assemblies utilized in both commercial and military aircraft as well as
ground support systems. AeroHose products are complementary in technology and
application to those of Crane's Resistoflex division in Jacksonville, Florida.
Resistoflex GmbH, based in Germany, is a leading manufacturer of
Teflon(R)-lined, steel-piping products serving chemical and pharmaceutical
markets in Europe. This acquisition provides Resistoflex with European-based
manufacturing operations to complement its facilities in North America and Asia
enhancing its capabilities to serve its customers in the chemical processing
industry worldwide. In December 2001, the Company acquired the patents and
other intellectual property of Trinity Airweighs, obtaining a system to measure
aircraft weight and center of gravity. Preliminary estimates of goodwill for
the 2001 acquisitions amounted to $74 million.
During 2000, the Company completed two acquisitions at a total cost of $11.9
million. In March 2000, the Company acquired Streamware Corporation, a
privately-held company based in Norwood, Massachusetts, which is a leading
provider of business management software and market analysis tools for the
vending and food
2
<PAGE>
service industry. In December 2000, the Company acquired the assets of the
Valve Repair Division of Groth Corporation. Located in Houston, Texas, the
Valve Repair Division provides both shop and field testing and repair services
for a broad range of valve types and is an authorized repair facility for many
leading valve manufacturers. Goodwill in 2000 amounted to $8.5 million and is
being amortized over 15 years.
During 1999, the Company completed one acquisition at a total cost of $33
million. In October 1999, the Company acquired Stentorfield, Ltd., which is
based in Chippenham, England. Stentorfield is a premier designer and
manufacturer of hot and cold beverage vending machines, serving the U.K. and
European market with a broad line of full-size and tabletop products for the
hotel, restaurant, office coffee service and vending industries. Stentorfield
is known in the industry to provide high-quality, reliable and easily serviced
products and excellent customer service. This business was integrated with the
Company's Crane Merchandising Systems business, which is the leading North
American designer and manufacturer of full-line vending machines, for snack,
food and beverage. Goodwill acquired in 1999 amounted to $24.3 million and is
being amortized over 20 years.
During 1998, the Company completed four acquisitions at a total cost of $178
million. In May 1998, the Company acquired Environmental Products USA, Inc.
This business manufactures membrane-based water treatment systems for
industrial, commercial and institutional markets. In August, the Company
acquired Sequentia Holdings, Inc., a manufacturer of fiberglass-reinforced
plastic panels for the construction and building products markets. Sequentia
complements the Company's Kemlite subsidiary, which provides
fiberglass-reinforced plastic panels for the transportation and recreational
vehicle markets. In September 1998, the Company acquired Liberty Technologies,
Inc. which develops, manufactures, markets and sells valve, motor, engine and
compressor condition monitoring products and related services to the nuclear
power generation and industrial process markets worldwide. Liberty complements
the Company's nuclear valve business which provides valves, valve diagnostic
equipment and related services to the nuclear power industry, and its Dynalco
Controls business, which provides sensors, instrumentation, control products
and automation systems for use in industrial engine applications. Also in
September 1998, the Company acquired the Plastic-Lined Piping Products ("PLPP")
division of The Dow Chemical Company. PLPP was integrated with the Company's
Resistoflex division, which supplies lined pipe and valves to the chemical
process and industrial markets. Goodwill acquired in 1998 amounted to $130
million and is being amortized over a period ranging from 15 to 20 years.
During 1997, the Company completed four acquisitions at a total cost of $70
million, including assumed debt. In March, the Company acquired the
transportation products business of Sequentia, Incorporated. This business,
which produces fiberglass-reinforced plastic panels for the truck body, trailer
and container market, has been integrated with the Company's Kemlite
subsidiary. Also in March 1997, the Company acquired Polyvend Inc., a
manufacturer of snack and food vending machines. Polyvend was completely
integrated into the Company's Crane Merchandising Systems division,
significantly expanding its sales distribution channels. In April 1997, the
Company acquired the nuclear valve business of ITI MOVATS from Westinghouse.
MOVATS is a leading supplier of valve diagnostic equipment and valve services
to the commercial nuclear power industry. In December 1997, the Company
acquired certain operations and product lines of Stockham Valves & Fittings,
Inc. The acquired product lines and related manufacturing operations have been
integrated into the Company's valve businesses. Goodwill acquired in 1997
amounted to $20 million and is being amortized over a period ranging from 15 to
20 years.
DIVESTITURES
In the past five years, the Company has divested nine businesses. In
September 2001, the Company sold Powers Process Controls for its carrying
value. The Company also sold its Canadian Crane Plumbing business in 2001
recording an after-tax loss of approximately $8.5 million from this transaction
in 2001. Proceeds from the sale of the businesses were approximately $20
million. During the third quarter of 2001, Crane and Emerson Electric Co.
announced the formation of a joint venture involving Emerson's Commercial Cam
unit and Crane's Ferguson business unit. Crane and Emerson contributed their
respective operations into a new company, Industrial Motion Control Holdings,
LLC. Crane also contributed $12 million of cash into the venture. The
investment in the joint venture amounts to $19.6 million at year-end 2001 and
is included in Other Assets on the Balance Sheet. The Ferguson/Camco joint
venture is being accounted for on the equity basis.
3
<PAGE>
In May 2000, the Company sold its interest in Powec AS, a Norwegian
manufacturer of power supplies for the telecommunications industry. In
addition, the Company's wholly owned ELDEC Corporation subsidiary sold its
related telecommunications power supply product line to the same purchaser.
Total consideration for both transactions was $45.6 million. In April 1999, the
Company sold Southwest Foundry, acquired as part of the Stockham Valves and
Fittings, Inc. transaction, for $400,000. In December 1999, the Company sold
its Crane Defense Systems business for $6.4 million in cash and a $750,000
note. In 1998, the Company sold two foundry operations acquired as part of the
Stockham Valves and Fittings Inc. transaction. Accu-Cast, Inc. and the
Aliceville Foundry were sold for a total of $4.3 million. In 1997, the Company
sold its Valve Systems and Controls division for $7.5 million in cash and $1.5
million in preferred stock.
DISCONTINUED OPERATIONS
On December 16, 1999, the Company distributed all of the shares of its
Huttig Building Products ("Huttig") subsidiary to shareholders of the Company
on the basis of one share of Huttig for every 4.5 shares of Crane Co. common
stock. Prior to this spin-off distribution, Huttig repaid an intercompany loan
of $68 million to the Company, which the Company used to pay down debt. The
Wholesale segment was discontinued when Huttig was spun off.
LONG-TERM FINANCING
In September 1998, the Company sold $100,000,000 of 63/4% notes that will
mature on October 1, 2006. During April 1992, the Company sold $100,000,000
81/2% notes that will mature on March 15, 2004. In February 2002, the Company
entered into a two-year interest rate swap agreement with JPMorgan Chase Bank
which converts $100 million of 81/2% fixed-rate debt to LIBOR plus 4.985%
floating rate debt.
BUSINESS SEGMENTS
See page 33 of the Annual Report to Shareholders for year ended December 31,
2001, for sales, operating profit and assets employed by each business segment.
AEROSPACE
The Aerospace segment consists of ELDEC, Hydro-Aire/Lear Romec and
Interpoint.
ELDEC designs, manufactures and markets custom position indication and
control systems, proximity sensors, pressure sensors, true mass fuel flowmeters
and power conversion systems for the commercial transport, business, regional,
general aviation, military, repair and overhaul and electronics markets. These
products are custom designed for specific aircraft to meet technically
demanding requirements of the aerospace industry. ELDEC has facilities in
Redmond, Washington, one in England and one in France.
Hydro-Aire designs, manufactures and sells aircraft brake control and
anti-skid systems, including electro-hydraulic servo valves and manifolds,
embedded software and rugged electronic controls, hydraulic control valves,
landing gear sensors and fuel pumps as original equipment to the commercial
transport, business, regional, general aviation, military and government
aerospace, repair and overhaul markets. In addition, Hydro-Aire designs and
manufactures systems similar to those above for the retrofit of aircraft with
improved systems and manufactures replacement parts for systems installed as
original equipment by the aircraft manufacturer. All of these products are
largely proprietary to Hydro-Aire and, to some extent, are custom designed to
the requirements and specifications of the aircraft manufacturer or program
contractor. These systems and replacement parts are sold directly to aircraft
manufacturers, airlines, governments, and aircraft maintenance and overhaul
companies.
4
<PAGE>
Lear Romec, which became an "internal acquisition" of Hydro-Aire during the
year, designs, manufactures and sells lubrication and fuel pumps for aircraft,
aircraft engines and radar cooling systems for the commercial and military
aerospace industries. Lear Romec has a leading share of the non-captive market
for turbine engine lube and scavenge oil pumps. Lear Romec also manufactures
fuel boost and transfer pumps for commuter and business aircraft.
Interpoint designs, manufactures and sells standard and custom miniature
(hybrid) DC-to-DC power converters and custom miniature (hybrid) electronic
circuits for applications in commercial, space and military aerospace, medical
technology, fiber optic and medical technology industries. Interpoint has
facilities in Redmond, Washington and in Taiwan.
The segment employs 1,900 people and had assets of $252.4 million at
year-end. The order backlog totaled $250.3 million at December 31, 2001.
ENGINEERED MATERIALS
The Engineered Materials segment consists of: Kemlite/CorTec, Resistoflex
and Polyflon.
Kemlite manufactures fiberglass-reinforced plastic panels for use,
principally by the transportation industry, in refrigeration and dry-van truck
trailers and recreational vehicles. Kemlite products are also sold to the
commercial construction industry for food processing, fast-food restaurant and
supermarket applications, to institutions where fire rated materials with low
smoke generation and minimum toxicity are required, and for residential
construction. Kemlite sells its products directly to the truck trailer and
recreational vehicle manufacturers. Sequentia manufactures
fiberglass-reinforced plastic panels for the construction and building products
markets. Kemlite uses distributors to serve its commercial construction market
and some segments of the recreational vehicle market. Sequentia's Grand
Junction, Tennessee and Houston, Texas plants were added to Kemlite's plants in
Joliet, Illinois and Jonesboro, Arkansas. CorTec, which became an "internal
acquisition" of Kemlite's during the year, manufactures fiberglass-reinforced
laminated panels serving the truck and truck trailer segment of the
transportation industry and for specialty applications.
Resistoflex is engaged in the design, manufacture and sale of
corrosion-resistant, plastic-lined steel pipes, fittings, tanks, valves,
expansion joints and hose used primarily by the pharmaceutical, chemical
processing, pulp and paper, ultra pure water and waste management industries.
It also manufactures high-performance, separable fittings for operating
pressures to 8,000 PSI used primarily in the aerospace industry. Resistoflex
sells its industrial products through distributors who provide stocking and
fabrication services to industrial users in the United States. Its aerospace
products are sold directly to the aerospace industry. Resistoflex also
manufactures plastic-lined pipe products at its Singapore plant serving the
Asian chemical processing and the Asian pharmaceutical industries.
Polyflon manufactures microwave laminates, high voltage RF capacitors,
radomes and circuit processing for wireless communication, magnetic resonance
imaging, microwave and radar system manufacturers.
Crane Plumbing was sold in September 2001, recording an after-tax loss of
approximately $8.5 million.
This segment had assets of $206.7 million at December 31, 2001 and employed
1,200 people. Order backlog at year-end 2001 was $15.1 million.
MERCHANDISING SYSTEMS
The Merchandising Systems segment has two operating units: Crane
Merchandising Systems, designs and manufactures a complete line of vending
merchandisers for the food service vending market; and National Rejectors, Inc.
GmbH ("NRI"), which manufactures electronic coin validators in Buxtehude,
Germany for the automated merchandising and gambling/amusement markets in
Europe.
5
<PAGE>
Crane Merchandising Systems products include electronic vending
merchandisers for refrigerated and frozen foods, hot and cold beverages, snack
foods, single cup individually brewed hot drinks and
combination vendors/merchandisers, designed to vend both snack foods and
hot/cold drinks, or snacks and refrigerated/frozen foods in one machine. Crane
Merchandising Systems manufactures its products in Bridgeton, Missouri. Crane
Merchandising Systems' products are marketed to customers in the United States
and Europe by Company sales and marketing personnel as well as distributors,
and, in other international markets, through independent distributors. This
unit also includes Streamware Corporation, a leading provider of business
management software and market analysis tools for the vending and food service
industry. Streamware's VendMAX is a fully integrated software/hardware solution
that offers operators cash accountability, inventory control and improved
merchandising capabilities.
NRI is among the relatively few makers of coin validators that supplies
European countries with validators programmed for the new euro coins that went
into circulation at the start of 2002.
Merchandising Systems employs 1,300 people and had assets of $139.6 million
at year-end 2001. Order backlog totaled $31.1 million at December 31, 2001.
FLUID HANDLING
The Fluid Handling segment consists of the Crane Valves, Crane Valves-U.K.,
Valve Services, Crane Pumps & Systems, Crane Environmental and Crane Supply
businesses. The Crane Valves and Crane Valves-U.K. businesses, with six
manufacturing facilities in North America as well as operations in the United
Kingdom, Germany, Japan, Australia, Norway, India, Hungary, China and
Indonesia, sell a wide variety of commodity and special purpose valves and
fluid control products for the chemical and hydrocarbon processing,
petrochemical, pharmaceutical, power generation, marine, general industrial and
commercial construction industries. Products are sold under the trade names
Crane, Saunders, Jenkins, Pacific, Xomox, DEPA, Westad, Flowseal, Centerline,
Stockham, Triangle and Duocheck. The Company's Valve Service business, with two
manufacturing facilities in North America, provides valves, valve diagnostic
equipment and related services to the nuclear power, chemical and hydrocarbon
processing and power generation industries.
Crane Pumps and Systems has seven manufacturing facilities in the United
States. Pumps are manufactured under the trade names Deming, Weinman, Chempump,
Burks, Chem/Meter, Barnes, Sellers and Process Systems. Pumps are sold to a
broad customer base which includes chemical and hydrocarbon processing,
automotive, municipal, industrial and commercial wastewater, power generation,
commercial heating, ventilation and air-conditioning industries and original
equipment manufacturers. Crane Environmental has manufacturing facilities in
Pennsylvania and Florida and serves the water and wastewater treatment market.
Its products are sold under the trade names Cochrane and Environmental Products.
Crane Supply, a distributor of plumbing supplies, valves and piping in
Canada, maintains thirty-five branches throughout Canada.
Products in this group are sold directly to end users through Crane's sales
organization and through independent distributors and manufacturers
representatives.
The Fluid Handling segment employs 4,800 people and had assets of $544.0
million at December 31, 2001. Fluid Handling order backlog totaled $147.8
million at December 31, 2001.
CONTROLS
This segment consists of: Barksdale and Azonix/Dynalco. The companies in
this segment design, manufacture and market industrial and commercial products
that control flows and processes in various industries including
transportation, petroleum, chemical, construction, food and beverage and power
generation.
6
<PAGE>
Barksdale manufactures solid state and electromechanical pressure switches
and transducers, level switches and continuous level indicators, temperature
switches and directional control valves that serve a broad range of commercial
and industrial applications. It has manufacturing and marketing facilities in
the United States and Germany.
In 2001, Azonix and Dynalco were combined in an "internal acquisition" under
common leadership. Azonix/Dynalco designs and manufactures rotational speed
sensors, temperature and pressure instruments and monitors for rugged
environments, microprocessor-based engine and mechanism controls.
Azonix/Dynalco's products are used worldwide in a variety of applications for
various industries, including transportation, power generation, oil, gas,
petrochemical, chemical, pharmaceutical, agriculture and metal processing. It
also manufactures operator interfaces and measurement and control systems for
hazardous and harsh applications, intelligent data acquisition products,
high-precision thermometers and calibrators.
The products in this segment are sold directly to end users and engineering
contractors through the Company's own sales force and cooperatively with sales
representatives, stocking specialists and industrial distributors.
Controls had assets of $73.8 million at December 31, 2001, and employs 400
people. On December 31, 2001, Crane Controls had a backlog of $18.4 million.
Ferguson was contributed to a joint venture called Industrial Motion Control
Holdings LLC, in the third quarter of 2001, formed with Emerson Electric Co's
Commercial Cam unit.
COMPETITIVE CONDITIONS
The Company's lines of business are conducted under actively competitive
conditions in each of the geographic and product areas they serve. Because of
the diversity of the classes of products manufactured and sold, they do not
compete with the same companies in all geographic or product areas.
Accordingly, it is not possible to estimate the precise number of competitors
or to identify the principal methods of competition. Although reliable
statistics are not available, the Company believes that it is an important
supplier to a number of market niches and geographic areas.
The Company's products have primary application in the aerospace,
hydrocarbon processing, petrochemical, chemical, power generation, automated
merchandising and transportation industries. As such, they are dependent upon
numerous unpredictable factors, including changes in market demand, general
economic conditions and capital spending. Because these products are also sold
in a wide variety of markets and applications, the Company does not believe it
can reliably quantify or predict the possible effects upon its business
resulting from such changes.
Seasonality is a factor in the Canadian operations. Net sales in Canada and
assets related to Canadian operations were 11.6% and 4.7% and 13.9% and 7.1% of
the respective 2001 and 2000 consolidated amounts.
The Company's engineering and product development activities are directed
primarily toward improvement of existing products and adaptation of existing
products to particular customer requirements. While the Company owns numerous
patents and licenses, none are of such importance that termination would
materially affect its business. Product development and engineering costs
totaled approximately $55.6 million in 2001, $55.0 million in 2000, and $58.9
million in 1999. Included in these amounts were approximately $4.7 million,
$6.7 million and $7.4 million received by the Company in 2001, 2000 and 1999,
respectively, for customer sponsored research and development.
7
<PAGE>
The Company is not dependent on any single customer nor are there any issues
at this time regarding available raw materials for inventory.
Costs of compliance with federal, state and local laws and regulations
involving the discharge of materials into the environment or otherwise relating
to the protection of the environment are not expected to have a material effect
upon the Company's capital expenditures, earnings or competitive position.
FORWARD LOOKING STATEMENTS
Throughout the Annual Report to Shareholders, particularly in the
President's Letter to Shareholders and Management's Discussion and Analysis of
Operations, the Company makes numerous statements about expectations of future
performance and market trends and statements about plans and objectives and
other matters which because they are not historical fact, may constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995.
In addition, the Company and its representatives may, from time to time,
make written or oral forward-looking statements including statements contained
in the Company's filings with the Securities and Exchange Commission and in its
reports to shareholders which can be identified by the use of forward-looking
terminology such as "believes", "contemplates", "expects", "may", "will",
"could", "should", "would" or "anticipates" or the negative thereof or
comparable terminology.
All forward-looking statements speak only as of the date on which such
statements are made and involve risk and uncertainties that exist in the
Company's operations and business environment and are not guarantees of future
performance. The Company assumes no obligation to update any of these
forward-looking statements, whether as a result of new information or future
events. As a responsibility to our investors, the Company will make reasonable
efforts at timely disclosure of future facts and circumstances which may affect
such statements.
Because the Company wishes to take advantage of the "safe harbor" provision
of the Private Securities Litigation Reform Act of 1995, readers are cautioned
to consider the following important risk factors that could affect the
Company's businesses and cause actual results to differ materially from those
projected.
General
A substantial portion of the sales of the Company's business segments are
concentrated in industries which are cyclical in nature. Because of the
cyclical nature of these businesses, their results are subject to fluctuations
in domestic and international economies as well as to currency fluctuations and
unforeseen inflationary pressures. Reductions in the business levels of these
industries would negatively impact the sales and profitability of the affected
business segments.
While the Company is a principal competitor in most of its markets, all of
its markets are highly competitive. The Company's competitors in many of its
business segments can be expected in the future to improve technologies, reduce
costs and develop and introduce new products, and the ability of the Company's
business segments to achieve similar advances will be important to their
competitive positions. Competitive pressures, including those discussed above,
could cause one or more of the Company's business segments to lose market share
or could result in significant price erosion, either of which could have an
adverse effect on the Company's results of operations.
The Company's acquisition program entails the potential risks inherent in
assessing the value, strengths, weaknesses, contingent or other liabilities and
potential profitability of acquisition candidates and in integrating the
operations of acquired companies. There can be no assurance that suitable
acquisition opportunities will be available in the future, that the Company
will continue to acquire businesses or that any business acquired will be
integrated successfully or prove profitable.
8
<PAGE>
Net sales and assets related to operations outside the United States were
41.3% and 29.9% and 36.3% and 20.9% of the respective 2001 and 2000
consolidated amounts. Such operations and transactions entail the risks
associated with conducting business internationally, including the risk of
currency fluctuations, slower payment of invoices, adverse trade regulations
and possible social and economic instability. While the full impact of this
economic instability cannot be predicted, it could have a material adverse
effect on the Company's revenue and profitability.
Certain of the Company's business segments are dependent upon highly
qualified personnel, and the Company generally is dependent upon the continued
efforts of key management employees.
New factors emerge from time to time, and it is not possible for management
to predict all of such factors. Further, management cannot assess the impact of
each such factor on the business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from
those contained in any forward-looking statements.
Aerospace
A significant fall off in demand for air travel or a decline in airline
profitability generally could result in reduced aircraft orders and could also
cause the airlines to scale back their purchases of repair parts from Crane
companies. The companies could also be impacted if major aircraft
manufacturers, such as Boeing which represents approximately 20% and 21% of the
segment's revenue in 2001 and 2000, respectively, encountered production
problems, or if pricing pressure from aircraft customers caused the
manufacturers to press their suppliers to lower prices. Sales and profits could
face erosion if pricing pressure from competitors increased, if planned new
products were delayed, if finding new aerospace-qualified suppliers grew more
difficult, or if required technical personnel became harder to hire and retain.
