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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
(x) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1997
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-1657
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CRANE CO.
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(Exact name of registrant as specified in its charter)
Delaware 13-1952290
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No)
100 First Stamford Place, Stamford, CT 06902
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (203) 363-7300
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
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Common shares, par value $1.00 New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
7 1/4% senior notes due June, 1999
8 1/2% senior notes due March, 2004
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(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
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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. ( )
Based on the average stock price of $43.31 on January 30, 1998 the aggregate
market value of the voting stock held by nonaffiliates of the registrant was
$1,614,147,251.
The number of shares outstanding of the registrant's common stock, $1.00 par
value was 45,556,820 at January 30, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Portions of the annual shareholders report for the year ended December 31, 1997
are incorporated by reference into Parts I, II and IV.
Portions of the proxy statement for the annual shareholders meeting to be held
on April 20, 1998 are incorporated by reference into Parts I and III.
PART I
ITEM 1. BUSINESS
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Crane is a diversified manufacturer of engineered industrial products and
the nation's largest American distributor of doors, windows and millwork.
Founded in 1855, Crane employs over 11,000 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, 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
1997, the company completed five acquisitions at a total cost of $82 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, the company acquired Polyvend Inc., a manufacturer of snack and food
vending machines. Polyvend was completely integrated into Crane's National
Vendors division significantly expanding its sales distribution channels. In
April, 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 July, through its
Huttig Sash & Door Company subsidiary, the company acquired MALLCO Lumber &
Building Materials Inc., a leading wholesale distributor of lumber, doors and
engineered wood products serving Arizona and the surrounding region. In December
the company acquired certain operations and product lines of Stockham Valves &
Fittings, Inc. The acquired product lines and related manufacturing operations
will be integrated into the company's engineered valve business and its
commercial bronze and iron valve business.
During 1996, the company acquired two companies. In mid October, the
company acquired Interpoint Corporation in a tax-free merger in which the
company issued 1,094,312 shares of Crane Co. common stock and assumed $26
million in debt. Interpoint is a leader in the design and manufacture of
standard and custom miniature DC-to-DC power converters with applications in
aerospace and medical technology industries. In late October the company
acquired Grenson Electronics Ltd. of Daventry, England for a cash payment of
$2.7 million. Grenson Electronics produces low voltage power conversion
electronics for aerospace, defense and industrial markets.
During 1995, the company completed three acquisitions at a total cost of
$9.4 million. In February the company, through its Barksdale Control Products
GmbH subsidiary, acquired Unimess GmbH, a German-based manufacturer of solid
state pressure switches and transducers, level switches and indicating systems,
and flow measurement and control components for specialized instrumentation. In
the fourth quarter, the company, through its Crane Pumps & Systems subsidiary,
acquired Process Systems, Inc. based in Michigan. Process Systems is a
manufacturer of vertical turbine pumps and accessories for industrial
applications. In November 1995, the company acquired Kessel PTE Ltd., a
fluoropolymer plastic lined pipe manufacturer with facilities in Singapore and
Thailand.
The company completed three acquisitions in 1994 at a total cost of $240
million. The company, through its wholly-owned subsidiary Huttig Sash & Door
Company, acquired a molding and millwork manufacturing operation in Prineville,
Oregon in May 1994. In April, 1994, the company purchased Mark Controls
Corporation, a manufacturer of automatic and manually operated valves, and
specialized instruments and controls, for commercial and industrial
/02
ITEM 1. BUSINESS (CONTINUED)
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customers. The company acquired ELDEC Corporation in March 1994. ELDEC's
products are used worldwide on all major commercial and business aircraft and
include: position indication and control systems, proximity switches and
components, true mass fuel flowmeters, and power conversion components and
systems.
In 1993, the company completed five acquisitions at a total cost of $106
million. In December, the company acquired Burks Pumps, Inc., which has
manufacturing facilities in Piqua, Ohio and Decatur, Illinois and provides
engineered pumps for an array of specialized commercial, industrial and
municipal fluid handling applications. The products are marketed under the
Barnes, Burks, Weinman and Prosser brand names. Also included was a line of tank
cleaning equipment sold under the Sellers brand name for the industrial clean-
in-place market. This acquisition substantially increased Crane's involvement in
niche pump markets. In October 1993, the company acquired Filon, a manufacturer
of fiberglass-reinforced plastic (FRP) panels. Filon was integrated with the
company's Kemlite unit in the fourth quarter of 1993. The Filon acquisition
significantly expanded Kemlite's position as a supplier of FRP panels to the
recreational vehicle market. In April and May 1993 Huttig Sash & Door Company
expanded its nationwide millwork distribution by acquiring Rondel's Inc., a
millwork distributor serving the eastern Washington/western Idaho region, and
the Whittier-Ruhle Millwork Company, serving the Mid-Atlantic region. Perflow
Instruments, Ltd., a British manufacturer of pressure and flow measurement
equipment, was added to Crane Ltd. in 1993.
DIVESTITURES
In the past five years, the company has divested five businesses. In 1997,
the company sold its Valve Systems and Controls division for $7.5 million in
cash and $1.5 million in preferred stock. In March of 1996, the company sold
Empire Foundry. In December 1994, Huttig sold its window manufacturing business
for $2.4 million. The transaction excluded real estate and receivables. In July
1994, the company sold Modulinc, the fiber optic channel product line of ELDEC.
In April 1993, the company sold its precision ordnance business,
UniDynamics/Phoenix for approximately $6 million.
LONG-TERM FINANCING
In June 1994 the company sold $150,000,000 of 7 1/4% notes that will
mature on June 15, 1999. During March 1992 the company sold $100,000,000 8
1/2% notes that will mature on March 15, 2004.
BUSINESS SEGMENTS
See pages 32 and 33 of the Annual Report to Shareholders for sales,
operating profit and assets employed of each business segment.
/03
ITEM 1. BUSINESS (CONTINUED)
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FLUID HANDLING
The Fluid Handling segment consists of valve, pump and water treatment
businesses. The Crane Valve business with six manufacturing facilities in North
America, as well as operations in the United Kingdom, Australia, Norway, China
and Indonesia, sells a wide variety of commodity and special purpose valves and
fluid control products for the chemical and hydrocarbon processing, power
generation, marine, general industrial and commercial construction industries.
Products are sold under the Crane, Jenkins, Pacific, Westad, Flowseal, Center
Line, Stockham, Triangle and Duo-Check brands. Crane Pumps has six manufacturing
facilities in the United States located in Ohio, Illinois, Pennsylvania, West
Virginia and Michigan. Pumps are manufactured under the Deming, Weinman,
Chempump, Burks, Chem/Meter, Barnes, Sellers and Process Systems brand names.
Pumps are sold to a broad customer base, which includes chemical and hydrocarbon
process industries, automotive, municipal, industrial and commercial wastewater,
power generation, commercial heating, ventilation and air-conditioning
industries and original equipment manufacturers. The water treatment business
has a manufacturing facility in Pennsylvania and serves the water and wastewater
treatment market. Its products are sold under the Cochrane name. This group
employs 3,000 people and had assets of $322.5 million at December 31, 1997.
Fluid Handling order backlog totaled $112.8 million, a $24.3 million increase
from the prior year.
Products in this group are sold directly to end users through Crane's
sales organization and through independent distributors and manufacturers
representatives.
AEROSPACE
The Aerospace segment consists of ELDEC, Hydro-Aire, Lear Romec and
Interpoint.
The group employs 2,500 people and had assets of $277.7 million at year
end. The order backlog totaled $297.4 million at December 31, 1997, an increase
of $28.5 million from the prior year.
ELDEC designs, manufactures and markets custom position indication and
control systems, proximity sensors, pressure sensors, true mass fuel flowmeters,
power conversion systems for the commercial, business and military aerospace
industries, and military marine and telecommunications markets. These products
are custom designed for specific aircraft to meet technically demanding
requirements of the aerospace and telecommunication industry.
ELDEC also has a $5.8 million 47% equity investment in Powec A/S, a
Norwegian manufacturer of power conditioning products and systems for the
commercial wireless telecommunications market, whose products are complementary
to the products and complex power systems engineering capabilities at ELDEC.
/04
PART I (CONTINUED)
ITEM 1. BUSINESS (CONTINUED)
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Hydro-Aire designs, manufactures and sells aircraft brake control and
anti-skid systems, including electro-hydraulic servo valves and manifolds,
embedded software and redundant, ruggedized electronic controls, hydraulic
control valves, landing gear sensors and fuel pumps for the commercial
transport, business and commuter, military, government and general aviation
aerospace industries as original equipment. In addition, the company 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 the company 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 airlines, governments, and aircraft maintenance and overhaul
companies.