Aerospace segment results could be below expectations if further slowing of the
U. S. economy causes customers to delay or cancel spare parts or aircraft
orders.
Engineered Materials
In the Engineered Materials segment, sales and profits could fall if there
were a decline in demand for truck trailers, recreational vehicles or building
products for which Crane's companies produce fiberglass-reinforced panels.
Profits could be adversely affected as well by unanticipated increases in resin
and fiberglass material costs and by any inability on the part of Crane's
companies to maintain their position in product cost and functionality against
competing materials.
Merchandising Systems
Results at Crane's U.S.-based vending machine business could be reduced by
delays in launching or supplying new products or an inability to achieve new
product sales objectives. Results at Crane's German-based coin validation
machine business could be affected by changes in demand stemming from the
advent of the euro, the new European currency, as well as by unforeseen
fluctuations in the value of the euro or other European currencies versus the
U.S. dollar.
Fluid Handling
Crane's companies could face increased price competition from larger
competitors. Further slowing of the U.S. economy could reduce sales and
profits, particularly if projects for which Crane's companies are suppliers or
bidders are cancelled or delayed, or if the Company's ability to source product
from international sources is impeded. At Crane's foreign operations, reported
results in U.S. dollar terms could be eroded by an unanticipated weakening of
currency of the respective operations.
9
<PAGE>
Controls
A number of factors could affect the Controls segment's results. Lower sales
and earnings could result if Crane's companies can not maintain their cost
competitiveness, encounter delays in introducing new products or fail to
achieve their new product sales objectives. Results could decline because of an
unanticipated decline in demand for Crane products from the industrial
machinery, oil and gas or heavy equipment industries, or from unforeseen
product obsolescence.
Item 2. Properties
<TABLE>
<CAPTION>
Total Manufacturing Facilities Number Area
------------------------------ ------ -----------------
<S> <C> <C>
Aerospace
United States.......... 5 572,000 sq. ft.
International.......... 3 37,000 sq. ft.
Engineered Materials
United States.......... 10 1,209,000 sq. ft.
International.......... 2 160,000 sq. ft.
Merchandising Systems
United States.......... 1 463,000 sq. ft.
Other International...... 2 131,000 sq. ft.
Fluid Handling
United States.......... 13 1,157,000 sq. ft.
Canada................. 2 140,000 sq. ft.
International.......... 16 2,001,000 sq. ft.
Crane Controls
United States.......... 3 175,000 sq. ft.
International.......... 1 27,000 sq. ft.
</TABLE>
<TABLE>
<CAPTION>
Leased Leases
Manufacturing Expiring
Facilities Through Number Area
------------- ------- ------ ----
<S> <C> <C> <C>
United States...... 2009 8 429,000 sq. ft.
Canada............. 2002 1 13,000 sq. ft.
Other International 2007 8 263,000 sq. ft.
</TABLE>
Other Facilities
Fluid Handling operates four valve service centers in the United States, of
which two are owned, and one distribution center in the United States. This
segment operates internationally forty four distribution and fourteen service
centers.
Crane Controls operates one distribution center internationally.
Merchandising Systems operates eight distribution centers in the United
States and six internationally.
Engineered Materials operates seven distribution centers in the United
States, of which one is owned, and two outside the United States.
In the opinion of management, these properties have been well maintained,
are in sound operating condition and contain all necessary equipment and
facilities for their intended purposes.
10
<PAGE>
Item 3. Legal Proceedings
Neither the Company nor any subsidiary of the Company has become a party to,
nor has any of their property become the subject of, any material legal
proceedings other than ordinary routine litigation incidental to their
businesses.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of 2001.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the registrant are as follows:
<TABLE>
<CAPTION>
Business Experience Officer
Name Position During Past Five Years Age Since
- ---- -------- ---------------------- --- -----
<C> <C> <S> <C> <C>
Eric C. Fast President and President and Chief Executive Officer of the Company 52 1999
Chief Executive since April 2001, President and Chief Operating Officer
Officer from September 1999 to April 2001. Previously Co-
head of Global Investment Banking of Salomon Smith
Barney and a Managing Director of that firm since
1988.
Gil A. Dickoff Treasurer Treasurer of the Company since 1992, previously 40 1992
Assistant Treasurer.
Augustus I. duPont Vice President, Vice President and General Counsel and Secretary of 50 1996
General Counsel the Company since 1996.
and Secretary
Bradley L. Ellis Vice President-- Vice President--Chief Information Officer of the 33 1997
Chief Information Company since July 1997. Previously with the Business
Officer Systems consulting group of Arthur Andersen LLP, an
international provider of auditing and business
consulting services.
Elise M. Kopczick Vice President-- Vice President--Human Resources of the Company 48 2001
Human since January 2001. Previously President of the
Resources Company's Lear Romec division from August 1999 to
January 2001 and Vice President--Human Resources at
the Company's Hydro-Aire subsidiary from January
1996 to August 1999.
Thomas M. Noonan Vice President-- Vice President--Taxes of the Company since 47 1999
Taxes November 2001. Vice President Controller and Chief
Tax Officer of the Company from April 2000 to
November 2001, Vice President--Taxes of the
Company from September 1999 to April 2000. Director
of Taxes of the Company from March 1996 to
September 1999.
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Business Experience Officer
Name Position During Past Five Years Age Since
- ---- -------- ---------------------- --- -----
<C> <C> <S> <C> <C>
Anthony D. Pantaleoni Vice President-- Vice President--Environment, Health & Safety of the 47 1989
Environment, Company since 1989.
Health & Safety
Michael L. Raithel Vice President-- Vice President--Finance and Chief Financial Officer 54 1985
Finance and of the Company since February 2000. Previously
Chief Financial Controller of the Company since 1985.
Officer
Joan Atkinson Nano Vice President-- Vice President, Controller of the Company since 46 2001
Controller November 2001. Previously Director New
Controllership Initiatives at GE Capital Corporation
(financial services) Since 2000. Previously employed
by Pitney Bowes from 1985 to 1999 as Director,
Worldwide Planning and Analysis from 1994 to 1999
and as Assistant Corporate Controller from 1988 to
1994.
</TABLE>
12
<PAGE>
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters.
The information required by Item 5 is hereby incorporated by reference to
Pages 40 through 41 of the 2001 Annual Report to Shareholders.
Item 6. Selected Financial Data.
The information required by Item 6 is hereby incorporated by reference to
Page 40 of the 2001 Annual Report to Shareholders.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The information required by Item 7 is hereby incorporated by reference to
Pages 13 through 20 and pages 35 thru 39 of the 2001 Annual Report to
Shareholders.
Item 7A. Quantitative and Qualitative Disclosures about Market Risks.
The information required by Item 7A is hereby incorporated by reference to
Page 20 of the 2001 Annual Report to Shareholders.
Item 8. Financial Statements and Supplementary Data.
The information required by Item 8 is hereby incorporated by reference to
Pages 21 through 34 and page 40 of the 2001 Annual Report to Shareholders.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by Item 10 is incorporated by reference to the
definitive proxy statement dated March 7, 2002, which the Company has filed
with the Commission pursuant to Regulation l4A except that such information
with respect to Executive Officers of the Registrant is included, pursuant to
Instruction 3, paragraph (b) of Item 401 of Regulation S-K, under Part I.
Item 11. Executive Compensation
The information required by Item 11 is incorporated by reference to the
definitive proxy statement dated March 7, 2002, which the Company has filed
with the Commission pursuant to Regulation l4A.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by Item 12 is incorporated by reference to the
definitive proxy statement dated March 7, 2002, which the Company has filed
with the Commission pursuant to Regulation 14A.
13
<PAGE>
Item 13. Certain Relationships and Related Transactions
The information required by Item 13 is incorporated by reference to the
definitive proxy statement dated March 7, 2002, which the Company has filed
with the Commission pursuant to Regulation 14A.
PART IV
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K
(a) (1) The consolidated balance sheets of Crane Co. and subsidiaries as of
December 31, 2001 and 2000
and the related consolidated statements of income, changes in common
shareholders' equity and cash flows for the years ended December 31,
2001, 2000 and 1999 and the report thereon of Deloitte & Touche LLP
dated January 18, 2002 appearing on Pages 21 through 34 of Crane Co.'s
2001 Annual Report to Shareholders which will be furnished with the
definitive proxy statement as required by Regulation 14A, Rule
14a-3(c), are incorporated herein by reference
(2) Financial statement schedules for which provision is made in the
applicable regulation of the Securities and Exchange Commission have
been omitted because they are not required under related instructions,
or are inapplicable or the information is shown in the financial
statements and related notes.
(3) Exhibits: Exhibit 11 Computation of net income per share.
Exhibit 13 Annual Report to shareholders for the year ended
December 31, 2001.
Exhibit 21 Subsidiaries of the Registrant.
Exhibit 23 Independent auditors' consent.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended December 31,
2001.
(c) Exhibits to Form 10-K:
There is incorporated by reference herein:
(3) (a) The Company's Certificate of Incorporation, as amended on May 25,
1999 contained in
Exhibit 3A to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1999.
(b) The Company's By-Laws, as amended on January 24, 2000 contained in
Exhibit 3B to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1999.
(4) Instruments Defining the Rights of Security Holders, including
Indentures:
(a) There is incorporated by reference herein:
(1) Preferred Share Purchase Rights Agreement contained in Exhibit
1 to the Company's Report on Form 8-K filed with the
Commission on July 6, 1998.
(b) There is incorporated by reference herein:
(1) Indenture dated as of April 1,1991 between the Registrant and
the Bank of New York contained in Exhibit 4.1 to the Company's
report on Form 8-K filed with the Commission on September 16,
1998.
14
<PAGE>
(10) Material Contracts:
(iii) Compensatory Plans
There is incorporated by reference herein:
(a) The forms of Employment/Severance Agreement between the Company
and certain executive officers (Form 1) and (Form 11) which
provide for the continuation of certain employee benefits upon a
change of control as contained in Exhibit C of the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1994.
(b) The indemnification agreements entered into with each director and
executive officer of the Company, the form of which is contained
in Exhibit C to the Company's definitive proxy statement filed
with the Commission in connection with the Company's April 27,
1987 Annual Meeting.
(c) The Crane Co. Retirement Plan for Non-Employee Directors contained
in Exhibit E to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1988.
(d) The Crane Co. 1998 Stock Option Plan contained in Exhibit 4.1 to
the Company's Registration Statement No. 333-50489 on Form S-8
filed with the Commission on April 20, 1998.
(e) The Crane Co. 1998 Restricted Stock Award Plan contained in
Exhibit 4.1 to the Company's Registration Statement No. 333-50487
on Form S-8 filed with the Commission on April 20, 1998.
(f) The Crane Co. 1998 Non-Employee Director Restricted Stock Award
Plan contained in Exhibit 4.1 to the Company's Registration
Statement No. 333-50495 on Form S-8 filed with the Commission on
April 20, 1998.
(g) The Crane Co. 2000 Non-Employee Director Stock Compensation Plan
contained in Exhibit 10(a) to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 2000.
(h) The employment agreement with Eric C. Fast contained in Exhibit
10(b) to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 2000.
(i) The Crane Co. 2001 Stock Incentive Plan contained in Exhibit 10(b)
to the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 2001.
(j) The employment agreement with Robert S. Evans contained in Exhibit
10(a) to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 2001.
All other exhibits are omitted because they are not applicable or the
required information is shown elsewhere in this Annual Report on Form 10-K.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of Section l3 or l5 (d) of the Securities
Exchange Act of l934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
CRANE CO.
(Registrant)
By: M. L. RAITHEL
-----------------------------
M. L. Raithel
Vice President-Finance and
Chief Financial Officer
Date 3/22/02
Pursuant to the requirements of the Securities Exchange Act of l934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
OFFICERS
E. C. FAST M.L. RAITHEL
---------------------------------- ----------------------------------
E. C. Fast M. L. Raithel
President and Chief Vice President-Finance and
Executive Officer and a Director Chief Financial Officer
Date 3/22/02 (Principal Financial Officer and
Principal Accounting Officer)
Date 3/22/02
DIRECTORS
<TABLE>
<S> <C> <C>
R.S. EVANS E.T. BIGELOW, JR. R.S. FORTE'
- -------------------------- -------------------------- --------------------------
R.S. Evans E.T. Bigelow, Jr. R.S. Forte'
Date 3/22/02 Date 3/22/02 Date 3/22/02
D.R. GARDNER J. GAULIN --------------------------
- -------------------------- -------------------------- W.E. Lipner
D.R.Gardner J. Gaulin Date 3/22/02
Date 3/22/02 Date 3/22/02
D.C. MINTON C.J. QUEENAN, JR. J.L.L. TULLIS
- -------------------------- -------------------------- --------------------------
D.C. Minton C.J. Queenan, Jr. J.L.L. Tullis
Date 3/22/02 Date 3/22/02 Date 3/22/02
</TABLE>
16
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-11
<SEQUENCE>3
<FILENAME>dex11.txt
<DESCRIPTION>COMPUTATION OF NET INCOME PER SHARE
<TEXT>
<PAGE>
CRANE CO. AND SUBSIDIARIES
Exhibit 11 to FORM 10-K
Annual Report for the Year Ended December 31, 2001
Computation of Net Income Per Share
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Basic 2001 2000 1999 1998 1997 *
- ----- ---- ---- ---- ---- ------
<S> <C> <C> <C> <C> <C>
Income from continuing operations $88,620 $123,729 $100,898 $124,842 $103,716
Income from discontinued operations - - 13,672 13,596 9,055
------- -------- -------- -------- --------
Net income $88,620 $123,729 $114,570 $138,438 $112,771
======= ======== ======== ======== ========
Income from continuing operations $ 1.48 $ 2.03 $ 1.51 $ 1.82 $ 1.51
Income from discontinued operations - - .20 .20 .13
------- -------- -------- -------- --------
Net income per share $ 1.48 $ 2.03 $ 1.71 $ 2.02 $ 1.64
======== ======== ======== ======== ========
Weighted average number of basic shares 59,825 60,919 66,981 68,555 68,565
Diluted
- -------
Income from continuing operations $88,620 $123,729 $100,898 $124,842 $103,716
Income from discontinued operations - - 13,672 13,596 9,055
------- -------- -------- -------- --------
Net income $88,620 $123,729 $114,570 $138,438 $112,771
======= ======== ======== ======== ========
Income from continuing operations $ 1.47 $ 2.02 $ 1.50 $ 1.80 $ 1.50
Income from discontinued operations - - .20 .20 .13
------- -------- -------- -------- --------
Net income per share $ 1.47 $ 2.02 $ 1.70 $ 2.00 $ 1.63
======= ======== ======== ======== ========
Weighted average number of basic shares 59,825 60,919 66,981 68,555 68,565
Add:
Adjustment to basic shares for dilutive stock options 530 480 479 813 819
------- -------- -------- -------- --------
Total weighted average number of shares 60,355 61,399 67,460 69,368 69,384
======= ======== ======== ======== ========
</TABLE>
* All share and per share data have been retroactively restated to reflect
the three-for-two splits of common stock effected in the form of a 50%
stock dividend in 1998.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13
<SEQUENCE>4
<FILENAME>dex13.txt
<DESCRIPTION>ANNUAL REPORT TO SHAREHOLDERS
<TEXT>
<PAGE>
"I am resolved to conduct my business
in the strictest honesty and fairness;
to avoid all deception and trickery;
to deal fairly with both customers and competitors; to be liberal and just
toward employees and to put my whole mind upon the business."
RICHARD TELLER CRANE July 4, 1855
Crane Co. is a diversified manufacturer of
highly engineered products focused on niche markets which we dominate. Our
businesses yield high returns and high levels of cash flow. Above all, we
conduct business with integrity and honest dealings. We remain as committed
to R.T. Crane's words today as we were in 1855. This code of ethics is the
benchmark we use to measure ourselves, and guides us in all we do.
To build
shareholder
value.
1 Financial Highlights
2 Letter to Shareholders
13 Management's Discussion and Analysis of Operations
18 Liquidity, Capital Resources and Critical Accounting Policies
21 Consolidated Financial Statements
25 Notes to Consolidated Financial Statements
34 Management's Responsibility for Financial Reporting
34 Independent Auditors' Report
35 2000 Review: Management's Discussion and Analysis of Operations
40 Five Year Summary of Selected Financial Data
40 Quarterly Results for the Year
40 Market and Dividend Information--Crane Co. Common Shares
41 Directors and Officers
41 Shareholder Information
<PAGE>
Diluted EPS from
Continuing Operations
(in dollars)
[CHART]
PLOT POINTS TO COME
EBITDA
(in millions)
[CHART]
PLOT POINTS TO COME
Income from
Continuing Operations
(in millions)
[CHART]
PLOT POINTS TO COME
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
($ and shares in thousands except per share data)
-----------------------------------------
Summary of Operations 2001 2000 % change
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $1,587,180 $1,491,190 6.4
Operating profit:
As reported 171,684 184,026 (6.7)
As adjusted(a) 177,816 184,026 (3.4)
Net income:
As reported 88,620 123,729 (28.4)
As adjusted(b) 101,092 107,519 (6.0)
Cash flow from operating activities 197,562 151,176 30.7
EBITDA(c) 230,551 266,385 (13.5)
Diluted Share Data
- -------------------------------------------------------------------------------------------------------------
Net income $ 1.47 $ 2.02 (27.2)
Dividends .40 .40
Average diluted shares outstanding 60,355 61,399
Financial Position at December 31,
- -------------------------------------------------------------------------------------------------------------
Assets $1,292,115 $1,143,851 13.0
Net debt 283,023 217,722 30.0
Shareholders' equity 651,295 606,763 7.3
Market value of equity 1,530,448 1,718,369 (10.9)
Market capitalization 1,813,471 1,936,091 (6.3)
Key Statistics
- -------------------------------------------------------------------------------------------------------------
Operating margins:
As reported 10.8% 12.3%
As adjusted(a) 11.2% 12.3%
Return on average shareholders' equity:
As reported 14.2% 21.7%
As adjusted(b) 16.1% 18.8%
Net debt to common shareholders' equity 43.5% 35.9%
Net debt to total capitalization 30.3% 26.4%
</TABLE>
(a) Excludes a special charge of $6.1 million in 2001 for stock based
compensation cost relating to the retirement of the Company's Chief
Executive Officer.
(b) Excludes the aforementioned special charge and a loss on disposal of a
business aggregating $12.5 million after-tax or $.21 per diluted share in
2001 and a gain on the sale of investments of $16.2 million after-tax or
$.26 per diluted share in 2000.
(c) EBITDA (net income before interest, taxes, depreciation and amortization)
is a measure of the Company's ability to generate cash flow. EBITDA should
be considered in addition to, but not as a substitute for, other measures
of financial performance reported in accordance with generally accepted
accounting principles and may be inconsistent with similar measures
presented by other companies.
<PAGE>
LETTER TO SHAREHOLDERS
Moving from a holding company to an operating company, how do we create
shareholder value?
strategic
leadership
- --------------------------------------------------------------------------------
Dear Shareholder:
2001 was a year of substantial change at Crane Co. After 17 years as Chief
Executive Officer, Shell Evans seamlessly transferred those responsibilities to
me while continuing as Chairman of the Board. He remains a close confidant as
our senior management team executes the programs we had been working on
together.
Crane's operating results, while disappointing, were very solid in the face of
the worst manufacturing environment in the last ten years. We generated $149
million in free cash flow in 2001 and finished the year with a very strong
balance sheet with debt as a percent of capitalization at 30%. This is tangible
evidence of the power of our business model.
We made considerable progress in the transition from a holding company to an
operating company in order to reestablish growth in our business and maximize
returns on invested capital. This progress included strengthening the management
team, improving customer metrics and making tangible operating improvements
throughout Crane. We moved aggressively to a smaller number of larger units,
completing four internal acquisitions, two divestitures and a joint venture.
Importantly, we invested $191 million in seven acquisitions that will
significantly strengthen our existing businesses. We are a much stronger company
today than we were a year ago as a result of these actions.
Operating Results
Sales increased 6% from $1.5 billion in 2000 to $1.6 billion in 2001, with all
of the increase attributable to businesses acquired during the year. Flat sales
in our existing businesses reflected especially weak markets in our short-cycle
businesses, particularly in transportation, automated merchandising and light
industrial.
In spite of the weakest manufacturing environment in a decade, we were able, for
the first nine months, to achieve operating earnings of $146 million (excluding
a non-cash special charge), up 4% from the comparable nine months of 2000. These
results were achieved through disciplined cost control by all business units and
strong results in Aerospace and at NRI. However, the events of September 11
changed the world for all of us, impacting not only the already weakened markets
in our short-cycle businesses but also severely affecting the commercial
aerospace market, resulting in a difficult fourth quarter. For the year,
operating profit of $178 million (excluding a non-cash special charge) was only
slightly lower than 2000's $184 million. The 2001 operating results reflect our
disciplined cost culture and included $13.0 million in costs related to work
force reductions totaling 700 employees, a plant consolidation and product line
rationalizations. Earnings per share were down 5% to $1.68 versus $1.76 in 2000,
excluding one-time losses on divestitures, retirement stock and a gain from the
sale of a telecommunications business in 2000.
Net earnings declined to $1.47 per diluted share, compared with $2.02 in 2000.
Net earnings for 2001 were reduced by $12.5 million, or $.21 per share, by a
loss on the disposal of our Canadian plumbing business and a non-cash charge for
stock-
2
<PAGE>
of a collection of linked businesses
- --------------------------------------------------------------------------------
based retirement costs related to the retirement of R.S. Evans as Chief
Executive Officer of the Company. Net earnings in 2000 were enhanced by a gain
of $.26 per share on the sale of a minority interest in a telecommunications
business.
Free cash flow--cash flow from operations plus proceeds from asset sales, less
capital expenditures and dividends--increased to $149 million from $144 million
in 2000.
Holding Company to Operating Company
We are a diversified manufacturer of highly engineered products with a core
value of integrity and honest business dealings. We are actively transforming
our management philosophy from that of a holding company to that of an operating
company, in order to grow economic value added (EVA). As a holding company, it
was our view that value was created by business unit management operating
closest to the customer, and that the corporate role was to select the right
investments and enforce disciplined management through a compensation system
based on EVA. While it is important to maintain these holding company precepts,
we also believe that additional value for our shareholders can be created
through the aggressive pursuit of operational and strategic linkages among our
business units.
We believe that the execution of three basic operating initiatives common to all
our businesses will drive earnings growth. These initiatives, discussed at some
length in last year's report, call for:
. Leveraging intellectual capital,
. Improving customer focus, and
. Achieving operational excellence.
Leveraging Intellectual Capital
We believe that the key to performance and financial success is the quality of
our people and the culture in which they operate. "Good people make good things
happen," and we are committed to a performance culture built on trust and
respect. We are passionate about learning and determined to leverage best
practices throughout Crane.
We strive to accomplish these goals through our Crane 200 program and Crane
University. The Crane 200 program is designed to identify and develop leadership
talent throughout Crane. As we instill common values and further develop these
key individuals, we will leverage these resources throughout our Company through
our "Crane Helping Crane" philosophy.
Crane University is our vehicle for learning and leveraging best practices
throughout Crane. It's a virtual University, as we wanted the money invested in
our people not a building. In 2001, we spent $4.5 million at Crane University
and trained 550 employees throughout the Company, compared with $1.5 million in
1999. These programs ranged from Kaizen events on the plant floor to formal
Crane University days for our business unit presidents. We trained more
employees in Six Sigma and Lean Manufacturing in 2001 than we had in the
previous four years combined, and put the entire management team of eight of our
key businesses through green belt training. In 2002, we plan to continue this
intense focus on learning and leveraging best practices as we drive to improve
our human capital.
3
<PAGE>
Customer Focus and Operational Excellence
We believe that it is important to measure not only financial results but those
metrics that are important to our customers, specifically on-time delivery, lead
time and quality. Improving these metrics increases the value proposition to our
customers, which in turn will enable us to take market share and grow profitable
sales. At Crane today, we have 90 trained lean black belts working in their
respective business units on improving those metrics, along with six master
black belts.
Every business unit president has completed operational excellence leadership
training and is focused on driving improvement in these metrics throughout their
organization. This has been a new focus for Crane over the past several years,
and while we have considerable room for improvement, we are making significant
progress. For example, on-time delivery improved in 2001 from 80% to 88%.
Our goal is to be "faster, better and easier" to do business with, while
reducing costs.
Strategic Linkages
As our operating results demonstrate, Crane has a collection of businesses with
high returns on capital and strong cash flow. As we make the transition from a
holding company to an operating company, we are constantly looking to create
value for our shareholders by having our units work more closely together.
In 2001, we focused on our ten smallest businesses, consistently earning $5
million or less. In the case of four businesses with sales totaling $125
million, 8% of total Crane sales, we saw the opportunity to create value through
strategic linkages with larger more profitable Crane businesses. As a result,
during the year we combined our North American commercial and engineered valve
businesses in Fluid Handling, Cor Tec with Kemlite in Engineered Materials,
Azonix with Dynalco in Controls and Lear Romec with Hydro-Aire in Aerospace.
From these "internal acquisitions" we expect the same synergies that you would
expect from external acquisitions. For example, the combination of Kemlite and
Cor Tec (both produce FRP panels for the transportation industry) allows us to
leverage the intellectual capital and sales resources of Kemlite with Cor Tec,
significantly expanding Cor Tec sales coverage, while enabling us to reduce
material and selling, general and administrative costs.
We divested two businesses--Crane Plumbing and Powers Process--as there were no
linkages to other Crane businesses and both had negative EVA. In the case of
Crane Plumbing, where we sold the U.S. business 15 years ago, the business model
consisted of two 30-year-old Canadian potteries competing against lower cost
offshore imports. Powers Process was our only business selling through plumbing
channels in the U.S. In addition, we contributed our Ferguson business and $12
million to form a joint venture with Ferguson's largest competitor. This allowed
us to change the Ferguson business model by capturing a larger share of the
overall market while rationalizing production facilities.
In 2001, this process reduced the number of business units from 23 to 16. We
believe a smaller number of larger units will increase the quality and
consistency of our management teams, allowing us to better understand the value
proposition to the customer and reduce business risks. Our EVA discipline will
make this program a continuing part of our culture at Crane.
Acquisitions
The seven acquisitions we made in 2001 at a cost of $191 million--five small
add-ons and two large stand-alone businesses--reflect our sharp focus on making
acquisitions which strengthen our existing businesses. The two large
acquisitions--Xomox and Saunders (renamed Crane Process Flow) were acquired for
$180 million and generate sales of $250 million annually. This significantly
strengthened our position in the global valve industry, which is rapidly
consolidating. Both have strong brands focused on high-end application-driven
markets in the chemical processing and biopharmaceutical markets, with operating
profit margins of approximately 10% that can be improved. Xomox has a 50% share
of the sleeved plug valve market, while Crane Process Flow has 20% of the world
market for diaphragm valves. These companies also bring low-cost international
manufacturing facilities in India and Hungary, which supplement existing Crane
facilities in China where we control design and quality. In addition, both Xomox
and Crane Process Flow have strong international sales organizations that will
join other Crane operations in cross-selling key existing Crane valve brands,
further expanding our product offerings and extending our markets. Incremental
sales of existing Crane products through Saunders and Xomox channels and vice
versa are expected to be $5 million to $10 million in 2002, growing to $40
million to $50 million by the fifth year.
Financial Strength
Crane's financial strength is rooted in the solid and sustainable profitability
of its core businesses, which hold strong positions in niche markets. These
businesses generate significant free cash flow. We use this cash to pay down
debt, to repurchase shares, and, most importantly, to invest in our existing
businesses and acquisitions. In 2001, for example, our free cash flow of $149
million, plus $20 million from divestitures, largely paid for our seven
acquisitions totaling $191 million.
4
<PAGE>
Our balance sheet is extremely strong, with a conservative net debt-to-capital
ratio of 30% at year-end. This is modestly higher than the 26% at year-end 2000,
but has moved steadily downward from 38% at the end of 2001's second quarter and
35% at the end of the third quarter.
Our business model of free cash flow in excess of net income will be a key
driver of value for shareholders in the future.
Outlook for 2002: A Year of Investment
I would characterize 2002 as a year of heavy investment in our business. We want
to be a materially stronger competitor in the marketplace with improved
operating leverage when our markets return to more normal levels. We will
continue our investment in intellectual capital through new hires, particularly
in sales and marketing, and by maintaining our spending in Crane University. We
will drive our operational excellence activities more deeply and broadly
throughout our organization to achieve further gains in our key operating
metrics, of on-time delivery, lead time, quality and inventory turns. We expect,
for example, to see on-time deliveries improve to 93% of customer promise date,
up from 88% in the year 2001.
Importantly, we are investing in key new product initiatives throughout the
Company, particularly in commercial aerospace and at Interpoint, our
microelectronics business. Finally, we continue to look for opportunities to
create value by leveraging the strategic linkages among our business units. We
expect powerful synergies to begin to develop from the inter-company sales of
existing products into new markets in our valve, pump and control businesses.
I remain confident in the quality of our people and our businesses and in our
ability to execute our 2002 plans. I deeply appreciate the guidance and
encouragement of our Board of Directors and the support of our shareholders,
customers and suppliers.
Sincerely,
/s/ Eric C. Fast
Eric C. Fast
President and Chief Executive Officer
FEBRUARY 22, 2002
We are adding value through...
<PAGE>
our people...
How do we grow sales? By getting close to the customer to make
doing business with us faster, better and easier. And by embracing operational
excellence - with whatever tools work best.
We have strong, well run businesses, working together with strengthened
management teams to build shareholder wealth.
New synergies leverage Crane Valve products through Xomox sales channels.
<PAGE>
We are redoubling our focus on the customer at Crane Merchandising, and we are
sharing best practices through "Crane Helping Crane".
The Kemlite/Cor Tec internal acquisition is delivering sales, procurement,
manufacturing, and management synergies.
Continued investment in intellectual capital means continuity and quality for
increased shareholder value.
To be great leaders, each of us must have a common recognition of value, people,
and be customer oriented. These are our shared values.
We strive to optimize profits and invested capital, and we are committed to the
continued generation of strong, free cash flow.
<PAGE>
...and our practices.
attract
retain [LOGO] CRANE UNIVERSITY measure
develop
Leveraging Intellectual Capital
Good people make good things happen. It is our goal to retain and recruit
talented people, and to train them well within a culture that calls for
performance with trust and respect. We are certain that the continuity of
running our business with the highest quality people is the best insurance of
financial success. We invested $4.5 million in 2001 training 550 employees
throughout the company at Crane University--our vehicle for learning and
leveraging best practices to improve our business processes. We continued to
invest in Six Sigma training, creating "black belts" who return to their
companies with the tools and know-how to improve processes and squeeze out cost,
while at the same time training our business unit management teams, as a group,
as "green belts" to drive operational excellence in their business unit. We are
strengthening our management capabilities by identifying and developing
leadership talent through our "Crane 200" program. We have put in place a
balanced compensation program, aligned with shareholder values, designed to
reward performance and retain our ablest people. We are broadening the growth
opportunities for each employee from a single business unit to all of Crane. A
company wide e-resume databank allows management throughout our businesses to
access the rich resource of talent we have here at Crane. Likewise, our pool of
talent has the ability to keep abreast of the opportunities for growth
throughout our collection of linked businesses with electronic posting of job
openings and descriptions.
8
<PAGE>
Make it ugly.
Improving Customer Focus
Make it ugly. This is a mantra which is heard in every part of our business.
Don't dress up the facts. Tell it straight. Face up to where you really are, so
all of us can understand the problem, identify the root cause, and generate a
creative solution that will really work. We use this self-assessment process as
a tool to understand the value proposition to the customer. We find the pain
points and then leverage our resources and talent throughout Crane to improve
internal processes and deliver service that exceeds expectations.
At Interpoint, in our Aerospace business unit, we meet with major customers on a
quarterly basis to rate one another's performance in on-time delivery, technical
capability, timely response, product quality and communications.
We set mutual improvement actions in each category, which then become a part of
our on-going business reviews. Cochlear Corporation is a major customer that
holds a 75% market share in the worldwide cochlear implant market. In 2001 their
total implant base topped 32,000 patients--17,000 of whom were children. With
their 70-year product warranty, quality and reliability are paramount. We
applied the "Interpoint Customer Focus" model to help them grow revenues by 53%
in their fiscal 2001. Within Interpoint, we improved our Quality metric by 35%
and our On-Time Delivery metric by 25% during this same period -- and our
revenue from Cochlear grew 170%. Cochlear has paid us a handsome compliment by
using the success of our partnership to promote their new Key Supplier Alliance
Program.
<PAGE>
EVA Operating Profit Margin Inventory Turns
THREE YEAR GOAL THREE YEAR GOAL THREE YEAR GOAL
- ----------------- ----------------- -----------------
maximize 15% 5.5 x
On-Time Delivery Lead Time Quality
THREE YEAR GOAL THREE YEAR GOAL THREE YEAR GOAL
- ----------------- ----------------- -----------------
98% 20% 30%
improvement improvement
per year per year
Achieving Operational Excellence
First we focus on the customer and find out what needs to be improved, then we
drive the solution through operational excellence (OpEx). Continuous
improvement, tied to financial performance, is driven and measured by the
metrics illustrated above. These are indicators of how we are serving the
customer, and they have become the foundation of how we run our business.
Employees from every part of Crane have been trained in a variety of tools and
skills such as Lean Manufacturing, Six Sigma, and process improvement through
information technology. Training in how and when to use the tools, and how to
recognize the types of problems best solved with them is fundamental. In 2001,
for example, we trained 20 full-time lean black belts and nearly 120 lean green
belts throughout Crane, adding to the ranks of the 125 trained over the previous
four years. We leverage these efforts through a program called "Crane Helping
Crane" where Crane leaders are sharing best practices and lessons learned
through open dialogue.
Each and every one of our OpEx metrics is results focused, and directly impacts
shareholder wealth and customer satisfaction.
<PAGE>
1+1=3
Making Synergistic Acquisitions
Throughout Crane, we are making acquisitions which create value not only by
being attractive businesses in their own right, but also by strengthening our
existing business model. Each one of our acquisitions is designed to accelerate
sales growth through the addition of new products, new customers, and new
markets. All of our acquisitions must provide significant opportunities for
marketing, manufacturing, and/or sourcing economies.
For example, the acquisition of Saunders and Xomox in the Fluid Handling unit
has strengthened our business model. These acquisitions have added:
. Premium brands with strong market positions, such as Xomox, Tufline,
Tuflin, Saunders, DEPA, ELRO and REVO.
. Technology leadership in corrosive fluid handling, sanitary valve design,
and polymer diaphragms.
. A strong international direct sales organization.
. Three new low-cost international manufacturing facilities where we control
design and quality.
The synergies created from these acquisitions come from the selling of Crane
products through Saunders/Xomox channels and vice versa, from facilities
rationalizations, and from expanded international sourcing and cost reduction
opportunities.
[GRAPHIC]
+ TECHNOLOGY AND PRICE -
REVO
------
Saunders Xomox Flowseal Westad, Pacific
-----------------------------------------
Centerline Crane Duocheck
---------------------------
Crane Stockham Jenkins
------------------------
11
<PAGE>
<TABLE>
<CAPTION>
Crane Crane Supply
Hydro-Aire/Lear Romec Kemlite/Cor Tec Merchandising Crane UK
Systems Crane Valves
ELDEC Polyflon Valve Services
National Rejectors, Inc. Crane Pumps & Systems Barksdale
Interpoint Resistoflex GmbH (nrd) Crane Environmental Azonix/Dynalco
<S> <C> <C> <C> <C>
ENGINEERED MERCHANDISING FLUID
AEROSPACE MATERIALS SYSTEMS HANDLING CONTROLS
Crane Co.
In the pages that follow,
we discuss results,
along with the events, trends,
market dynamics and
management initiatives
that influenced them.
</TABLE>
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
Aerospace
(dollars in millions) 2001 2000
- --------------------------------------------------------------------------------
Sales $395.2 $346.8
Operating profit 96.6 83.7
Gross margin 44.5% 44.0%
Operating margin 24.4% 24.1%
- --------------------------------------------------------------------------------
Despite the impact of the events of September 11, sales and operating profit at
Crane Aerospace rose 14% and 15%, respectively, in 2001, representing slight
margin improvement. Aerospace remained Crane's largest profit contributor,
representing 25% of the Company's sales and 56% of operating profit.
The events of September 11 had a significant impact on commercial aerospace.
Orders for new aircraft were reduced or canceled, passenger revenues declined
sharply and airlines rapidly reduced the size of their fleets. Aftermarket
spares orders were dramatically reduced, causing order backlog to fall 30% at
the end of the fourth quarter from the September level.
Following the events of September 11, Hydro-Aire/Lear Romec and ELDEC took
aggressive actions to reduce costs and to resize the business. In the fourth
quarter, the work force of those businesses was reduced 13% and severance costs
of $1.9 million were incurred. Facing the downturn in commercial aircraft
production levels, Crane Aerospace intensified its research and development
focus on safety and reduced cost of ownership. These activities are directed at
retrofit applications to address the installed base of approximately 13,000
aircraft.
ELDEC recorded a 4% operating profit gain on a 9% increase in sales, maintaining
strong profitability despite new program investments, in part, through
cost-reducing operational excellence initiatives. Working with
Hamilton-Sundstrand, ELDEC is developing electrical system products for two
regional jet families--the Embraer 170-190 and the Fairchild-Dornier 728-928.
ELDEC is also developing new proximity sensing electronics for the Boeing 777,
was selected to provide a flap skew detection system for the Bombardier CRJ-200
regional jet and won flowmeter and pressure transducer business on the Pratt &
Whitney 6000 and Rolls-Royce Trent 900 jet engines. ELDEC was awarded positions
on the Cessna Sovereign and Sikorsky S-92 programs. ELDEC received Boeing's
coveted Q100 Supplier Quality Recognition Award and was named SubContract
Supplier of the Year by Rockwell-Collins.
Hydro-Aire acquired Lear Romec in an internal acquisition during the year. Sales
of the combined businesses increased 10% from the prior year level, operating
profit increased 3%. Operating margins declined slightly in 2001 due primarily
to new program development costs.
Hydro-Aire maintained its leading world market share in antiskid brake control
systems, with strong showings in the commercial, regional, business and military
markets.
Hydro-Aire has brake control systems on every Boeing aircraft, and a 75% market
share in ongoing military programs, including the F/A-18 E/F, the C-130J and the
C-17. Hydro-Aire has fuel pumps on 65% of all Boeing planes and holds a 30%
share of the commercial market.
The government's award of the Joint Strike Fighter (JSF) contract to Lockheed
Martin was a major event for Hydro-Aire, as they will supply the brake controls.
The JSF program may involve over 3,000 aircraft for the U.S. and Great Britain,
although production will not begin until 2008. New and derivative brake controls
are being sold to unmanned aircraft and retrofit military markets, with
production expected after 2002. Through its pursuit of operational excellence
(see page 10) initiatives, Hydro-Aire achieved identifiable new cost savings of
over $5 million in 2001, a slightly larger gain than in 2000.
Lear-Romec was awarded the lube and scavenge pump contract for the Rolls-Royce
lift fan for the JSF program. Application engineering will begin in 2002 and
production in 2006. The business's research and development efforts are focused
on four areas: lighter-weight pumps, extension of vane pump technology to
high-pressure applications, variable frequency A.C. motors for fuel pumps, and
cost reduction efforts on the Rolls Royce Trent 700/800 engine series.
A high point of 2001 was the turnaround performance of Interpoint, a
manufacturer of power supplies and microelectronic assemblies. Under new
leadership at Interpoint, a strong team was established that revitalized the
company. Interpoint progressed from an operating loss of $4 million in 2000 to
an operating profit of $5 million in 2001 on higher sales, largely due to the
implementation of operational excellence processes and lean manufacturing
principles. Interpoint has established a mixed technology and volume automated
production cell providing customers with a "one-stop-shopping" solution for
their microelectronic needs. The uniqueness of this manufacturing technology
enables Interpoint to combine both hybrid and surface-mount capabilities
(including flip chip, ball grid arrays, and chip scale packages) in a single
in-line assembly process, with the flexibility and speed to handle a wide range
of volume requirements.
Outlook
Operating results for 2002 are expected to be down approximately 30% from 2001
(excluding goodwill amortization from both periods) due to the decline in both
airframe production levels and aftermarket spares shipments to commercial
airlines. Boeing and Airbus plan to build approximately 350 commercial aircraft
in 2002 compared to approximately 540 in 2001. Regional aircraft production is
expected to be reduced from 430 to 350 in 2002. The market for business jets
appears stable, while military spending is slated to increase. Aerospace will
focus on aftermarket retrofit applications for safety and reduced cost of
ownership for airline customers. Continued attention will be placed on
operational excellence initiatives to improve operating efficiencies and lower
costs as the industry adjusts to the events of September 11.
13
<PAGE>
Engineered
Materials
(dollars in millions) 2001 2000
- --------------------------------------------------------------------------------
Sales $290.8 $344.0
Operating profit 34.5 49.5
Gross margin 22.6% 24.1%
Operating margin 11.9% 14.4%
- --------------------------------------------------------------------------------
Sales, operating profits and margins declined in Engineered Materials in 2001
primarily because of lower sales to depressed transportation and chemical
process markets.
Engineered Materials sales of $290.8 million were down 16% from $344.0 million
in 2000, while operating profits slid 30% from $49.5 million to $34.5 million.
Operating margins were 11.9% versus 14.4%. Sales at both Kemlite and Resistoflex
were enhanced by acquisitions. Both companies outperformed their markets and
essentially maintained their strong market position.
Kemlite, the largest business in the segment, had sales and operating profit
declines of 15% and 28%, respectively, in 2001. Operating margins remained
strong in the mid-term as aggressive cost reductions and improved operating
efficiencies partially offset the impact of extremely weak end markets. Sales of
its fiberglass-reinforced plastic (frp) panels and translucent roofs for truck
trailers were down sharply but less than the market which fell by 50% from
200,000 units in 2000 to 100,000 units in 2001. The slowdown is expected to
continue throughout 2002. Sales of frp panels for recreational vehicles (RV)
declined in line with the overall market which was down 13%. The RV market is
expected to be up slightly in 2002. Sales of building products, including
Kemlite's Sequentia brands, were down modestly from the prior year level.
Kemlite's international sales were also down on reduced purchases by several
major customers, partially offset by stronger European and Canadian sales.