Lear Romec 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 minature
(hybrid) DC-to-DC power converters and custom minature (hybrid) electronic
circuits for applications in commercial, space and military aerospace
industries and in the medical technology industry.
/05
PART I (CONTINUED)
ITEM 1. BUSINESS (CONTINUED)
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ENGINEERED MATERIALS
The Engineered Materials segment consists of five businesses: Kemlite,
CorTec, Resistoflex, Polyflon and Crane Plumbing.
This group had assets of $109.6 million at December 31, 1997 and employed
1,200 people. Order backlog at year end 1997 was strong at $28.8 million, a
27% increase from the prior year.
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, and to institutions where fire rated materials with
low smoke generation and minimum toxicity are required. Kemlite sells its
products directly to the truck trailer and recreational vehicle manufacturers.
Kemlite uses distributors to serve its commercial construction market and some
segments of the recreational vehicle market.
Cor Tec manufactures fiberglass-reinforced laminated panels serving the
truck and truck trailer segment of the transportation industry. Cor Tec markets
its products directly to the truck and truck trailer manufacturers.
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 industry as well as
the Asian pharmaceutical industry.
Polyflon manufactures microwave laminates, high voltage RF capacitors,
radomes and circuit processing for the wireless communication, magnetic
resonance imaging, microwave and radar system manufacturers.
Crane Plumbing manufactures plumbing fixtures in Canada. Its products
are sold through distributors in Canada and it has a large share of the
Canadian plumbing fixtures market.
/06
PART I (CONTINUED)
ITEM 1. BUSINESS (CONTINUED)
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CRANE CONTROLS
This segment includes five businesses: Barksdale, Powers Process
Controls, Dynalco Controls, Azonix, and Ferguson. The companies in this segment
design, manufacture and market industrial and commercial products that control
flows and processes in various industries including the petroleum, chemical,
construction, food and beverage, power generation industries and transportation.
Crane Controls had assets of $121.4 million at December 31, 1997, and employs
860 people. On December 31, 1997, Crane Controls had a backlog of $32.3 million,
a 29% increase from the prior year level.
Barksdale manufactures solid state and electromechanical pressure
switches and transducers, level switches and continuous level indicators,
temperature switches, and directional control valves which serve a broad range
of commercial and industrial applications. It has manufacturing and marketing
facilities in the United States and Germany.
Powers Process Controls designs, manufactures and markets water mixing and
thermal shock protection shower systems, commercial and residential plumbing
brass, correctional water controllers, process controllers and instrumentation ,
process control valves and temperature regulators for industrial applications
and the commercial and institutional construction industry.
Dynalco Controls designs and manufactures rotational speed sensors,
temperature and pressure instruments and monitors for rugged environments,
microprocessor based engine and mechanism controls. Dynalco's products are used
worldwide by industries in a variety of applications, including stationary
natural gas engines, power generation, oil and gas production and transmissions,
and agriculture equipment.
Azonix manufactures operator interfaces and measurement and control
systems for hazardous and harsh applications, intelligent data acquisition
products, high-precision thermometers and calibrators for the oil and gas,
petrochemical, chemical, pharmaceutical and metal processing industries.
Ferguson designs and manufactures in the United States and through
Ferguson Machine S.A. in Europe, precision index and transfer systems for use on
and with machines which perform automatic forming, assembly, metal cutting,
testing and inspection operations. Products include mechanical and electronic
index drives, pick-and-place robots, in line transfer machines, rotary tables,
press feeds and custom cams.
The products in this segment are sold directly to end users, and
engineering contractors through the company's own sales forces and cooperatively
with sales representatives, stocking specialists and industrial distributors.
MERCHANDISING SYSTEMS
The Merchandising Systems segment has two operating units: National
Vendors, the industry leader in the design and manufacture of a complete line of
vending merchandisers for the food/service vending market; and NRI, which
manufactures electronic coin validators in Buxtehude, Germany for the automated
merchandising and gambling/amusement markets in Europe. National Vendors
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
/07
PART I (CONTINUED)
ITEM 1. BUSINESS (CONTINUED)
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MERCHANDISING SYSTEMS (continued)
hot/cold drinks, or snacks and refrigerated/frozen foods in one machine.