Kemlite's $6 million acquisition of Laminated Profiles (renamed Kemlite Ltd.), a
continuous panel frp producer based in the United Kingdom, in February 2001,
gave the company an important foothold in Europe. Kemlite Ltd. serves
transportation and RV markets mainly within the U.K. and added $7 million to
2001 sales.
In an internal acquisition, Cor Tec became part of Kemlite in 2001. Facing
depressed markets, both companies downsized their work forces by mid-year and
focused on reducing operating costs to strengthen margins. To improve
efficiencies, Kemlite conducted several Kaizen events and expanded its
operational excellence program, surpassing its cost savings goals in 2001. In
addition, the entire management staff participated in lean manufacturing
training in 2001.
Resistoflex operating profits were down by 27% in an extremely weak chemical
process market. Operating margins were in the mid-teens and should rebound as
chemical process markets recover.
Future prospects for Resistoflex were improved by two acquisitions during the
year. In September, the company acquired AeroHose, a manufacturer of high
pressure, plastic-lined hoses used mainly in military aircraft. AeroHose
products complement Resistoflex's aerospace tube and fitting business and will
be consolidated into the existing Jacksonville facility in the first quarter of
2002.
In July, the company acquired its German licensee, Resistoflex GmbH, gaining a
solid position in Europe. The European operation will work closely with the
recently acquired Xomox which makes plastic-lined valves that complement
Resistoflex's products. Resistoflex now has manufacturing facilities in the
U.S., Europe and Singapore. In addition, the Singapore unit has set up a
wholly-owned business in China to sell to that country's fast-growing chemical
process industry.
Resistoflex maintained a sharp focus on operational improvements to reduce costs
and improve margins positioning itself for rapid growth when markets turn.
Operational excellence initiatives and a focus on key metrics helped to improve
on-time delivery, quality and lead times.
As part of Crane's effort to merge or divest non-core marginal or unprofitable
businesses, Crane Plumbing was sold in October 2001 at an after-tax loss of $8.5
million. Crane Plumbing operated at a $1.5 million loss in 2001 on sales of
$28.5 million. Engineered Materials operating margin without Plumbing was 13.7%
in 2001.
Outlook
Engineered Materials operating results are expected to remain essentially flat
in 2002 (excluding goodwill amortization from both periods), as the
transportation and chemical process markets are expected to remain depressed
throughout the year. A recent pickup in RV ordering rates suggests improvement
in that Kemlite market, and the company is also targeting gains in building
products. Resistoflex expects that continued strength in military aerospace and
pharmaceutical markets will partially offset weak chemical process markets. The
new European operations of Resistoflex and Kemlite, constrained by a weakening
economy, will contribute only modestly to 2002 results.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
Merchandising
Systems
(dollars in millions) 2001 2000
- --------------------------------------------------------------------------------
Sales $216.4 $220.6
Operating profit 25.6 31.3
Gross margin 31.6% 33.0%
Operating margin 11.8% 14.2%
- --------------------------------------------------------------------------------
Merchandising Systems recorded slightly lower sales and an 18% decline in
operating profit as strong results at National Rejectors, Inc. (NRI) were more
than offset by a sharp decline at Crane Merchandising Systems (CMS).
Combined sales declined 2% to $216.4 million, compared with $220.6 million in
2000. Operating profit decreased from $31.3 million in 2000 to $25.6 million in
2001. Operating margins declined from 14.2% in 2000 to 11.8%.
The success story in 2001 was the performance of German-based NRI, Crane's
manufacturer of coin-changing and coin-validation devices. In the year prior to
the January 2002 introduction of Euro coins, sales of NRI's new Euro-capable
devices escalated dramatically as vending operators sought to equip their
machines for the new Euro coins. Sales rose 80% in 2001, while operating profit
rose 167%, with exceptionally strong margins.
Once the initial strong demand for its Euro-capable electronic devices was met,
orders fell sharply and NRI reduced its production and work force as planned.
NRI sales in 2002 are expected to be less than half of 2001 sales with operating
profit declining even more.
Crane Merchandising Systems faced difficult markets throughout 2001, both
domestically and internationally, for its coffee, food and snack-vending
machines. As the U.S. economy slowed, layoffs increased at offices and factories
where the bulk of vending machines are installed. Vending operators pulled
machines out of service and scaled back orders for new ones. European sales,
mainly in the U.K., held up through mid-year, but began to weaken as these
economies softened in the second half of 2001. As a result, Crane Merchandising
Systems sales declined 22% in 2001 from the prior year level and the business
essentially broke even at the operating profit line.
During the year, management took aggressive actions to cut operating costs and
optimize invested capital. CMS focused on core products and strategically
eliminated expenses for efforts devoted to non-core programs. Overall, Crane
Merchandising Systems downsized the work force by 15% in 2001 and rationalized
non-core products. These actions cost the company approximately $3.2 million in
operating profit during the year.
At the St. Louis manufacturing facility, lean enterprise systems to increase
manufacturing efficiency and reduce inventories were implemented. Significant
effort in training and execution of the new lean enterprise concepts led to a
25% inventory reduction. More importantly, St. Louis manufacturing operations
improved quality, increased on-time delivery to 98% and reduced product lead
times to less than eight days.
Outlook
Operating results in 2002 are expected to decline about 50% to 60% from 2001,
excluding goodwill amortization from both periods. This decline reflects the
completion of the Euro conversion, a record year in NRI sales and operating
profit, coupled with only slight anticipated improvement in the domestic
automated merchandising market in 2002 from the current depressed levels.
Continuing cost reduction efforts at both companies should strengthen margins
and set the stage for profitable growth when markets improve.
15
<PAGE>
Fluid Handling
(dollars in millions) 2001 2000
- --------------------------------------------------------------------------------
Sales $585.2 $461.1
Operating profit 38.5 31.8
Gross margin 25.5% 24.3%
Operating margin 6.6% 6.9%
- --------------------------------------------------------------------------------
Sales of Fluid Handling products increased 27% while operating profit rose 21%
in 2001 primarily as a result of the strategic acquisition of two valve
companies. In 2001, Xomox and Crane Process Flow Technologies were acquired for
$180 million. These and two other smaller acquisitions provided incremental
sales and operating profit of $125 million and $7.6 million, respectively. These
acquisitions strengthen Fluid Handling's position in the global valve industry
through increased product offerings and selling channels significantly expanding
overall market reach.
Fluid Handling sales, excluding acquisitions, were flat in 2001 versus the prior
year as organic growth in valve sales of 5% was offset by lower pump shipments
and slightly lower sales at Crane Supply. The increase in valve shipments in
2001 reflects strong demand from longer-cycle power generation and marine
markets and higher revenue from valve services. This was partially offset by
extremely weak demand in Crane's short-cycle valve businesses which sell through
distribution and serve the chemical process and the general industrial markets.
For the year, operating profit remained flat, excluding the incremental profits
from the acquisitions. Fluid Handling operating profit in 2001 was negatively
impacted by $6 million in costs for workforce reductions, product line
rationalizations and a plant consolidation. Operating margin, excluding these
cost reduction initiatives, improved to 7.6% of sales in 2001 versus 6.9% in
2000. Valve operating margin, excluding the cost reduction initiatives of $3.7
million, improved to 8.7% of sales in 2001 compared to 6.5% in 2000 as a result
of improved operating efficiencies and lower-cost product sourcing initiatives.
Crane's business model calls for a global supply chain strategy across all its
valve brands. In pursuit of this, valve production will continue to be shifted
to lower-cost sources where we control product design and quality. The
acquisition of Xomox and Crane Process Flow brought three new low-cost
facilities under Crane control, two in India and one in Hungary. These
facilities which manufacture plug, diaphragm and quarter turn butterfly valves
compliment Crane's existing two facilities in China which manufacture iron and
steel valves.
In addition, this business model will leverage the strong international sales
organizations, premium brand recognition and technology leadership in corrosive
fluid handling and sanitary valve design of the Xomox and Crane Process Flow
acquisition.
Continuing improvement of operating margins through cost cutting and increased
operating efficiency, toward a long-term goal of 12%, is a principal objective
of lean manufacturing initiatives. Key operational excellence metrics have
improved significantly as a result of the leadership and initiatives of lean
black belts trained in Six Sigma analytical techniques. For example, at
Washington, Iowa, where Crane manufactures iron valves, on-time delivery
improved from 74% to 93% over the two years ended December 31, 2001, while lead
time decreased from three weeks to two. At the Brantford, Ontario facility,
on-time delivery for bronze valves improved to 97%, lead time declined to six
weeks, and inventory turns improved from 1.7 to 2.9 over the twelve month period
ended December 31, 2001. Crane is targeting comparable improvements at Xomox and
Crane Process Flow plants.
At Crane Pumps & Systems, markets softened throughout 2001. Sales were off by
10% as a result of weakness in the general industrial market. Operating profit
and margin were down significantly reflecting the sales decline as well as work
force reductions and a plant consolidation which negatively impacted operating
profits by $2.3 million in 2001. These actions reduced headcount by 14% in 2001
and are expected to generate significant savings in 2002. Crane Pumps & Systems
also combined seven sales forces for its various brands into two and plans to
expand its sourcing of lower-cost components and finished product from China.
Crane Supply, a Canada-based distributor of pipe, valves and fittings, had a
slight decline in sales in 2001 while operating profit was 12% below prior year
levels. Overall operating margin remained at 7% of sales.
Outlook
Fluid Handling operating results in 2002 are expected to significantly improve
from 2001 (excluding goodwill amortization from both periods). This improvement
will be driven by margin improvement initiatives, the full-year impact of 2001
acquisitions and strong order backlog in power generation and marine markets.
Full-year results of the 2001 Xomox and Crane Process Flow acquisitions should
boost segment sales and operating profits significantly in 2002. Despite
continued market weakness, margins should increase as a result of rigorous
cost-reduction and process improvement efforts along with savings from plant
consolidations and procurement and sales synergies across Crane's valve
businesses.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
Controls
(dollars in millions) 2001 2000
- --------------------------------------------------------------------------------
Sales $101.9 $121.9
Operating profit 2.0 (2.1)
Gross margin 33.2% 29.5%
Operating margin 2.0% (1.8)%
- --------------------------------------------------------------------------------
Sales declined by 16% while operating profit and margins improved in Controls
during 2001. This reflects the impact of the 2001 disposition of two non-core
businesses and an improvement at Azonix/Dynalco.
Crane took a number of strategic actions in 2001 to improve Controls, which has
faced flat-to-lower sales and declining profits and margins in recent years. The
Ferguson business was contributed to a joint venture and Powers Process Controls
was sold. Aggregate sales for these two businesses were $33 million in 2001.
In September 2001, the Company and Emerson Electric Co. announced the formation
of a joint venture involving Emerson's Commercial Cam Co. unit and the Company's
Ferguson business. The Company and Emerson contributed their respective
operations into a new company, Industrial Motion Control Holding, LLC. Crane
also contributed $12 million of cash into the Ferguson/Cam Co. joint venture,
which is accounted for under the equity method of accounting by Crane. Market
related synergies and facility rationalization are expected to improve the
business model for the Company's Ferguson investment going forward. Improved
pricing and cost-reduction efforts reduced losses at Ferguson's operations for
the nine month period before the start of the joint venture to $2.1 million,
compared with a full-year loss of $4.8 million in 2000.
Powers Process Controls, a marginally profitable business with no potential
linkages with other Crane businesses, was sold at book value to a strategic
buyer during 2001.
Barksdale, a leader in ride-leveling air suspension valves for heavy trucks and
trailers and in blowout prevention valves used in oil and gas exploration, saw
sales decline by 9% as its principal markets, transportation, oil and gas
exploration and general industrial, all weakened.
Operating profit at Barksdale dropped 31% due to the lower volume and lower
margin that reflect expenses for severance and costs of product rationalization
programs. During the year, Barksdale has made operational improvements which are
expected to benefit future performance. These include improvements in customer
metrics for on-time delivery and lead-time.
In addition, the company is realigning its sales organization to a
market-focused distribution approach. At the end of 2001, Barksdale launched a
new pressure valve for the transportation industry and plans to ship in early
2002.
In 2001, Azonix and Dynalco were combined in an "internal acquisition" under
common leadership. While Azonix/ Dynalco sales revenue was flat, operating
profits more than doubled during 2001. These results reflect the benefits of
consolidation, rigorous cost controls and favorable product mix. An increase in
sales was achieved on strong military orders and improving oil and gas industry
orders for MMI (man-machine interface) displays and controls for hazardous
environments, a market the company dominates. However, this was offset by a
slight sales decline on engine instruments and controls as well as diagnostic
equipment, despite a strong fourth quarter.
Integration of the two management teams enabled the companies to leverage core
competencies to make operations more efficient and strengthen market presence,
particularly in the important oil and gas markets. Consolidation of the sales
and marketing organizations improved market coverage, customer focus and use of
resources. Significant gains were made in the key operational excellence metrics
of on-time delivery, lead-time and quality while continued product innovation
set the stage for future growth.
Outlook
Controls' 2002 operating results are expected to increase from 2001 (excluding
goodwill amortization from both periods) reflecting the elimination of $2.1
million of losses in 2002 which were incurred under the prior Ferguson business
model in 2001, and stable 2002 results at the remaining units. With only
moderate improvement in oil and gas markets and continuing weakness in the
transportation, fluid handling and general industrial markets, sales of the
remaining businesses in Controls are expected to remain flat in 2002.
17
<PAGE>
LIQUIDITY, CAPITAL RESOURCES AND CRITICAL ACCOUNTING POLICIES
Corporate
(dollars in millions) 2001 2000
- --------------------------------------------------------------------------------
Corporate expenses $ (25.5) $ (10.1)
Interest income 1.1 .8
Interest expense (21.2) (21.6)
Miscellaneous - net (15.7) 27.1
Effective tax rate on income 34.8% 35.0%
- --------------------------------------------------------------------------------
The increase in Corporate expenses is primarily due to higher employee-related
costs including a non-cash charge of $6.1 million resulting from the retirement
of R.S. Evans as the Company's Chief Executive Officer and represents
stock-based retirement costs that previously were being amortized to an
anticipated retirement at age 65.
In 2001, Miscellaneous--net is primarily a loss on disposal of Crane Plumbing of
$13.8 million. In addition, it includes equity income of $.9 million earned from
the joint venture formed in the late third quarter of 2001 between Crane Co. and
Emerson Electric Co. In 2000, $26.6 million from the gain on the sale of the
Company's investment in Powec AS and a related telecommunications power supply
product line is included in Miscellaneous--net.
Cash Flow
Operating activities in 2001 generated $198 million in cash flow. In addition,
the disposal of non-core businesses and the sale of excess real estate generated
$28 million of incremental cash during the year. The Company redeployed these
resources by investing $191 million expanding its core businesses by making
seven acquisitions, and investing $32 million in capital equipment while
returning $52 million to shareholders through dividends and share repurchases.
This represents the eighth consecutive year that Crane has generated cash in
excess of $100 million from operations.
Capital expenditures in 2001 totaled $32 million. Net cash used for financing
activities in 2001 includes $28 million for the repurchase of 1.1 million shares
of Crane common stock and $24 million for the payment of dividends.
Capital Structure
The following table sets forth the Company's capitalization:
(dollars in thousands) December 31 2001 2000
- --------------------------------------------------------------------------------
Short-term debt $ 1,818 $ 14,858
Long-term debt 302,368 213,790
- --------------------------------------------------------------------------------
Total debt 304,186 228,648
Less cash 21,163 10,926
- --------------------------------------------------------------------------------
Total net debt 283,023 217,722
Common shareholders' equity 651,295 606,763
- --------------------------------------------------------------------------------
Total capitalization $934,318 $824,485
% of net debt to shareholders' equity 43.5% 35.9%
% of net debt to total capitalization 30.3% 26.4%
- --------------------------------------------------------------------------------
At December 31, 2001, the principal amounts of long-term debt repayments
required for the next five years were $.4 million in 2002, $103.5 million in
2003, $100.0 million in 2004, none in 2005 and $100.0 million in 2006.
As of December 31, 2001, the Company had unused domestic lines of credit
totaling $115.0 million and unused foreign lines of credit totaling $42.7
million. These lines of credit are typically available for borrowings up to 364
days and are renewable at the option of the lender.
The Company's net debt increased by $65.3 million to $283.0 million at December
31, 2001. The Company's net debt to capital percentage is at 30.3% up from 26.4%
in 2000. Interest coverage (income before taxes plus net interest expense
divided by net interest expense) is 7.7 times interest in 2001.
18
<PAGE>
At December 31, 2001, the Company had a $300 million contractually committed
long-term bank credit facility under which the Company can borrow, repay or, to
the extent permitted by the agreement, prepay loans and reborrow at any time
prior to the termination date of November 2003. Proceeds may be used for general
corporate purposes or to provide financing for acquisitions. The agreement
contains certain covenants, including limitations on indebtedness and liens. A
loan for $25 million was outstanding under this agreement at year-end. The
Company also has a $300 million shelf registration filed with the Securities and
Exchange Commission, all of which remains unissued. In February 2002, the
Company entered into a two year interest rate swap agreement with JPMorgan Chase
Bank which converts $100 million of 8.5% fixed rate debt to LIBOR plus 4.985%.
The swap agreement terminates on March 15, 2004.
The Company's Canadian subsidiary is party to a contractually committed
long-term line of credit in Canada. This facility permits borrowing of up to
$15.7 million, none of which was outstanding at December 31, 2001.
As of December 31, 2001, the Company's senior unsecured debt was rated BBB+ by
Standard and Poor's and Baa1 by Moody's Investors Service. The Company believes
it has adequate access to both public and private credit markets to meet all of
its operating and strategic objectives.
Crane is a party to a contractually committed off-balance sheet chattel paper
financing facility that enables its Crane Merchandising Systems business to
offer various sales support financing programs to its customers. At December 31,
2001, $35.5 million was outstanding. Recourse to Crane for all uncollectible
loans made to CMS's customers by the banks under this agreement is limited to
20% of the outstanding balance per year.
The Company has no majority-owned subsidiaries that are not included in the
consolidated financial statements nor does it have any interests in or
relationships with any special purpose off-balance sheet financing entities.
Critical Accounting Policies and Estimates
The Company's financial statements are prepared in accordance with accounting
principles generally accepted in the United States. Our significant accounting
policies are more fully described in the Accounting Policies note to the
Consolidated Financial Statements. Certain of our accounting policies require
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenue and expense during the reporting period.
On an on-going basis, management evaluates its estimates and assumptions, the
effects of revisions are reflected in the financial statements in the period in
which they are determined to be necessary. Our accounting policies include:
Accounts Receivable The Company continually monitors collections from customers
and provides a provision for estimated credit losses when customer accounts
exceed 90 days past due. The Company aggressively pursues collection efforts on
these overdue accounts and upon collection reverses the write-off in future
periods.
Inventories The Company values inventory at the lower of cost or market and
regularly reviews inventory values on hand and records a provision for excess
and obsolete inventory primarily based on historical usage and the Company's
forecast of product demand over the next two years. As actual future demand or
market conditions vary from those projected by management, adjustments to
inventory valuations will be required.
Valuation of Long-Lived Assets The Company periodically reviews the carrying
value of long-lived assets for continued appropriateness. These reviews are
based upon projections of anticipated future undiscounted cash flows. While the
Company believes these estimates of future cash flows are reasonable, different
assumptions regarding such cash flows could materially affect valuations.
Contingencies The Company accrues expenses when it is probable that an asset has
been impaired or a liability has been incurred and the amount can be reasonably
estimated. Contingencies for which the Company has made accruals include
environmental, warranty and product liability matters, none of which are
expected to have a material adverse effect on the Company's financial position
or cash flow. Adjustments to the amounts accrued are made as circumstances
change.
See Contingencies note to the Consolidated Financial Statements on page 30 for a
discussion of the Company's contingencies.
Benefit Plans The Company is required to make estimates and assumptions to
determine benefit plan liabilities which include investment returns, rates of
salary increases, discount rates and health care cost trend rates. Estimates and
assumptions are reviewed annually with the assistance of external actuarial
professionals and adjusted as circumstances change.
19
<PAGE>
Quantitative and Qualitative Disclosures about Market Risks
The Company's cash flows and earnings are subject to fluctuations from changes
in interest rates and foreign currency exchange rates. The Company manages its
exposures to these market risks through internally established policies and
procedures and, when deemed appropriate, through the use of interest rate swap
agreements and forward exchange contracts. Long-term debt outstanding of $302
million at December 31, 2001, was generally at fixed rates of interest ranging
from 2.28% to 8.50%. The Company does not enter into derivatives or other
financial instruments for trading or speculative purposes.
Risk Factors
Throughout this Annual Report to Shareholders, particularly in the President's
Letter to Shareholders on pages 2-5 and in the sections of Management's
Discussion and Analysis of Operations on pages 13-20 the Company makes numerous
statements about expectations of future performance and market trends and
statements about plans and objectives and other matters, which because they are
not historical fact may constitute "forward looking statements" within the
meaning of the Private Securities and Litigation Reform Act of 1995. Similar
forward looking statements are made periodically in reports to the Securities
and Exchange Commission, press releases, reports and documents and in written
and oral presentations to investors, shareholders, analysts and others,
regarding future results or expected developments. Because the Company wishes to
take advantage of the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, readers are cautioned to consider, among others,
the risk factors that will be described in the Company's Form 10-K for the
period ended December 31, 2001 to be filed with the Securities and Exchange
Commission before March 31, 2002, when evaluating such forward looking
statements about future results or developments.