National Vendors manufactures its products in a 463,000 sq. ft. state of the
art facility in Bridgeton, Missouri. National Vendors' 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. Merchandising Systems employs 1,000 people and had
assets of $109.2 million at year end 1997.
Order backlog totaled $18.8 million at December 31, 1997, a slight
increase from the prior year.
WHOLESALE DISTRIBUTION
The company distributes millwork products through its wholly owned
subsidiary, Huttig Sash & Door Company ("Huttig"). These products include
doors, windows, moldings and related building products. Huttig assembles
certain of these products to customer specification prior to distribution. Its
principal customers are building material dealers, building contractors and
home remodelers that service the new construction and remodeling markets.
Wholesale operations are conducted nationally through forty-six distribution
centers throughout the United States, in both major and medium-sized cities.
Huttig's sales are made on both a direct shipment and out-of-warehouse basis
entirely through its own sales force.
Huttig also manufactures specialty molding and millwork products at its
Prineville, Oregon facility. The majority of the molding products are sold to
third parties but Huttig is the largest customer. In 1996, Huttig closed its
manufacturing plant in Montana, where it produced certain of the above products
and other finished lumber.
Crane Supply, a distributor of plumbing supplies, valves and piping in
Canada, maintains thirty-five branches throughout Canada and distributes Crane
manufactured products in that country. Crane Supply also distributes products
which are both complementary to and partly competitive with Crane's own
manufactured products.
OTHER
The other segment consists of Crane Defense Systems, which is engaged in
the development and manufacture of specialized handling systems, elevators,
winches, ground support equipment, cranes and associated electronics. These
products are sold directly to the government, defense contractors and
commercial shipbuilders.
/08
PART I (CONTINUED)
ITEM 1. BUSINESS (CONTINUED)
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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 industrial,
construction, aerospace, automated merchandising, transportation, and fluid
handling industries. As such, they are dependent upon numerous unpredictable
factors, including changes in market demand, general economic conditions,
residential and commercial building starts, 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 Huttig and the Canadian operations.
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 $56,800,000 in 1997, $52,000,000 in 1996, and $51,900,000
in 1995. Included in these amounts were approximately $9,500,000, $10,300,000
and $12,600,000 received by the company in 1997, 1996 and 1995, respectively,
for customer sponsored research and development.
The company is not dependent on any single customer nor are there any
issues at this time regarding available raw materials for inventory.
/09
PART I (CONTINUED)
ITEM 1. BUSINESS (CONTINUED)
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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
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Throughout the Annual Report to Shareholders, particularly in the 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 impact negatively on 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 would 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.
The company has substantial operations and sales outside the United States.
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 revenues 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. Particularly in light of the current tight labor
market, the company's prospects would be adversely affected by an inability to
retain its key personnel.
Fluid Handling
Results for the Fluid Handling segment could be affected in the event of
unanticipated difficulties in assimilating newly acquired valve businesses into
existing operations. In addition, Crane's companies could face increased price
competition from larger competitors. Asia's economic turmoil could reduce sales
and profits, particularly if major projects for which Crane companies are
suppliers or bidders are cancelled or delayed, or if the companies' ability to
source product from international sources is impeded.
/10
PART I (continued)
Item 1. Business (continued)
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
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 Asia's
economic problems led to a decline in aircraft orders, particularly since the
new, long-range Boeing aircraft favored for many Asian routes contain a higher
value of Crane-supplied equipment than other aircraft from Boeing and other
manufacturers.
Engineered Materials
In the Engineered Materials segment, sales and profits could fall if there were
a decline in demand for truck trailers or recreational vehicles, for which Crane
companies produce fiberglass-reinforced plastic side and roof panels and trailer
liners. Profits could be squeezed as well by unanticipated increases in resin
and fiberglass material costs, by unforeseen fluctuations in the Canadian
dollar, 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, as well as by difficulties in assimilating a vending
machine business acquired in 1997. Results at Crane's Germany-based coin
validation machine business could be affected by changes in demand stemming from
the advent of the Euro, the planned new European currency, as well as by
unforeseen fluctuations in the value of the Deutschemark versus the U.S. dollar.
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, and heavy equipment industries, or from unforeseen
product obsolescence.