Copies of the Company's Form 10-K can be obtained after it is filed by writing
to the Company at the address on the back cover, from the Securities and
Exchange Commission or through the Internet at the Company's Web site at
www.craneco.com.
Management's Discussion and Analysis of Operations continues on page 35.
21 Consolidated Financial Statements
25 Notes to Consolidated Financial Statements
34 Management's Responsibility for Financial Reporting
34 Independent Auditors' Report
35 2000 Review:
Management's Discussion and Analysis of Operations
40 Five Year Summary of Selected Financial Data
40 Quarterly Results for the Year
40 Market and Dividend Information--Crane Co. Common Shares
41 Directors and Officers
41 Shareholder Information
20
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(in thousands, except per share data)
------------------------------------------------
For Years Ended December 31, 2001 2000 1999
=================================================================================================================
<S> <C> <C> <C>
Net sales $1,587,180 $1,491,190 $1,553,657
Operating costs and expenses:
Cost of sales 1,045,710 988,518 1,057,003
Selling, general and administrative 295,176 263,365 264,788
Depreciation and amortization 74,610 55,281 62,312
- -----------------------------------------------------------------------------------------------------------------
1,415,496 1,307,164 1,384,103
- -----------------------------------------------------------------------------------------------------------------
Operating profit 171,684 184,026 169,554
Other income (expense):
Interest income 1,063 820 9,750
Interest expense (21,187) (21,564) (27,854)
Miscellaneous-- net (15,743) 27,078 4,345
- -----------------------------------------------------------------------------------------------------------------
(35,867) 6,334 (13,759)
- -----------------------------------------------------------------------------------------------------------------
Income before income taxes 135,817 190,360 155,795
Provision for income taxes 47,197 66,631 54,897
- -----------------------------------------------------------------------------------------------------------------
Income from continuing operations 88,620 123,729 100,898
Income from discontinued operations, net of taxes -- -- 13,672
- -----------------------------------------------------------------------------------------------------------------
Net Income $ 88,620 $ 123,729 $ 114,570
=================================================================================================================
Basic net income per share:
Income from continuing operations $ 1.48 $ 2.03 $ 1.51
Income from discontinued operations -- -- .20
- -----------------------------------------------------------------------------------------------------------------
Net income $ 1.48 $ 2.03 $ 1.71
- -----------------------------------------------------------------------------------------------------------------
Average basic shares outstanding 59,825 60,919 6 6,981
Diluted net income per share:
Income from continuing operations $ 1.47 $ 2.02 $ 1.50
Income from discontinued operations -- -- .20
- -----------------------------------------------------------------------------------------------------------------
Net income $ 1.47 $ 2.02 $ 1.70
- -----------------------------------------------------------------------------------------------------------------
Average diluted shares outstanding 60,355 61,399 67,460
=================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
21
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(in thousands)
---------------------------
Balance at December 31, 2001 2000
============================================================================================
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 21,163 $ 10,926
Accounts receivable 217,636 209,817
Inventories
Finished goods 68,421 87,118
Finished parts and subassemblies 64,965 53,361
Work in process 28,990 24,749
Raw materials 81,814 71,101
- --------------------------------------------------------------------------------------------
Total inventories 244,190 236,329
Deferred tax assets 32,279 31,455
Other current assets 7,989 11,625
- --------------------------------------------------------------------------------------------
Total current assets 523,257 500,152
Property, plant and
equipment:
Land 45,385 32,338
Buildings and improvements 134,799 132,142
Machinery and equipment 456,088 424,953
- --------------------------------------------------------------------------------------------
Gross property, plant and equipment 636,272 589,433
Less accumulated depreciation 360,479 343,322
- --------------------------------------------------------------------------------------------
Net property, plant and equipment 275,793 246,111
Other assets 72,622 39,116
Intangible assets 41,970 39,599
Goodwill 378,473 318,873
- --------------------------------------------------------------------------------------------
$1,292,115 $1,143,851
============================================================================================
Liabilities and shareholders' equity
Current liabilities:
Current maturities of long-term debt $ 375 $ 326
Loans payable 1,443 14,532
Accounts payable 84,707 92,249
Accrued liabilities 136,690 104,361
U.S. and foreign taxes on income 25,924 20,509
- --------------------------------------------------------------------------------- ----------
Total current liabilities 249,139 231,977
Long-term debt 302,368 213,790
Other liabilities 22,911 22,746
Accrued postretirement benefits 27,694 29,653
Accrued pension liabilities 17,820 10,536
Deferred income taxes 20,888 28,386
Preferred shares, par value $.01; 5,000,000 shares authorized -- --
Common shareholders' equity:
Common shares, par value $1.00;
authorized: 200,000,000 shares; issued: 72,426,139 shares;
outstanding: 59,689,874 shares (60,426,161 in 2000)
after deducting 12,736,265 shares
in treasury (11,999,978 in 2000) 72,426 72,426
Capital surplus 103,754 101,144
Retained earnings 789,244 720,864
Accumulated other comprehensive loss (34,461) (31,096)
Treasury stock (279,668) (256,575)
- --------------------------------------------------------------------------------- ----------
Total common shareholders' equity 651,295 606,763
- --------------------------------------------------------------------------------- ----------
$1,292,115 $1,143,851
============================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
22
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(in thousands)
---------------------------------
For years ended December 31, 2001 2000 1999
- ---------------------------- ---- ---- ----
<S> <C> <C> <C>
Operating activities:
Income from continuing operations $ 88,620 $ 123,729 $ 100,898
Non-cash special charges -- -- 16,765
Loss/(gain) on sale of assets 13,799 (26,646) (2,582)
Depreciation and amortization 74,610 55,281 62,312
Deferred income taxes (2,019) (2,689) 6,489
Cash provided from operating working capital 34,090 5,338 36,678
Other (11,538) (3,837) (9,856)
- ---------------------------------------------------------------------------------------------------------
TOTAL PROVIDED FROM OPERATING ACTIVITIES 197,562 151,176 210,704
- ---------------------------------------------------------------------------------------------------------
Investing Activities:
Capital expenditures (32,144) (29,977) (28,988)
Proceeds from disposition of capital assets 7,926 1,779 6,253
Joint venture and equity investments (12,000) -- (2,029)
Sale of equity investments -- 45,556 5,361
Payments for acquisitions, net of cash and liabilities
assumed of $43,764 in 2001, $909 in 2000 and $7,004 in
1999 (191,168) (11,921) (32,760)
Proceeds from divestitures 19,645 -- 6,881
- ---------------------------------------------------------------------------------------------------------
TOTAL (USED FOR) PROVIDED FROM INVESTING ACTIVITIES (207,741) 5,437 (45,282)
- ---------------------------------------------------------------------------------------------------------
Financing activities:
Equity:
Dividends paid (23,918) (24,323) (26,704)
Reacquisition of shares -- open market (28,434) (62,296) (124,024)
Reacquisition of shares -- stock incentive program (2,279) (4,374) (780)
Stock options exercised 9,097 12,388 6,191
- ---------------------------------------------------------------------------------------------------------
(45,534) (78,605) (145,317)
- ---------------------------------------------------------------------------------------------------------
Debt:
Issuance of long-term debt 197,300 86,200 181,200
Repayments of long-term debt (109,728) (158,576) (265,114)
Net (decrease) increase in short-term debt (21,441) 2,393 (23,594)
- ---------------------------------------------------------------------------------------------------------
66,131 (69,983) (107,508)
- ---------------------------------------------------------------------------------------------------------
TOTAL PROVIDED FROM (USED FOR) FINANCING ACTIVITIES 20,597 (148,588) (252,825)
- ---------------------------------------------------------------------------------------------------------
Cash provided from discontinued operations -- -- 75,091
Effect of exchange rate on cash and cash equivalents (181) (344) (638)
- ---------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 10,237 7,681 (12,950)
Cash and cash equivalents at beginning of year 10,926 3,245 16,195
- ---------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 21,163 $ 10,926 $ 3,245
- ---------------------------------------------------------------------------------------------------------
Detail of cash provided from (used for) operating working capital
(Net of effects of acquisitions):
Accounts receivable $ 17,888 $ (9,810) $ 31,934
Inventories 21,412 17,806 17,335
Other current assets 791 (140) 8,283
Accounts payable (17,869) 8,300 (5,688)
Accrued liabilities 14,497 (13,002) (14,551)
U.S. and foreign taxes on income (2,629) 2,184 (635)
- ---------------------------------------------------------------------------------------------------------
TOTAL $ 34,090 $ 5,338 $ 36,678
- ---------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Interest paid $ 21,133 $ 21,596 $ 28,726
Income taxes paid $ 34,933 $ 59,117 $ 54,825
=========================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
23
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common
Shares Accumulated Total
Issued Other Common
at Par Capital Retained Comprehensive Comprehensive Treasury Shareholders'
(in thousands, except share data) Value Surplus Earnings Income Loss Stock Equity
<S> <C> <C> <C> <C> <C> <C> <C>
======================================================================================================================
AT JANUARY 1, 1999 $72,426 $96,262 $574,797 $(18,036) $(82,215) $643,234
======================================================================================================================
Net income 114,570 114,570 114,570
Dividend of Huttig shares (42,382) (42,382)
Cash dividends (26,704) (26,704)
Reacquisition of 6,063,254 shares (126,469) (126,469)
Exercise of stock options,
419,914 shares 6,191 6,191
Tax benefit--exercise of stock
options 2,027 2,027
Restricted stock forfeited,
50,083 shares, net 3,140 (1,052) 2,088
Currency translation adjustment (4,445) (4,445) (4,445)
- ----------------------------------------------------------------------------------------------------------------------
Comprehensive income 110,125
======================================================================================================================
BALANCE DECEMBER 31, 1999 $72,426 98,289 623,421 (22,481) (203,545) 568,110
======================================================================================================================
Net income 123,729 123,729 123,729
Cash dividends (24,323) (24,323)
Reacquisition of 3,068,375 shares (65,012) (65,012)
Exercise of stock options 796,617
shares 12,388 12,388
Tax benefit--exercise of stock
options 2,855 2,855
Restricted stock forfeited,
104,552 shares, net (1,963) (406) (2,369)
Currency translation adjustment (8,615) (8,615) (8,615)
- ----------------------------------------------------------------------------------------------------------------------
Comprehensive income 115,114
======================================================================================================================
BALANCE DECEMBER 31, 2000 $72,426 $101,144 $720,864 $(31,096) $(256,575) $606,763
======================================================================================================================
Net income 88,620 88,620 88,620
Cash dividends (23,918) (23,918)
Reacquisition of 1,155,271 shares (30,713) (30,713)
Exercise of stock options 542,113
shares 9,097 9,097
Tax benefit--exercise of stock
options 2,610 2,610
Restricted stock forfeited,
123,129 shares, net 3,678 (1,477) 2,201
Currency translation adjustment (3,365) (3,365) (3,365)
- ----------------------------------------------------------------------------------------------------------------------
Comprehensive income 85,255
======================================================================================================================
BALANCE DECEMBER 31, 2001 $72,426 $103,754 $789,244 $(34,461) $(279,668) $651,295
======================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accounting Policies
Consolidation The consolidated financial statements include all controlled
subsidiaries. Investments in affiliates over which the Company exercises
significant influence but which it does not control (generally 20% to 50%
ownership) are accounted for under the equity method. All intercompany items
have been eliminated. Certain prior year amounts have been reclassified to
conform with the 2001 presentation.
Use of Estimates The Company's financial statements are prepared in conformity
with accounting principles generally accepted in the United States of America.
These require management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expense during the reporting
period. Actual results may differ from those estimated. Estimates and
assumptions are reviewed periodically, and the effects of revisions are
reflected in the financial statements in the period in which they are determined
to be necessary. Estimates are used when accounting for such items as inventory
reserves, allowance for doubtful accounts, depreciation and amortization,
valuation of long-lived assets, employee benefit plans, taxes and contingencies.
Currency Translation Assets and liabilities of subsidiaries that prepare
financial statements in currencies other than the U.S. dollar are translated at
the rate of exchange in effect on the balance sheet date; results of operations
are translated at the average rates of exchange prevailing during the year. The
related translation adjustments are included in accumulated other comprehensive
income (loss) in a separate component of common shareholders' equity.
Revenue Recognition Sales revenue is recorded when a product is shipped and
title passes to the customer.
Income Taxes Income tax expense is based on reported earnings before income
taxes. Deferred income taxes reflect the impact of temporary differences between
assets and liabilities recognized for financial reporting purposes and such
amounts recognized for tax purposes using currently enacted tax rates.
Net Income Per Share The Company's basic earnings per share calculations are
based on the weighted average number of common shares outstanding during the
year. Diluted earnings per share gives effect to all dilutive potential common
shares outstanding during the year.
(In thousands, except per share data)
For years ended December 31, 2001 2000 1999
================================================================================
Income from continuing operations $ 88,620 $ 123,729 $ 100,898
Income from discontinued operations -- -- 13,672
- --------------------------------------------------------------------------------
Net income $ 88,620 $ 123,729 $ 114,570
- --------------------------------------------------------------------------------
Average basic shares outstanding 59,825 60,919 66,981
Effect of dilutive stock options 530 480 479
- --------------------------------------------------------------------------------
Average diluted shares outstanding 60,355 61,399 67,460
- --------------------------------------------------------------------------------
Basic net income per share:
Income from continuing
operations $ 1.48 $ 2.03 $ 1.51
Income from discontinued
operations -- -- .20
- --------------------------------------------------------------------------------
Net income $ 1.48 $ 2.03 $ 1.71
- --------------------------------------------------------------------------------
Diluted net income per share:
Income from continuing
operations $ 1.47 $ 2.02 $ 1.50
Income from discontinued
operations -- -- .20
- --------------------------------------------------------------------------------
Net income $ 1.47 $ 2.02 $ 1.70
================================================================================
Cash and Cash Equivalents Marketable securities with original maturities of
three months or less are considered to be cash equivalents.
Accounts Receivable Receivables are carried at net realizable value.
A summary of the allowance for doubtful accounts at December 31, follows:
(in thousands) 2001 2000 1999
- -------------------------------------------------------------------------------
Balance at beginning of year $8,097 $7,073 $6,199
Provisions 9,200 7,093 5,928
Deductions (9,125) (6,069) (5,054)
- -------------------------------------------------------------------------------
Balance at end of year $8,172 $8,097 $7,073
===============================================================================
Inventories Inventories are stated at the lower of cost or market. Domestic
locations are 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 cost of sales by $5.0 million in 2001, $1.3 million in
2000 and $2.7 million in 1999. Replacement cost would have been higher by $18.9
million and $21.4 million at December 31, 2001 and 2000, respectively.
Property, Plant and Equipment Property, plant and equipment is stated at cost.
Depreciation is provided by the straight-line method over the estimated useful
lives of the respective assets, which range from three to twenty-five years.
Goodwill and Intangible Assets Goodwill is the excess of purchase price over the
fair value of net assets acquired in business combinations accounted for under
the purchase method. Goodwill, for acquisitions prior to July 1, 2001, is
being amortized on a straight-line basis ranging from fifteen to forty years.
The accumulated amortization was $96.0 million and $77.9 million at December 31,
2001 and 2000, respectively. Intangible assets are being amortized on a
straight-line basis over their estimated useful lives, which range from five to
twenty years. The accumulated amortization was $24.2 million and $20.5 million
at December 31, 2001 and 2000, respectively.
Valuation of Long-Lived Assets The Company periodically evaluates the carrying
value of long-lived assets, including goodwill and other intangible assets, when
events and circumstances indicate that the carrying amount may not be
recoverable. The carrying value of a long-lived asset is considered impaired
when the anticipated undiscounted cash flow from such asset is separately
identifiable and is less than its carrying value. In that event, a loss is
recognized based on the amount by which the carrying value exceeds the fair
market value of the long-lived asset. Fair market value is determined primarily
using the anticipated cash flows discounted at a rate commensurate with the risk
involved.
Stock-Based Compensation Plans The Company records compensation expense for its
stock-based employee compensation plans in accordance with the intrinsic-value
method prescribed by APB No. 25, "Accounting for Stock Issued to Employees."
Intrinsic value is the amount by which the market price of the underlying stock
exceeds the exercise price of the stock option or award on the measurement date,
generally the date of grant.
25
<PAGE>
Financial Instruments The Company periodically 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 agreements were outstanding at December 31, 2001 and 2000. In
addition, the Company periodically uses option contracts and forward foreign
exchange contracts as economic hedges of anticipated transactions and firm
purchase and sale commitments. These contracts are marked to market on a current
basis and the respective gains and losses are recognized in other income
(expense).
Recently Issued Accounting Standards
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 141 ("SFAS 141"), "Business Combinations."
SFAS 141 addresses the initial recognition, measurement and disclosure of
goodwill and other intangible assets acquired in a business combination. It also
requires the purchase method of accounting for business combinations initiated
after June 30, 2001 and eliminates the pooling-of-interests method. The adoption
of SFAS 141 did not have a significant impact on the Company's financial
statements.
The Company is required to implement Statement of Financial Accounting Standards
No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets," which is effective
January 1, 2002. SFAS 142 requires the discontinuance of amortization of
goodwill and intangible assets with indefinite useful lives but requires instead
that they be tested for impairment at least annually in accordance with the
provisions of SFAS 142. In addition, SFAS 142 includes provisions for the
reclassification of certain existing recognized intangibles as goodwill,
reassessment of the useful lives of existing recognized intangibles,
reclassification of certain intangibles out of previously reported goodwill and
the identification of reporting units for purposes of assessing potential future
impairments of goodwill. SFAS 142 also requires the Company to complete a
transitional goodwill impairment test as of January 1, 2002 no later than June
30, 2002. Any transitional impairment loss would be recognized as the cumulative
effect of a change in accounting principle in the Company's statement of income.
As of January 1, 2002, the Company has unamortized goodwill of $378 million and
unamortized intangible assets of $42 million, all of which will be subject to
the transitional provisions of SFAS 142. Amortization expense related to
goodwill was $18.1 million, $16.9 million and $17.4 million for the years ended
December 31, 2001, 2000 and 1999, respectively. Amortization expense related to
intangible assets was $3.7 million for the year ended December 31, 2001 and $3.6
million for the years ended December 31, 2000 and 1999, respectively.
The Company has not completed its assessment of the impact of adopting SFAS 142
on the Company's financial position or results of operations including what
transitional loss, if any, will be required to recognize as a cumulative effect
of a change in accounting principle in 2002.
The Company is required to implement SFAS No. 143, "Accounting for Asset
Retirement Obligations" ("SFAS 143"). SFAS 143 addresses financial accounting
and reporting for obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs. This statement
becomes effective January 1, 2003. The Company is assessing but has not
yet determined the impact that the adoption of SFAS 143 will have on its
financial position and results of operations.
The Company is required to implement SFAS No. 144, "Accounting for Impairment or
Disposal of Long-Lived Assets" ("SFAS 144"), which replaces SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Disposed Of" and supercedes certain parts of APB 30 "Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions." SFAS No. 144 resolves implementation issues
previously experienced under SFAS No. 121 and broadens the reporting of
discontinued operations. This statement becomes effective January 1, 2002. The
adoption of SFAS 144 will not have a significant impact on the Company's
financial position and results of operations.
Special Charges
The pre-tax special charge of $6.1 million taken in 2001 resulted from the
retirement of R.S. Evans as the Company's Chief Executive Officer and represents
stock-based retirement costs that previously were being amortized to an
anticipated retirement at age 65. The charge was included in selling, general
and administrative expenses.
The pre-tax special charges of $35.0 million taken in 1999 were principally for
a series of actions to reduce the fixed-cost base in Aerospace, Engineered
Materials, Fluid Handling and Controls by closing or consolidating facilities,
reducing staff, rationalizing product lines and for other unusual items. In
total, five manufacturing facilities were closed or ceased production. Severance
costs were recognized in connection with the involuntary termination of 550
employees, of whom 380 were terminated prior to December 31, 1999, and the
remainder were terminated in 2000. Expenditures in 2000 for these facility
closure and severance costs, that exceeded the amounts accrued at December 31,
1999, were charged to the income statement in 2000. The asset impairments and
disposals were the result of management's decision to close certain
manufacturing and peripheral facilities in the Fluid Handling segment. The
impairments involve the write-off of goodwill related to certain businesses that
were exited and the disposal of equipment. The goodwill was reduced to zero and
the equipment was reduced to estimated fair valve, based on estimated proceeds
from disposition. The charge was included in cost of sales. A summary of the
special charges for the year ended December 31, 1999, is as follows:
(in thousands) Total
- --------------------------------------------------------------------------------
Severance costs $ 6,258
Facility closure costs 3,553
Product liability costs 7,347
Other items 1,064
- --------------------------------------------------------------------------------
TOTAL CASH $18,222
- --------------------------------------------------------------------------------
Inventory markdowns 12,248
Asset impairments and disposals 4,517
- --------------------------------------------------------------------------------
TOTAL NON-CASH 16,765
- --------------------------------------------------------------------------------
TOTAL $34,987
================================================================================
Research and Development
Research and development and engineering costs are expensed when incurred. These
costs were approximately $55.6 million, $55.0 million and $58.9 million in 2001,
2000 and 1999, respectively. Included in these amounts were approximately $4.7
million, $6.7 million and $7.4 million received in 2001, 2000
26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
and 1999, respectively, for customer-sponsored research and development.
Discontinued Operations
On December 6, 1999, the Company's Board of Directors approved the spin-off of
its Huttig Building Products ("Huttig") subsidiary effective December 16, 1999,
to shareholders of record as of December 8, 1999. Huttig common shares were
distributed on the basis of one share of Huttig for every 4.5 shares of Crane
Co. common stock. Prior to the spin-off, Huttig transferred $68 million to the
Company, which the Company used to pay down debt.
Huttig's results of operations and cash contributions to Crane have been
reflected in the accompanying financial statements as a discontinued operation.
Summarized financial information for discontinued operations is set forth below:
(in thousands, except per share amounts) 1999
- --------------------------------------------------------------------------------
Net sales $760,723
Income before taxes 21,833(a)
Net income 13,672
Diluted net income per share .20
================================================================================
(a) Includes pension plan curtailment gain of $7.2 million.
Miscellaneous -- Net
(in thousands) for years ended December 31, 2001 2000 1999
- --------------------------------------------------------------------------------
Gain (loss) on sale of assets $(13,799)(a) $26,646(c) $2,582
Foreign exchange (loss)/gain (1,224) 2,597 --
Other (720)(b) (2,165) 1,763
- --------------------------------------------------------------------------------
$(15,743) $27,078 $4,345
================================================================================
(a) Reflects loss on sale of Crane Plumbing.
(b) Includes equity in earnings of the Ferguson/Camco joint venture, (Industrial
Motion Control Holding, LLC), of $.9 million. No dividends were received
from the joint venture in 2001.
(c) Reflects gain on sale of investment in Powec AS and related
telecommunications power supply product line.
Income Taxes
Income (loss) before income taxes is as follows:
(in thousands) for years ended December 31, 2001 2000 1999
- --------------------------------------------------------------------------------
U.S. operations $105,400 $174,879 $160,888
Non-U.S. operations 30,417 15,481 (5,093)
- --------------------------------------------------------------------------------
$135,817 $190,360 $155,795
================================================================================
The provision for income taxes consists of:
(in thousands) for years ended December 31, 2001 2000 1999
- --------------------------------------------------------------------------------
Current:
U.S. federal tax $31,581 $59,369 $41,007
State and local tax 2,600 4,374 2,100
Non-U.S. tax 15,035 5,577 5,301
- --------------------------------------------------------------------------------
49,216 69,320 48,408
================================================================================
Deferred:
U.S. federal tax 1,176 (5,656) 8,799
State and local tax 391 (127) 2,194
Non-U.S. tax (3,586) 3,094 (4,504)
- --------------------------------------------------------------------------------
(2,019) (2,689) 6,489
- --------------------------------------------------------------------------------
Provision for income taxes $47,197 $66,631 $54,897
================================================================================
Reconciliation of the statutory U.S. federal rate to the effective tax rate is
as follows:
(in thousands) for years ended December 31, 2001 2000 1999
- --------------------------------------------------------------------------------
Statutory U.S. federal tax at 35% $47,536 $66,631 $54,528
Increase (reduction) from:
Non-U.S. taxes 28 3,253 2,606
State and local taxes 1,944 2,761 2,879
Non-deductible goodwill 4,803 4,697 4,836
Foreign Sales Corporation (6,098) (6,227) (6,033)
Other (1,016) (4,484) (3,919)
- --------------------------------------------------------------------------------
Provision for income taxes $47,197 $66,631 $54,897
- --------------------------------------------------------------------------------
Effective tax rate 34.8% 35.0% 35.2%
================================================================================
At December 31, 2001, the Company had unremitted earnings of foreign
subsidiaries of $120.2 million. Because these earnings, which reflect full
provision for non-U.S. income taxes, are indefinitely reinvested in non-U.S.
operations, or can be remitted substantially free of additional tax, no
provision has been made for taxes that might be payable upon remittance of such
earnings.
The components of deferred tax assets and liabilities included on the balance
sheet at December 31 are as follows:
(in thousands) December 31, 2001 2000
- --------------------------------------------------------------------------------
Deferred tax assets:
Postretirement benefits $11,219 $11,951
Inventory 14,274 10,386
Insurance 6,199 6,741
Environmental 4,357 2,789
Tax loss and credit carryforwards 11,551 11,137
Deferred compensation 3,072 5,269
Other 20,509 18,504
- --------------------------------------------------------------------------------
Total 71,181 66,777
Less valuation allowance on tax
loss and credit carryforwards 7,044 7,256
- --------------------------------------------------------------------------------
Total deferred tax assets, net 64,137 59,521
- --------------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation (29,932) (34,816)
Intangibles (11,514) (11,432)
Pension (8,232) (10,204)
- --------------------------------------------------------------------------------
Total deferred liabilities (49,678) (56,452)
- --------------------------------------------------------------------------------
Net deferred tax asset $14,459 $ 3,069
================================================================================
Balance sheet classification:
Deferred tax assets 32,279 31,455
Other assets 3,784 --
Accrued liabilities (716) --
Deferred Income taxes (20,888) (28,386)
- --------------------------------------------------------------------------------
Net deferred tax asset $14,459 $ 3,069
================================================================================
27
<PAGE>
As of December 31, 2001, the Company had net operating loss (NOL) carryforwards
and tax credit carryforwards that will expire, if unused, as follows:
Non-U.S. Non-U.S U.S. State U.S.
(in thousands) National R&D State R&D R&D
year of expiration NOL NOL Credit NOL Credit Credit
- --------------------------------------------------------------------------------
2002-2005 $ 3,475 $ 110 $38,340 $73 $219
After 2005 6,260 -- 54,256 336
Indefinite 11,680 -- -- -- --
- --------------------------------------------------------------------------------
TOTAL $21,415 $ 110 $92,596 $73 $555
- --------------------------------------------------------------------------------
Deferred tax
asset on tax
carryforwards $ 7,028 $ 110 $ 3,785 $73 $555
- --------------------------------------------------------------------------------
Of the total $11.6 million deferred tax asset for tax carryforwards at December
31, 2001, $7.0 million has been offset by the valuation allowance because of the
uncertainty of ultimately realizing these future benefits.
Accrued Liabilities
(in thousands) December 31, 2001 2000
- --------------------------------------------------------------------------------
Employee-related expenses $ 64,074 $ 49,746
Insurance 8,166 10,060
Environmental 633 1,805
Warranty and product liability 15,473 10,899
Professional fees 7,615 2,125
Sales allowances 5,364 7,576
Customer advanced payments 1,619 2,202
Interest 4,500 4,446
Taxes other than income 6,026 2,400
Pensions 4,366 3,111
Facility closures 4,198 50
Other 14,656 9,941
- --------------------------------------------------------------------------------
$136,690 $104,361
================================================================================
Other Liabilities
(in thousands) December 31, 2001 2000
- --------------------------------------------------------------------------------
Environmental $ 5,652 $ 5,681
Insurance 5,746 6,744
Minority interest 1,884 1,031
Other 9,629 9,290
- --------------------------------------------------------------------------------
$ 22,911 $ 22,746
================================================================================
Pension and Postretirement Benefits
The Company and most of its subsidiaries have defined benefit pension plans for
their employees. 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 governmental regulations.
Postretirement health care and life insurance benefits are provided for certain
U.S. and non-U.S. employees hired before January 1, 1990, 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.
The following table sets forth the amounts recognized in the Company's balance
sheet at December 31, for Company-sponsored defined benefit pension and
postretirement benefit plans:
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
(in thousands) December 31, 2001 2000 2001 2000
- -----------------------------------------------------------------------------------------------------
Change in benefit
obligation:
<S> <C> <C> <C> <C>
Benefit obligation at
beginning of year $315,435 $317,892 $ 18,980 $ 16,997
Service cost 9,201 9,503 220 165
Interest cost 21,390 20,724 1,548 1,331
Plan participants'
contributions 775 773 1,094 1,144
Amendments 390 (487) -- --
Actuarial (gain) loss 11,003 (6,574) 2,789 2,320
Benefits paid (16,634) (16,235) (3,283) (2,977)
Foreign currency exchange
rate (gain) loss (4,589) (10,161) -- --
Acquisition/divestitures 44,566 -- (660) --
- -----------------------------------------------------------------------------------------------------
Benefit obligation at
end of year 381,537 315,435 20,688 18,980
- -----------------------------------------------------------------------------------------------------
Change in plan assets:
Fair value of plan assets
at beginning of year 434,825 451,114
Actual return on
plan assets (4,983) 14,215
Foreign currency exchange
rate gain (loss) (7,119) (15,608)
Employer contributions 196 566
Plan participants'
contributions 815 773
Benefits paid (16,634) (16,235)
Acquisition/divestitures 36,336 --
- -----------------------------------------------------------------------------------------------------
Fair value of plan assets
at end of year 443,436 434,825
- -----------------------------------------------------------------------------------------------------
Funded status 61,899 119,390 (20,688) (18,980)
Unrecognized actuarial
(gain) (38,152) (90,508) (6,333) (9,904)
Unrecognized prior
service cost 2,265 1,765 (673) (769)
Unrecognized transition
(asset) (811) (946) -- --
- -----------------------------------------------------------------------------------------------------
Prepaid benefit/
(accrued cost) $ 25,201 $ 29,701 $(27,694) $(29,653)
=====================================================================================================
<CAPTION>
Pension Benefits
(in thousands) December 31, 2001 2000
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance sheet classification:
Other assets $ 43,338 $ 38,274
Accrued liabilities (1,702) (69)
Accrued pension liabilities (16,435) (8,504)
- -----------------------------------------------------------------------------------------------------
$ 25,201 $ 29,701
=====================================================================================================
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
(Dollars in thousands) Pension Benefits Postretirement Benefits
December 31, 2001 2000 1999 2001 2000 1999
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Weighted average
assumptions as
of December 31:
Discount rate 6.72% 6.98% 6.92% 7.25% 7.75% 7.5%
Expected rate of
return on
plan assets 8.05% 7.88% 8.12% -- -- --
Rate of compensation
increase 4.29% 4.59% 4.53% -- -- --
- ------------------------------------------------------------------------------------------------------------
Components of
net periodic
benefit cost:
Service cost $ 9,201 $ 9,503 $12,574 $ 220 $ 165 $ 146
Interest cost 21,390 20,724 20,427 1,548 1,331 1,163
Expected rate
of return on
plan assets (33,693) (33,182) (32,461) -- -- --
Amortization of
prior service cost (62) (872) (748) (95) (95) (95)
Recognized net
actuarial loss
(gain) (3,816) (3,503) (2,092) (550) (786) (959)
- ------------------------------------------------------------------------------------------------------------
Net periodic
(benefit) cost $(6,980) $(7,330) $(2,300) $1,123 $ 615 $ 255
============================================================================================================
</TABLE>
The projected benefit obligation, accumulated benefit obligation, and fair value
of plan assets for pension plans with accumulated benefit obligations in excess
of plan assets were $8.8 million, $8.5 million and $7.9 million, and $8.7
million, $8.0 million and $7.3 million, as of December 31, 2001 and 2000,
respectively.
At December 31, 2001, substantially all plan assets were invested in listed
stocks and bonds, approximately 64% and 23% respectively. These investments
included 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.
Contributions to these plans were approximately $1.1 million in each of 2001,
2000 and 1999.
The Company's subsidiaries ELDEC Corporation and Interpoint Corporation have
a money purchase plan to provide retirement benefits for all eligible employees.
The annual contribution is 5% of each eligible participant's gross compensation.
The contributions for 2001 and 2000 were $2.1 million and for 1999 were $2.5
million.
The Company and its subsidiaries sponsor savings and investment plans that
are available to eligible employees of the Company and its subsidiaries. The
Company made contributions to the plans of approximately $4.8 million in 2001
and $5.4 million in 2000 and 1999, respectively.
For the purpose of estimating the postretirement liability, the cost of
covered benefits was assumed to increase 8.5% for 2002, and then change
gradually to a 5.0% increase by 2007 and remain at that level thereafter. In
2001, the cost of covered benefits was assumed to increase 8.0% for 2001, and
then to change gradually to a 5.25% increase by 2005 and remain at that level
thereafter.
<TABLE>
<CAPTION>
1 Percentage 1 Percentage
(in thousands) Point Increase Point Decrease
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Effect on total of service and interest
cost components $143 $126
Effect on postretirement benefit obligation 1,446 1,285
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Short-Term Financing
The weighted average interest rate for loans payable, consisting of short-term
bank borrowings of $1.4 million and $14.5 million at December 31, 2001 and 2000,
was 5.6% and 6.7%, respectively. As of December 31, 2001, the Company had unused
domestic lines of credit totaling $115.0 million and unused foreign lines of
credit totaling $42.7 million. These lines of credit are typically available for
borrowings up to 364 days and are renewable at the option of the lender.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Long-Term Financing
(in thousands) December 31, 2001 2000
- -------------------------------------------------------------------------------
Crane Co.
8.50% notes due 2004 $100,000 100,000
- -------------------------------------------------------------------------------
Original issue discount (186) (269)
Deferred financing costs (154) (223)
- -------------------------------------------------------------------------------
99,660 99,508
- -------------------------------------------------------------------------------
6.75% notes due 2006 100,000 100,000
Original issue discount (177) (215)
Deferred financing costs (555) (703)
- -------------------------------------------------------------------------------
99,268 99,082
- -------------------------------------------------------------------------------
Credit facility - 2.28% average rate 101,600 --
Deferred financing costs (60) (74)
- -------------------------------------------------------------------------------
101,540 (74)
- -------------------------------------------------------------------------------
Total Crane Co. 300,468 198,516
- -------------------------------------------------------------------------------
Subsidiaries
Industrial revenue bonds 775 1,100
Various loans 1,500 14,500
- -------------------------------------------------------------------------------
Total subsidiaries 2,275 15,600
- -------------------------------------------------------------------------------
Total long-term debt 302,743 214,116
Less current portion 375 326
- -------------------------------------------------------------------------------
Long-term debt, net of current portion $302,368 $213,790
===============================================================================
At December 31, 2001, the principal amounts of long-term debt repayments
required for the next five years were $.4 million in 2002, $103.5 million in
2003, $100.0 million in 2004, none in 2005 and $100.0 million in 2006.
At December 31, 2001, the Company had a $300 million contractually committed
long-term bank credit facility under which the Company can borrow, repay or, to
the extent permitted by the agreement, prepay loans and reborrow at any time
prior to the termination date of November 2003. Proceeds may be used for general
corporate purposes or to provide financing for acquisitions. The agreement
contains certain covenants including limitations on indebtedness and liens. A
loan for $25 million was outstanding under this agreement at year-end. The
Company also has a $300 million shelf registration filed with the Securities and
Exchange Commission, all of which remains unissued. Short-term obligations of
$76.6 million at December 31, 2001 were classified as long-term debt because the
Company had entered into finance agreements that permit it to refinance
short-term obligations on a long-term basis.
Fair Value of Financial Instruments
The carrying value of investments, short-term debt, accounts receivable and
accounts payable approximates the fair value. 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. The estimated fair value of long-term debt was $313.5 million and
$217.9 million at December 31, 2001 and 2000, respectively.
The Company is a party to a contractually committed off-balance sheet chattel
paper financing facility that enables its Crane Merchandising Systems operation
to offer various sales support financing programs to its customers. At December
31, 2001, $35.5 million was outstanding. Recourse to the Company for all
uncollectible loans made to CMS's customers by the banks under this agreement is
limited to 20% of the outstanding balance per year.
29
<PAGE>
Leases
The Company leases certain facilities, vehicles and equipment. Future minimum
payments, by year and in the aggregate, under leases with initial or remaining
terms of one year or more consisted of the following at December 31, 2001:
Minimum
Operating Sublease
(in thousands) December 31, Leases Income Net
- --------------------------------------------------------------------------------
2002 $ 9,400 $ 156 $ 9,244
2003 7,840 117 7,723
2004 6,255 96 6,159
2005 4,598 30 4,568
2006 2,985 30 2,955
Thereafter 9,008 - 9,008
- --------------------------------------------------------------------------------
Total minimum lease payments $40,086 $ 429 $39,657
================================================================================
Rental expense was $13.7 million, $10.6 million and $9.7 million for 2001, 2000
and 1999, respectively.
Contingencies
In the normal course of business, the Company is subject to proceedings,
lawsuits and other claims including proceedings under laws and regulations
related to environmental, product liability and other matters. Such matters are
subject to many uncertainties and outcomes that are not predictable with
assurance. However, the Company believes that after final disposition, any
monetary liability or financial impact beyond that provided for at December 31,
2001 will not have a material effect on the Company's financial position or cash
flows.
The Company has established insurance programs to cover product and general
liability losses. These programs have deductible amounts of $5 million per
claim, $10 million aggregate per policy year before coverage begins, with the
exception of aircraft products, and non-U.S. claims which have first-dollar
coverage. The Company does not deem its deductible exposure to be material.
The Company continues to be involved in various remediation actions to clean up
hazardous wastes as required by federal and state laws. Estimated future
environmental remediation cost was $6.3 million at December 31, 2001 which was
fully accrued. In certain of these actions, the Company is one of several
potentially responsible parties (PRPs). As a PRP, the Company could be liable
for all clean-up costs despite the involvement of other PRPs. Given the
financial stability of the other PRPs, the Company believes this is unlikely,
and the accrual represents management's best estimate, based on current facts
and circumstances, with respect to the ultimate liability that will be
apportioned to the Company. The Company spent $2.4 million on environmental
costs in 2001 and expects to pay remediation costs of approximately $1.5 million
in 2002. The annual level of future remediation expenditures is difficult to
estimate because of the many uncertainties relating to conditions of individual
sites as well as uncertainties about the status of environmental laws and
regulations and developments in remedial technology. In addition, the Company is
a minor/de minimis PRP at certain third-party environmental remediation sites
where remediation obligations are joint and several, and the Company, as part of
its estimate of potential liability, periodically reviews whether the major PRPs
have the ability to fulfill their portion of such remediation obligations. The
Company is not aware of any significant additional liability that would result
from the inability of other PRPs to fulfill their obligations. Overall, the
Company's liability for the required remedial actions being implemented or
engineered will not be material.
As of December 31, 2001, the Company was a defendant (among a number of
defendants, typically over 50 and often over 100) in approximately 16,000
actions filed in various state and federal courts alleging injury or death as a
result of exposure to asbestos. These filings typically do not identify any
products of the Company as a source of asbestos exposure, and based on the
Company's past experience, it is expected that a substantial majority of these
cases will be dismissed against the Company for lack of product identification.
The liability recorded for asbestos claims constitutes management's best
estimate of defense and settlement costs for pending and reasonably anticipated
future claims, net of reimbursements from the Company's insurers under a cost
sharing agreement. The Company cautions, however, that inherent in its estimate
of liabilities are expected trends in claim severity, frequency and other
factors which may vary as claims are filed and settled or otherwise disposed of.
While it is not possible to predict with certainty the ultimate outcome of these
lawsuits and contingencies, the Company believes, after discussing pending
claims with counsel, that resolution of these matters will not have a material
effect on the Company's financial position or cash flows.
Acquisitions, Divestitures and Investments
During 2001, the Company completed seven acquisitions at a total cost of $191
million. Preliminary estimates of goodwill for the 2001 acquisitions amounted to
$74 million. There are two acquisitions where preliminary fair values of assets
acquired and liabilities assumed are to be finalized in 2002. In February 2001,
the Company acquired Ventech Controls, Inc. located in Houston, Texas. This
valve repair business provides both shop repair and remanufacture of control
valves and instruments. The acquisition of Ventech significantly enhances Crane
Valve Services' capabilities in the Houston market, the largest valve service
market in North America. Also in February 2001, the Company acquired the
fiberglass reinforced panel business of UK-based Laminated Profiles Ltd. as part
of its strategic initiative to penetrate the European transportation and
recreational vehicle markets. This acquisition provides the Company's Kemlite
subsidiary with a quality manufacturing facility, an established distribution
system and an enhanced market position in Europe.
In April 2001, the Company acquired the Industrial Flow Group of Alfa Laval
Holding AB (renamed Crane Process Flow Technologies) which includes the Saunders
brand of diaphragm valves manufactured in the UK and India and the DEPA brand of
air operated diaphragm pumps manufactured in Germany. Crane Process Flow
Technologies focuses on the development, production and distribution of valves,
pumps and related components in high value-added applications.
In June 2001, the Company acquired the Xomox valve business from Emerson
Electric for $145 million. Xomox supplies high-end, application-driven,
sleeved-plug valves, lined valves, high performance butterfly valves, and
actuators to the chemical,
30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
pharmaceutical and other process industries. Xomox has major manufacturing
facilities in the United States, Mexico, Germany and Hungary, and operates 22
service centers in the Americas, Europe and Asia. In addition, Xomox holds a 49%
interest in an Indian joint venture that manufactures and markets plug valves
for the Indian and other international markets. The Xomox acquisition brings
global brand names with strong market positions that are complementary to the
Company's existing product lines.
During the third quarter of 2001, the Company acquired the aerospace hose
product line of Teleflex Fluid Systems and Resistoflex GmbH. AeroHose, based in
Lantana, Florida, is a leading supplier of Teflon(R)-braided, high-pressure hose
assemblies utilized in both commercial and military aircraft as well as ground
support systems. AeroHose products are complementary in technology and
application to those of Crane's Resistoflex division in Jacksonville, Florida.
Resistoflex GmbH, based in Germany, is a leading manufacturer of
Teflon(R)-lined, steel-piping products serving chemical and pharmaceutical
markets in Europe. This acquisition provides Resistoflex with European-based
manufacturing operations to complement its facilities in North America and Asia
enhancing its capabilities to serve its customers in the chemical processing
industry worldwide.
In December 2001, the Company acquired the patents and other intellectual
property of Trinity Airweighs, obtaining a system to measure aircraft weight and
center of gravity.
In September 2001, the Company sold Powers Process Controls for its carrying
value. The Company also sold its Canadian Crane Plumbing business recording an
after-tax loss of approximately $8.5 million. Proceeds from the sale of the
businesses were approximately $20 million.
During the third quarter of 2001, Crane and Emerson Electric Co. announced the
formation of a joint venture involving Emerson's Commercial Cam unit and Crane's
Ferguson business unit. Emerson and Crane contributed their respective
operations into a new company, Industrial Motion Control Holdings, LLC. Crane
also contributed $12 million of cash into the venture. The investment in the
joint venture amounts to $19.6 million at year-end 2001 and is included in Other
Assets on the Balance Sheet. The joint venture is being accounted for on the
equity basis.
During 2000, the Company completed two acquisitions at a total cost of $11.9
million. In March, the Company acquired Streamware Corporation, a privately-held
company based in Norwood, Massachusetts, which is a leading provider of business
management software and market analysis tools for the vending and food service
industry. In December, the Company acquired the assets of the Valve Repair
Division of Groth Corporation which will make it possible to expand into safety
valve testing and repair in the key Houston, Texas, market. Goodwill for these
two acquisitions amounted to $8.5 million and is being amortized over 15 years.
In October 1999, the Company acquired Stentorfield, Ltd., based in Chippenham,
England, for $32.8 million. Stentorfield, a designer and manufacturer of
beverage vending machines, serves the U.K. and European markets with a broad
line of full-size and tabletop products for the hotel, restaurant, office coffee
service and vending industries. This business was integrated with the Company's
Crane Merchandising business and allows Crane Merchandising to provide a
"one-stop" product offering of snack, food and beverage machines for the U.K.
and European markets. Goodwill amounted to $24.3 million for this acquisition
and is being amortized over 20 years.
All acquisitions were accounted for by the purchase method. The results of
operations for all acquisitions have been included in the financial statements
from their respective dates of purchase.
The following unaudited pro forma financial information presents the combined
results of operations of the Company as if the acquisitions had taken place at
the beginning of 2001. The pro forma amounts give effect to certain adjustments,
including the amortization of goodwill and intangibles, increased interest
expense and income tax effects. This pro forma information does not necessarily
reflect the results of operations as they would have been if the businesses had
been managed by the Company during these periods and is not indicative of
results that may be obtained in the future. Pro forma 2001 results are as
follows: net sales revenue of $1.68 billion, net income of $90.1 million and
diluted net income per share of $1.49. Pro forma amounts for 2000 and 1999
acquisitions were not presented because their impact on results of operations
was not material.
In May 2000, the Company sold its interest in Powec AS, a Norwegian manufacturer
of power supplies for the telecommunications industry. In addition, the
Company's wholly-owned Eldec Corporation subsidiary sold its related
telecommunications power supply product line to the same company. Total
consideration for both businesses was $45.6 million. The Company accounted for
its investment in Powec AS using the equity method.
In April 1999, the Company sold Southwest Foundry, acquired as part of the
Stockham Valves & Fittings, Inc. transaction, for $.4 million. In December 1999,
the Company sold its Crane Defense Systems business for $6.4 million in cash and
a $.8 million note due in 2002
Preferred Share Purchase Rights
On June 27, 1998, the Company adopted a Shareholder Rights Plan to replace the
existing Plan which expired on that date. 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,
31
<PAGE>
voting power and, in the event of any merger, consolidation or other transaction
in which common shares are exchanged, a preferential exchange rate. The rights
will remain in existence until June 27, 2008, unless they are earlier
terminated, exercised or redeemed. The Company has authorized five million
shares of $.01 par value preferred stock, of which 500,000 shares have been
designated as Series A Junior Participating Preferred Stock.
Stock-Based Compensation Plans
The Company has two stock-based compensation plans: the Stock Incentive Plan and
the Non-Employee Director Stock Compensation Plan. In accounting for its
stock-based compensation plans, the Company applies the intrinsic value method
prescribed by APB No. 25, "Accounting for Stock Issued to Employees." Intrinsic
value is the amount by which the market price of the underlying stock exceeds
the exercise price of the stock option or award on the measurement date,
generally the date of grant. No compensation expense is recognized for the
Company's stock option grants. Compensation expense recognized for its
restricted stock awards was $7.2 million in 2001 and $2.1 million in 1999, while
the net reversal of previously recorded compensation expense was $2.3 million in
2000. The 2001 expense includes $6.1 million related to the accelerated vesting
of Chairman R.S. Evans' awards (see Special Charges). The pro forma net income
and earnings per share listed below reflect the impact of measuring compensation
expense for options granted in 2001, 2000 and 1999 in accordance with the
fair-value-based method prescribed by SFAS 123, "Accounting for Stock-Based
Compensation." These amounts may not be representative of future years' amounts,
as options vest over a three-year period and, generally, additional awards are
made each year.
(in thousands except per share data) 2001 2000 1999
- --------------------------------------------------------------------------------
Net income as reported $88,620 $123,729 $114,570
Pro forma 82,558 117,073 108,340
Net income per share
Basic as reported 1.48 2.03 1.71
Pro forma 1.38 1.92 1.62
- --------------------------------------------------------------------------------
Diluted as reported 1.47 2.02 1.70
Pro forma 1.37 1.91 1.61
================================================================================
The weighted average fair value of options granted was $7.64 per share in 2001,
$5.91 per share in 2000 and $5.66 per share in 1999. These estimates were based
on the Black-Scholes multiple option-pricing model with the following weighted
average assumptions:
2001 2000 1999
- --------------------------------------------------------------------------------
Dividend yield 1.48% 2.00% 1.85%
Volatility 27.02% 26.46% 25.14%
Risk-free interest rates 4.89% 6.64% 5.07%
Expected lives in years 5.11 5.11 5.12
================================================================================
Options are granted under the Stock Incentive Plan to officers and other key
employees and directors at an exercise price equal to the fair market value of
the shares on the date of grant. Options become exercisable at a rate of 50%
after the first year, 75% after the second year and 100% after the third year
from the date of grant and expire ten years after the date of grant. A summary
of stock option activity follows:
Weighted
Average
Number Exercise
(Shares in thousands) of Shares Price
================================================================================
1999
- --------------------------------------------------------------------------------
Options outstanding at beginning of year 4,210 $21.95
Granted 1,577 21.66
Exercised (456) 13.59
Canceled (194) 28.20
- --------------------------------------------------------------------------------
Options outstanding at end of year 5,137 22.36
Options exercisable at end of year 2,718 20.11
2000
- --------------------------------------------------------------------------------
Granted 1,134 20.46
Exercised (797) 15.52
Canceled (532) 27.07
- --------------------------------------------------------------------------------
Options outstanding at end of year 4,942 22.52
Options exercisable at end of year 3,045 22.48
2001
- --------------------------------------------------------------------------------
Granted 1,353 27.10
Exercised (542) 16.20
Canceled (408) 29.14
- --------------------------------------------------------------------------------
Options outstanding at end of year 5,345 23.75
Options exercisable at end of year 3,288 23.01
A summary of information regarding stock options outstanding at December 31,
2001, follows:
(Shares in thousands) Options Outstanding Options Exercisable
Weighted Weighted Weighted
Number Average Average Number Average
Range of of Remaining Exercise of Exercise
Exercise Prices Shares Life (Years) Price Shares Price
- --------------------------------------------------------------------------------
$25.63-33.54 2,172 8.06 $29.63 850 $33.51
17.16-24.62 2,494 7.35 21.01 1,759 21.03
10.45-16.96 679 3.61 15.01 679 15.01
================================================================================
The Stock Incentive Plan also provides for awards of restricted common stock to
officers and other key employees, subject to risk of forfeiture restrictions
which lapse over time or upon certain performance objectives. The Company
awarded 284,460 restricted shares with a weighted average fair value of $26.78
in 2001. As of December 31, 2001, there were available for future awards a total
of 319,500 shares.
Under the Non-Employee Director Stock Compensation Plan, directors who are not
full-time employees of the Company receive the portion of their annual retainer
that exceeds $15,000 in shares of common stock. 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. Also under
this plan, at the date of the annual meeting, each non-employee director is
granted an option to purchase 2000 shares of common stock at an exercise price
equal to the fair market value of the shares on the date of grant exercisable at
a rate of 50% after the first year, 75% after the second year and 100% after the
third year from the date of grant, expiring ten years after the date of grant.
For 2001, the non-employee directors received an aggregate of 16,000 shares with
a weighted average fair value of $27.13. Upon the adoption of this plan in 2000,
each non-employee director received a grant of options to purchase common stock
with an aggregate value,
32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
determined on the basis of the Black-Scholes method, equal to his accrued
benefit under a retirement plan for non-employee directors which was terminated.
One director elected to remain in the retirement plan and does not receive
options under the new plan. For 2000, non-employee directors received an
aggregated 5,040 shares with a weighted average fair value of $24.00 in 2000,
and approximately 120,000 options to purchase shares at an exercise price of
$23.69 per share.
Segment Information
The Company's segments are reported on the same basis used inter-nallyfor
evaluating segment performance and for allocating resources.
The Company has five reporting segments: Aerospace, Engineered Materials,
Merchandising Systems, Fluid Handling and Controls.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies.
The Company accounts for intersegment sales and transfers as if the sales or
transfers were to third parties at current market prices.
Information by industry segments follows:
<TABLE>
<CAPTION>
(in thousands) 2001 2000 1999
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aerospace
- ---------------------------------------------------------------------------------------
Net sales -- outside $ 395,210 $ 346,823 $ 363,128
Net sales -- intersegment -- -- --
Operating profit 96,579 83,650 96,078(a)
Assets 252,350 258,735 269,154
Capital expenditures 10,168 8,652 8,245
Depreciation and amortization 14,327 13,337 13,041
Engineered Materials
- ---------------------------------------------------------------------------------------
Net sales -- outside $ 289,278 $ 341,988 $ 353,534
Net sales -- intersegment 1,507 2,017 3,539
Operating profit 34,514 49,512 59,879(a)
Assets 206,705 228,632 249,961
Capital expenditures 1,915 4,265 4,380
Depreciation and amortization 14,235 13,846 14,085
Merchandising systems
- ---------------------------------------------------------------------------------------
Net sales -- outside $ 216,377 $ 220,557 $ 201,941
Net sales -- intersegment -- -- --
Operating profit 25,592 31,284 35,838
Assets 139,615 159,912 150,197
Capital expenditures 5,872 6,182 6,979
Depreciation and amortization 9,275 8,977 7,128
Fluid Handling
- ---------------------------------------------------------------------------------------
Net sales -- outside $ 585,162 $ 461,016 $ 502,170
Net sales -- intersegment 12 38 57
Operating profit 38,461 31,751 22,870(a)
Assets 543,986 308,717 330,528
Capital expenditures 12,927 8,064 6,390
Depreciation and amortization 17,751 13,258 16,829
Controls
- ---------------------------------------------------------------------------------------
Net sales -- outside $ 101,153 $ 120,806 $ 120,166
Net sales -- intersegment 744 1,083 1,051
Operating (loss) profit 2,032 (2,139) 4,071(a)
Assets 73,798 117,955 129,240
Capital expenditures 1,166 2,128 1,905
Depreciation and amortization 6,100 6,619 6,866
- ---------------------------------------------------------------------------------------
</TABLE>
(a) Before special charges for Aerospace ($9.0 million), Engineered Materials
($3.2 million), Fluid Handling ($18.9 million), Controls ($3.4 million) and
Corporate ($.4 million).
<TABLE>
<CAPTION>
(in thousands) 2001 2000 1999
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Consolidated net sales
Reportable segments $ 1,589,443 $ 1,494,328 $ 1,545,586
Other -- -- 12,717
Intersegment elimination (2,263) (3,138) (4,646)
- -----------------------------------------------------------------------------------------
TOTAL NET SALES $ 1,587,180 $ 1,491,190 $ 1,553,657
- -----------------------------------------------------------------------------------------
Operating profit
Reportable segments $ 197,178 $ 194,058 $ 218,736
Other -- -- (546)
Corporate (25,494) (10,092) (13,598)(a)
Special charges -- -- (34,987)(a)
Intersegment elimination -- 60 ( 51)
- -----------------------------------------------------------------------------------------
TOTAL OPERATING PROFIT $ 171,684 $ 184,026 $ 169,554
- -----------------------------------------------------------------------------------------
Assets
Reportable segments $ 1,216,454 $ 1,073,951 $ 1,129,080
Corporate 75,661 69,900 51,617
- -----------------------------------------------------------------------------------------
TOTAL ASSETS $ 1,292,115 $ 1,143,851 $ 1,180,697
- -----------------------------------------------------------------------------------------
Capital expenditures
Reportable segments $ 32,048 $ 29,291 $ 27,899
Other -- -- 274
Corporate 96 686 815
- -----------------------------------------------------------------------------------------
TOTAL CAPITAL EXPENDITURES $ 32,144 $ 29,977 $ 28,988
- -----------------------------------------------------------------------------------------
Depreciation and amortization
Reportable segments $ 61,688 $ 56,037 $ 57,949
Other -- -- 335
Corporate 12,921 (756) 4,028
- -----------------------------------------------------------------------------------------
TOTAL DEPRECIATION AND AMORTIZATION $ 74,609 $ 55,281 $ 62,312
=========================================================================================
<CAPTION>
Information by geographic segments follows:
(in thousands) 2001 2000 1999
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales
United States $ 931,684 $ 950,320 $ 1,012,090
Canada 184,505 207,089 202,899
Europe 328,773 222,992 238,320
Other international 142,218 110,789 100,348
- -----------------------------------------------------------------------------------------
TOTAL NET SALES $ 1,587,180 $ 1,491,190 $ 1,553,657
- -----------------------------------------------------------------------------------------
Operating profit
United States $ 85,493 $ 126,538 $ 140,362
Canada 15,014 14,353 10,351
Europe 52,822 30,291 8,465
Other international 18,355 12,844 10,376
- -----------------------------------------------------------------------------------------
TOTAL OPERATING PROFIT $ 171,684 $ 184,026 $ 169,554
=========================================================================================
Assets
United States $ 905,255 $ 905,252 $ 923,215
Canada 61,092 81,672 91,367
Europe 298,093 138,232 148,715
Other international 27,675 18,695 17,400
- -----------------------------------------------------------------------------------------
TOTAL ASSETS $ 1,292,115 $ 1,143,851 $ 1,180,697
=========================================================================================
</TABLE>
33
<PAGE>
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The accompanying consolidated financial statements of Crane Co. and subsidiaries
have been prepared by management in conformity with accounting principles
generally accepted in the United States of America 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/ Eric C. Fast
Eric C. Fast
President and Chief Executive Officer
/s/ M L Raithel
M.L. Raithel
Vice President, Finance and Chief Financial Officer
INDEPENDENT AUDITORS' REPORT
[LOGO]Deloitte & Touche
To the Shareholders of Crane Co.
We have audited the accompanying consolidated balance sheets of Crane Co. and
its subsidiaries ("the Company") as of December 31, 2001 and 2000, 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, 2001. 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 auditing standards generally accepted
in the United States of America. 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, 2001 and 2000, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2001, in
conformity with accounting principles generally accepted in the United States of
America.
/s/ Deloitte & Touche LLP
Stamford, Connecticut
JANUARY 18, 2002
<PAGE>
2000 REVIEW MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
Aerospace
(dollars in millions) 2000 1999
- --------------------------------------------------------------------------------
Sales $346.8 $363.1
Operating profit 83.7 87.1
Operating profit* 83.7 96.1
Gross margin* 44.0% 45.0%
Operating margin* 24.1% 26.5%
- --------------------------------------------------------------------------------
*Before special charges of $9.0 million in 1999.
Performance in the Aerospace segment, though below near-record 1999 levels,
exceeded earlier expectations and remained Crane's most profitable segment.
Segment sales decreased $16.3 million, or 4.5%, from 1999. Operating profit
decreased $12.4 million, or 13%, from 1999 (before special charges in 1999).
Gross margins remained flat from 1999 levels. Domestic sales accounted for 65%
and 69% of the segment's sales in 2000 and 1999, respectively. Aircraft build
rates and aftermarket sales for commercial aircraft, although down significantly
from 1999 levels, were higher than anticipated. Sales and operating profit were
strong at Hydro-Aire (world market leader in aircraft anti-skid brake control
systems and a niche manufacturer of fuel pumps) and ELDEC (world market leader
in aircraft proximity sensing systems and power supplies), above expectations
but below 1999 results. Lear Romec's (fuel and scavenge pumps) sales and
operating profit exceeded the prior year. Interpoint, the remaining Aerospace
unit member, reported a loss on sharply lower revenue from its miniaturized
power supplies and DC-DC converters for aerospace, medical and
telecommunications markets. Its performance was affected by design issues in
some products under development and shortages of key electronic components.
Order backlog for the Aerospace segment increased $69 million to $302 million at
December 31, 2000, as compared with 1999.
Hydro-Aire made significant progress in 2000, solidifying and expanding its
market position. While Boeing production rates decreased from 620 aircraft in
1999 to 489 in 2000, they are projected to rebound to approximately 530 aircraft
in 2001. Hydro-Aire is Boeing's sole supplier of brake control systems and a
leading supplier of fuel pumps. Further, a large installed base on Boeing
airplanes has enabled Hydro-Aire to grow its aftermarket business in repair and
overhaul and its sales of spare parts for older aircraft.
Hydro-Aire has laid the foundation for future growth with a continuing series of
new product and application "wins" due to its recognized leadership in brake
control technology. These include brake control systems on the new Boeing
767-400ER and 777X, the Cessna Sovereign business jet and the low- and
high-level trainers for the Eurofighter program. The business is also benefiting
from the robust market in smaller, regional jets, of which 280 were delivered in
1998, 300 in 1999, 360 in 2000 and a projected 430 in 2001. Hydro-Aire brake
control systems are on all Embraer aircraft, the Bombardier CRJ-100/200 models,
and all but one of the Fairchild Dornier jet models. Hydro-Aire is developing
brake control solutions for proposed new regional and business jets, the
military Joint Strike Fighter, the Airbus superjumbo A380 and Boeing derivative
aircraft.
ELDEC, Crane Aerospace's largest business, also outpaced expectations, improving
its already strong position in the regional jet market. Its proximity sensing
systems are on Embraer 170 and 190 models, Bombardier's CRJ 700 and 900 models
and Dornier's 728 and 928 models. ELDEC will provide DC electrical components
and power supplies to certain Embraer and Dornier aircraft. Embraer honored
ELDEC with its "Best Suppliers Award -- 2000" for quality. ELDEC remains the
sole-source supplier of proximity sensors, systems and components on Boeing's
new, longer-range 777X and is working with Boeing on the strategic 747X that
responds to the Airbus superjumbo challenge. ELDEC continues to supply equipment
- -- door and landing gear proximity sensing systems -- on Airbus aircraft. ELDEC
is working with both Boeing and Lockheed Martin on their competing versions of
the Joint Strike Fighter, with the winner to be chosen sometime in 2001.
ELDEC maintained strong margins in the face of lower sales, price pressures and
a less favorable product mix by accelerating its efforts at quick-response
manufacturing.
Lear Romec increased its operating profit by $1.2 million on modestly higher
sales by strengthening margins, largely through its emphasis on lean
manufacturing and training to reduce costs and improve execution. Bookings
continued strong in 2001 despite intense competition and pricing pressure from
several engine manufacturers for which it supplies lube or scavenge pumps. Both
competitors for the Joint Strike Fighter design chose Lear Romec to supply fuel
pumps, and the company was also chosen to supply fuel pumps for the new Pilatus
tur-boprop trainer, scheduled to go into service in 2003. Lear Romec is also
developing a new pump and integrated drive gear for Honeywell and equipment for
several helicopters due to enter service in late 2001 and 2002.
Interpoint operated at a loss in 2000 with revenue and operating profit down $10
million and $9 million, respectively, from 1999. Interpoint faced soft markets
for its standard power converters and other products for uses in its main
Aerospace market. Conversely, the company was unable to meet the strong demand
for other products due to manufacturing inefficiencies associated with shortages
of critical electronic components. Under new leadership in the latter part of
2000, Interpoint focused on smoothing its production processes through cell
manufacturing techniques, obtaining alternative component supplies and resolving
several design issues with customers. Significant opportunities exist for its
radio frequency products for fiberoptic cable which serve the telecommunication
market. Order backlog has increased to $38 million at December 31, 2000 from $18
million in 1999.
35
<PAGE>
Engineered
Materials
(dollars in millions) 2000 1999
- --------------------------------------------------------------------------------
Sales $344.0 $357.1
Operating profit 49.5 56.7
Operating profit* 49.5 59.9
Gross margin* 24.1% 25.8%
Operating margin* 14.4% 16.8%
- --------------------------------------------------------------------------------
*Before special charges of $3.2 million in 1999.
Overall sales and operating profit declined in the Engineered Materials segment
in 2000, although three of the five companies had higher sales and two increased
their operating profit. Segment sales decreased $13.1 million, or 3.7%, from
1999 and operating profit decreased $10.4 million, or 17.3%, from 1999 (before
special charges in 1999). Gross margins were 24.1% in 2000, compared with 25.8%
in 1999. Domestic sales accounted for approximately 80% of the segment sales in
both 2000 and 1999. Operating margins also decreased, and bookings declined
slightly. All of the businesses invested significantly in lean manufacturing or
other cost-reduction initiatives aimed at improving margins in the future.
Backlog decreased $6 million to $19 million at December 31, 2000 as compared
with 1999.
Kemlite, the segment's largest business, had its first down year in sales since
1991, off $17.9 million from 1999, and its first decline in operating profit
since 1995, down $10.0 million from 1999, as a result of a sharp fall-off in the
truck trailer transportation market and softer recreational vehicle and building
products markets. Operating margins were reduced 13.5% by higher raw material
costs for its fiberglass-reinforced plastic truck and trailer liner panels,
recreational vehicle side-walls and construction panels and by the bankruptcy of
a major customer.
Kemlite responded by adjusting spending, cutting costs through Six Sigma and
lean manufacturing programs, focusing on new sales opportunities and emphasizing
customer service. As a result, Kemlite realized solid operating margins and
maintained its strong market position in all markets served. Cash flow, although
below 1999 levels, remained strong.
CorTec, manufacturer of fiberglass-reinforced composite panels for
transportation and specialty markets, turned in a strong earnings performance
despite a modest decline in sales, reversing a 1999 loss resulting when a major
transportation account switched to competing materials. One factor in the
turnaround was a better product mix, with more high-value, specialty panels used
in such applications as racecar haulers, pleasure boats and houseboats.
Resistoflex increased sales of its plastic-lined, corrosion-resistant products
for industrial and aerospace markets, but margins and operating profits,
although strong, declined slightly because of higher-than-expected development
costs for hose and specialty products. Sales of pipe and fittings, the
business's main products, were flat domestically but sales in Asia increased and
were profitable.
The chemical process industry, Resistoflex's largest market, remained flat
during 2000 as high energy and raw material costs constrained customers' capital
spending. The pharmaceutical portion of the market was less affected, but global
competition and the strong U.S. dollar negatively impacted sales.
Resistoflex increased its military aerospace business, with strong activity in
the space shuttle and engine markets. In addition, a new tube-bending capability
generated significant additional sales. Resistoflex also sought patents for two
new fittings designed to withstand vibration, and these are being tested by
major airframe and engine manufacturers. New military programs, such as the F-22
fighter and Joint Strike Fighter, will also provide Resistoflex with continued
growth opportunities for its fittings, and tube and hose products.
Crane Plumbing increased sales of its steel, acrylic and ceramic plumbing
supplies and fixtures by 9% on gains in Canada's new housing market and
increased sales in the U.S. Crane Plumbing's 2000 operating loss widened by $2.8
million compared with 1999 as increasing oil and natural gas prices pushed up
raw material and transportation costs while competitive conditions constrained
pricing to customers.
36
<PAGE>
2000 REVIEW MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
Merchandising
Systems
(dollars in millions) 2000 1999
- --------------------------------------------------------------------------------
Sales $220.6 $201.9
Operating profit 31.3 35.8
Gross margin 33.0% 36.4%
Operating margin 14.2% 17.7%
- --------------------------------------------------------------------------------
Segment sales increased $18.7 million, or 9.2%, from 1999, while operating
profit decreased $4.5 million, or 12.7%. Gross margins were 33.0% in 2000,
compared with 36.4% in 1999. Domestic sales were 51% of the segment sales in
2000, compared with 54% in 1999. Results at Crane Merchandising, the larger of
the segment's two businesses, were impacted by costs associated with
disappointing new product introductions, unfavorable currency exchange rates in
Europe, labor issues and manufacturing inefficiencies at its St. Louis,
Missouri, plant, and costs associated with the Streamware, acquired earlier in
the year. The segment's other business, National Rejectors (NRI) increased its
operating margin to 22.2% and operating profits by $1.5 million, despite adverse
currency translation that resulted in lower sales in U.S. dollar terms. Order
backlog increased $51 million to $69 million at December 31, 2000, as compared
with 1999, resulting from advanced orders in anticipation of the euro currency
conversion.
Crane Merchandising' sales of its core snack and beverage vending machine
products grew modestly, but the largest part of its sales gain was derived from
its 1999 acquisition of Stentorfield in the U.K. Although its initial sales were
less than expected, Crane Merchandising' All Temperature Vending machine, the
first snack machine designed for stand-alone use at outdoor locations under a
wide range of weather conditions, was well received at premier U.S. locations,
such as Yosemite National Park, and in Australia. Exports of snack and beverage
machines were solid in 2000 and continued to result in strong sales in Australia
and New Zealand. The March acquisition of Streamware, a leading U.S. provider of
software and market research information to the vending industry, gave Crane
Merchandising an opportunity to develop a significant new business.
Streamware's VendMAX is a fully integrated software/hardware solution that
offers operators complete cash accountability, inventory control and improved
merchandising capabilities. Crane Merchandising is well positioned to meet the
challenge of integrating this capability into its own machines and those of
competing equipment makers.
Crane Merchandising, under new leadership since the fourth quarter of 2000, is
focusing on improving profitability through operational efficiencies at its
manufacturing plant in St. Louis and by focusing on business opportunities at
Streamware. Crane Merchandising expects to improve its production processes
through Six Sigma and lean manufacturing programs.
At NRI, the long-awaited demand for its coin validation machines designed for
euro coins finally materialized in August. NRI is among the relatively few
makers of coin validators that will supply European countries, which must equip
existing and new coin-operated vending machines, with validators programmed for
the new euro coins that will go into circulation in January 2002. Delays in a
number of countries in establishing final designs for euro coins prevented early
production of sufficient machines to accommodate the changeover.
NRI significantly increased sales of its smallest validators in 2000, as some
major customers started to make their equipment euro-currency compliant. Because
approximately one million of these validators are in service throughout Europe,
replacement business will be a substantial and continuing revenue source. NRI
has added additional shifts to meets its customer needs.
37
<PAGE>
Fluid Handling
(dollars in millions) 2000 1999
- --------------------------------------------------------------------------------
Sales $461.1 $502.2
Operating profit 31.8 4.0
Operating profit* 31.8 22.9
Gross margin* 24.3% 21.8%
Operating margin* 6.9% 4.6%
- --------------------------------------------------------------------------------
*Before special charges of $18.9 million in 1999.
The Fluid Handling segment increased profits in 2000 on planned lower sales, as
plant consolidations, product rationalizations and other cost-saving efforts
undertaken in 1999 significantly reduced fixed costs. Segment sales decreased
$41.1 million, or 8.2%, while operating profit increased $8.9 million, or 38.8%,
from 1999 (before special charges in 1999). Gross margins were 24.3% in 2000,
compared with 21.8% in 1999. Domestic sales were 52% of segment sales in both
2000 and 1999. Operating profit of $31.8 million was well above the $22.9
million earned in 1999 before related special charges that reduced that year's
operating profit to $4 million. The sales decline resulted from reduced nuclear
power plant outages, reduced export sales at Crane Valves -- U.K. and renewed
emphasis on accepting only profitable business. Contributing to the operating
profit increase were the improved business mix, sharply increased demand from
the power generation industry and a significant turnaround in the U.K. at Crane
Ltd., which returned to profitability despite lower sales. Fluid Handling order
backlog was up 18% to $92 million at December 31, 2000, compared with the prior
year level.
Crane's global valve business was reorganized in late 2000 to leverage the
products and brands sold through its North American distribution channels and to
focus its direct selling efforts at Pacific, Westad and Stockham Belfast on
specific end-user markets in the power generation, hydrocarbon and marine
industries.
Crane Valves' North American operations, which includes the Crane, Centerline,
Flowseal, Stockham and Duo Check brands sold through distribution, recorded
improved results, operating profitably despite an 11% decline in shipments. The
decline in revenue resulted primarily from accepting only profitable business in
2000, which improved overall margins. Production costs were higher than normal
in 2000 after closure of a steel facility in Rogers, Arkansas, and concentration
of manufacturing in the Washington, Iowa, plant. The consolidation is expected
to yield cost savings in 2001.
Pacific tripled its prior-year operating profit on a 60% increase in revenue to
$33.1 million, as demand from the power generation industry for its high
performance, pressure seal valves surged. Westad and Stockham U.K. both operated
at a loss in 2000 because of lower project business in their respective marine
and hydrocarbon markets. At Crane Valves -- U.K., which manufactures both valves
and malleable fittings, operating results were significantly improved as a
result of the restructuring actions taken in 1999. Operating margin was
approximately 7% compared with a loss in 1999. Shipments to third parties were
down 22% to $57 million, as enhanced price discipline resulted in lower export
sales in the latter part of 1999 and first half of 2000, leading to lost market
share.
Valve Services' sales and operating profit in 2000 were down $13.4 million and
$1.7 million, respectively from 1999, mainly because of a decline in nuclear
service revenue that resulted from the industry's cyclical nature and a
reduction in the number and duration of planned outages at nuclear power plants.
This cyclical business, in which Crane has a leading market position, was
impacted as utilities extended refuel cycles from 12 months to 18 or 24 months.
Overall operating margin remained strong at 11% as the repair parts, testing
products and commercial services improved from the prior year level.
The late December, 2000 acquisition of the Valve Repair Division of Groth
Corporation and the February 2001 acquisition of Ventech, Inc., will further
enhance Crane's presence and capabilities in the key Houston market.
Crane Pumps had lower profits of $1.7 million on flat sales because of expenses
related to the resolution of a product field issue and because of higher
administrative costs incurred in improving its management team. The new
leadership and management organization clearly focuses responsibility for
expanding the sales and profitability of Crane's many pump brands. Continuing
cost reduction, cross-branding opportunities and manufacturing and material
sourcing efficiencies will be emphasized in 2001. Crane Environmental, also
under new leadership, had lower sales and operating profit but gained momentum
as it launched a quick-ship program and focused on high-potential water
desalination and whole-house water purification niches.
Crane Supply increased its operating profit to $8.2 million on slightly lower
sales to $106.1 million from $111.9 million in 1999, with an improved customer
and product mix. The company, which distributes pipe, valves and fitting
supplies throughout Canada, also benefited from strength in the Ontario and
Quebec markets. It successfully introduced a line of stainless steel pipe,
valves and fittings, and in the fourth quarter, launched an online order entry
system that was well received. The company implemented a new warehouse
management system at the first two of eight warehouses, opened two new branches
in Ontario and converted three more of its 30 service branches to higher-margin
express stores, for a total of nine.
38
<PAGE>
2000 REVIEW MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
Controls
(dollars in millions) 2000 1999
- --------------------------------------------------------------------------------
Sales $121.9 $121.2
Operating (loss) profit (2.1) .7
Operating (loss) profit* (2.1) 4.1
Gross margin* 29.5% 34.2%
Operating margin* (1.8)% 3.4%
- --------------------------------------------------------------------------------
*Before special charges of $3.4 million in 1999.
The Controls segment had an operating loss of $2.1 million for the year on flat
sales, primarily due to a loss at Ferguson. Gross margin was 29.5% in 2000,
compared with 34.2% in 1999. Domestic sales were 78% of segment sales in 2000,
compared with 76% in 1999. Of the five businesses in the segment, three were
able to increase their sales, offsetting declines at the other two. These
businesses, operating mainly in mature markets, are seeking to grow sales and
improve operating results through new products, aggressive marketing, geographic
expansion and cost reduction. At year-end, Dynalco and Azonix were placed under
common management to increase their effectiveness and presence in the
marketplace. Order backlog decreased $6 million to $22 million at December 31,
2000 as compared with 1999.
At Barksdale, the segment's largest business, sales decreased to $42.9 million,
from $44.1 million in 1999, and operating profit declined to $4.0 million, from
$4.8 million in 1999. Barksdale continued its transition from a process-oriented
organization to an externally focused, growth-oriented enterprise. In 2000, with
a new management team, Barksdale deployed cross-functional teams company-wide
and improved customer service and increased on-time delivery. Barksdale's German
operation had a significant sales gain and strong market acceptance of the
business's new solid state pressure switch which is being launched in the U.S.
in 2001. Barksdale is focusing on expanding its markets in Europe and
penetrating Asia and Latin America, while pushing product development to gain
new customers in mature U.S. markets. It looks for increased sales and earnings
in 2001.
Ferguson's problems centered around the move of its machining operations from
Greenwood, Mississippi, to its St. Louis, Missouri, plant. A poorly executed
plant consolidation, resulting in machinery reinstallation difficulties, machine
breakdowns, inefficient scheduling and expensive outsourcing, combined with
ineffective pricing practices added to Ferguson's loss. The company, under new
leadership, expects markets to soften but anticipates a return to profitability
by year-end 2001.
At Powers Process Controls, sales fell moderately to $22.8 million from $24.6
million in 1999 and profits declined by $1.4 million to near break-even level,
as the business's vigorous new-product sales effort could not offset reduced
sales in its core water tempering valve business. Powers introduced ten new
products in 2000, its largest one-year total, with five more scheduled for 2001.
They are designed to be less costly to manufacture and to penetrate
price-sensitive institutional markets. Powers invested significant effort in
reducing inventories, completing cellular layouts and repositioning its
commercial plumbing products.
Dynalco reported excellent results in 2000, with a sales gain of $1.7 million,
or 13.2%, improved margins and sharply higher operating profits. Strong sales of
its engine diagnostic equipment -- a product line acquired as part of the
Liberty Technologies acquisition in 1998 -- contributed to this positive result,
along with marginal recovery in the gas transmission segment of the oil and gas
market. Lean and cellular manufacturing techniques figured in the strong profit
performance.
Azonix, which serves many of the same oil and gas markets as Dynalco with its
Man Machine Interface (MMI) panels for hazardous and harsh environments, had
higher sales but remained in a loss position, as a significant customer ran into
financial troubles, depriving Azonix of expected high-margin sales and requiring
a large write-off.
39
<PAGE>
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years Ended December 31, (in thousands, except per share data) 2001 2000 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales $1,587,180 $1,491,190 $1,553,657 $1,561,055 $1,411,328
Depreciation and amortization 74,610 55,281 62,312 55,873 50,991
Operating profit 171,684 184,026 169,554 211,961 176,759
Interest expense 21,187 21,564 27,854 27,661 23,632
Income before taxes 135,817 190,360 155,795 192,789 161,022
Provision for income taxes 47,197 66,631 54,897 67,947 57,306
- -----------------------------------------------------------------------------------------------------------------------------
Income from continuing operations 88,620 123,729 100,898 124,842 103,716
- -----------------------------------------------------------------------------------------------------------------------------
Income from continuing operations per diluted share 1.47 2.02 1.50 1.80 1.50
Cash dividends per common share .40 .40 .40 .37 .33
Total assets 1,292,115 1,143,851 1,180,697 1,379,731 1,131,483
Long-term debt 302,368 213,790 286,772 357,710 259,001
=============================================================================================================================
<CAPTION>
QUARTERLY RESULTS FOR THE YEAR
Years Ended December 31, (in thousands, except per share data) First Second Third Fourth Year
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
2001
Net sales $ 379,283 $ 409,034 $ 426,212 $ 372,651 $1,587,180
Cost of sales 248,954 267,441 282,714 246,601 1,045,710
Depreciation and amortization(a) 11,770 12,378 13,184 12,855 50,187
Gross profit 118,559 129,215 130,314 113,195 491,283
Net income 20,279 32,463 17,869 18,009 88,620
Net income per diluted share .33 .54 .30 .30 1.47
2000
- -----------------------------------------------------------------------------------------------------------------------------
Net sales $383,807 $387,853 $363,190 $356,340 $1,491,190
Cost of sales 254,006 252,490 246,497 235,525 988,518
Depreciation and amortization(a) 11,853 11,691 11,693 11,242 46,479
Gross profit 117,948 123,672 105,000 109,573 456,193
Net income 27,662 47,825 21,407 26,835 123,729
Net income per diluted share .45 .78 .35 .44 2.02
=============================================================================================================================
</TABLE>
(a) Amount included in cost of sales.
MARKET AND DIVIDEND INFORMATION - CRANE CO. COMMON SHARES
<TABLE>
<CAPTION>
New York Stock Exchange Composite Price per Share Dividends per Share
- -----------------------------------------------------------------------------------------------------------------------------
2001 2001 2000 2000 2001 2000
Quarter High Low High Low
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First $28.38 $24.25 $24.00 $18.63 $.10 $.10
Second $31.56 $24.95 $29.50 $23.00 $.10 $.10
Third $32.25 $19.95 $26.38 $20.88 $.10 $.10
Fourth $26.33 $20.09 $28.50 $22.00 $.10 $.10
- -----------------------------------------------------------------------------------------------------------------------------
$.40 $.40
=========================
</TABLE>
On December 31, 2001 there were approximately 4,525 holders of record of Crane
Co. common stock.
The Company effected a three-for-two split of its common stock on September 14,
1998.
All per share data prior to the splits have been restated.
40
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>5
<FILENAME>dex21.txt
<DESCRIPTION>SUBSIDIARIES OF THE REGISTRANT
<TEXT>
<PAGE>
CRANE CO.
Exhibit 21 to FORM 10-K
Annual Report for the Year Ended December 31, 2001
Subsidiaries of Registrant
The following is a list of active subsidiaries of the registrant and their
jurisdictions of incorporation. Except as noted, all of these subsidiaries are
wholly owned, directly or indirectly, and all are included in the consolidated
financial statements. The names of several other subsidiaries have been omitted,
as they would not, if considered in the aggregate as a single subsidiary,
constitute a significant subsidiary.
Crane Australia Pty. Ltd. Australia
P.T. Crane Indonesia Indonesia (51%)
Crane GmbH Germany
National Rejectors, Inc. GmbH Germany
NRI Iberica S.A. Spain
Crane International Holdings, Inc. Delaware
Crane Canada Inc. Canada
Crane Capital Corporation LLC Illinois
Crane Center-Line Valve Co. Delaware
Crane Ningjin Valve Co. China (90%)
Crane Zhengying Rubber Co. Ltd. China
Crane Environmental Inc. Delaware
Crane FSC Corporation Barbados
Crane Holdings C.V Netherlands
Crane Global Holdings S.L. Spain
Crane Process Flow Technologies S.r.l. Italy
Crane Process Flow Technologies S.P.R.L. Belgium
Crane Holdings (Germany) GmbH Germany
Crane Process Flow Technologies GmbH Germany
Xomox International GmbH & Co. Germany
Xomox Japan Ltd. Japan
Xomox Korea Ltd. Korea
Xomox Southeast Asia Pte Ltd. Singapore
Crane International Capital B.V. Netherlands
Crane Ltd. England
Crane Europe Ltd. Scotland
Crane Process Flow Technologies Ltd. England
Crane Process Flow Technologies (India) Ltd. India
ELDEC Electronics Ltd. England
Stockham Valve Ltd. England
Crane Nantong Company Ltd. China (70%)
Crane Pumps & Systems, Inc. Delaware
Barnes Pumps, Inc. Ohio
Barnes Pumps Canada, Inc. Canada
Dyrotech Industries, Inc. Delaware
ELDEC Corporation Washington
ELDEC France S.A.R.L. France
Hydro-Aire, Inc. California
Interpoint Corporation Washington
Interpoint GmbH Germany
Interpoint S.A.R.L. France
Interpoint U.K. Ltd. England.
Interpoint Taiwan Corporation Taiwan
Kemlite Company, Inc. Delaware
Kemlite Ltd. England
<PAGE>
Mark Controls Corporation Delaware
Azonix Corporation Massachusetts
Barksdale, Inc. Delaware
Dynalco Controls Corporation Delaware
Beta Monitors & Controls Ltd. Canada
Barksdale Control Products GmbH Germany
Mark Controls Norway A/S Norway
Westad Industri A/S Norway
Powers Process Controls Ltd. Canada
Resistoflex (Asia) Pte., Ltd. Singapore
Resistoflex Sdn. Bhd. Malaysia
Kessel (Thailand) Pte., Ltd. Thailand (49%)
Resistoflex GmbH Germany
Sequentia, Inc. Ohio
Xomox Corporation Ohio
Xomox A.G. Switzerland
Xomox Chihuahua S.A. de C.V. Mexico
Fisher-Xomox Sanmar Ltd. India (49%)
Xomox Corporation de Venezuela C.A. Venezuela
Xomox France S.A. France
Flow Technology, Inc. Ohio
Crane Nuclear, Inc. Delaware
Ventech Controls, Inc. Texas
Crane Overseas LLC Delaware
Stockham Valve Australia Pty. Ltd. Australia
Xomox Hungary Kft. Hungary
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>6
<FILENAME>dex23.txt
<DESCRIPTION>INDEPENDENT AUDITORS CONSENT
<TEXT>
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
333-63678 on Form S-8, Registration Statement No. 333-63676 on Form S-8,
Registration Statement No. 333-35860 on Form S-8, Registration Statement
No. 333-37636 on Form S-8, Registration Statement No. 333-50489 on Form
S-8, Registration Statement No. 333-50487 on Form S-8, Registration
Statement No. 333-50495 on Form S-8, Registration Statement No. 33-53709 on
Form S-3, Registration Statement No. 33-36735 on Form S-8, Post-Effective
Amendment No. 1 to Registration Statement No. 33-59389 on Form S-8,
Post-Effective Amendment No. 1 to Registration Statement No. 33-59475 on
Form S-8 and Registration Statement No. 333-16555 on Form S-8 of our report
dated January 18, 2002, incorporated by reference in this Annual Report on
Form 10-K of Crane Co. for the year ended December 31, 2001.
/s/ DELOITTE & TOUCHE LLP
Stamford, Connecticut
March 22, 2002
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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