Wholesale Distribution
Sales in the Wholesale Distribution segment are significantly affected by the
strength of the domestic housing market, and a decline in housing starts could
have a negative impact on results. Decisions by some major suppliers to change
their distribution channels, bypassing Crane's wholesale distribution network,
could also diminish sales and profits. At Crane's Canadian wholesale
distribution operation, reported results in U.S. dollar terms could be eroded by
an unanticipated weakening of Canada's currency.
Impact of the Year 2000
The "Year 2000" issue concerns the potential exposures related to the automated
generation of business and financial misinformation resulting from the
application of computer programs which have been written using two digits,
rather than four, to define the applicable year of business transactions.
Suppliers, customers and creditors of the company also face Year 2000 issues. A
failure to successfully address the Year 2000 issue could have a material
adverse effect on the company's business or results of operations. The
discussion of the Impact of the Year 2000 contained on Page 37 of the company's
1997 Annual Report under Management's Discussion and Analysis of Operations is
incorporated herein by reference.
/11
MANUFACTURING FACILITIES NUMBER AREA
- -------------------------- ------ ----
Fluid Handling
United States 14 1,312,000 sq. ft.
Canada 2 140,000 sq. ft.
International 10 1,307,000 sq. ft.
Aerospace
United States 6 612,000 sq. ft.
International 3 35,000 sq. ft.
Engineered Materials
United States 7 736,000 sq. ft.
Canada 3 601,000 sq. ft.
International 1 10,000 sq. ft.
Crane Controls
United States 7 423,000 sq. ft.
International 2 63,000 sq. ft.
Merchandising Systems
United States 1 463,000 sq. ft.
Other International 1 77,000 sq. ft.
Wholesale Distribution 1 577,000 sq. ft.
Other 1 113,000 sq. ft.
Leased Leases
Manufacturing Expiring
Facilities Number Area Through
----------- ------ ---- --------
United States 9 462,000 sq. ft. 2006
Canada 1 12,000 sq. ft. 2000
Other International 6 86,000 sq. ft. 2013
Fluid Handling operates six valve service centers in the United States,
of which four are owned, and one distribution center in the United States.
This segment operates internationally eight distribution and four service
centers.
Crane Controls operates one distribution center internationally.
Merchandising Systems operates eight distribution centers in the United
States and six internationally.
Wholesale Distribution has forty-six Huttig branch warehouses in the
United States, of which twenty-eight are owned. The Canadian wholesale
operation maintains thirty-six distribution branch warehouses in Canada, of
which thirteen are owned.
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.
/012
PART I (CONTINUED)
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, except for the following.
On February 28, 1991, the company was served with a complaint filed in
the U.S. District Court for the Eastern District of Missouri naming the company
and its former subsidiary, CF&I Steel Corporation ("CF&I"), as defendants and
alleging violations of the federal False Claims Act in connection with the
distribution of the company's shares of CF&I to the company's shareholders in
1985. A subsequent complaint with substantially similar allegations was served
on the company on September 22, 1992. The two actions have been consolidated
by the court (Civil Actions Nos. 91-0429-C-1 and 4:92CVOO5144JCH). On June
1,1993 the district court dismissed the case for lack of subject matter
jurisdiction under the False Claims Act and the plaintiff appealed. On
November 16, 1994, the U.S. Court of Appeals for the Eighth Circuit reinstated
the action. The company's petition for a writ of certiorari to the U.S.
Supreme Court was denied on or about June 16, 1995 and the case has been
returned to the District court to further proceedings. The case was brought in
the name of the U.S. Government by a private individual (the "relator") and
involves allegations of a conspiracy between the company and CF&I to cause the
Pension Benefit Guaranty Corporation ("PBGC") to assume certain unfunded
liabilities under a CF&I pension plan (alleged to have been approximately $270
million), to prevent the PBGC from obtaining any reimbursement from the company
and to publish and file misleading information in furtherance of those alleged
objectives. The suit seeks treble damages and attorney's fees. The lawsuit was
dismissed in May 1996 upon the company's motion for summary judgment and for
judgment on the pleadings. The dismissal was affirmed on appeal by the Eighth
Circuit Court of Appeals in August 1997. The Plaintiff filed a petition seeking
review by the United States Supreme Court and on March 23, 1998 the United
States Supreme Court denied the plaintiffs' petition.
The following proceedings are not considered by the company to be
material to its business or financial condition and are reported herein because
of the requirements of the Securities and Exchange Commission with respect to
the descriptions of administrative or judicial proceedings by governmental
authorities arising under federal, state or local provisions regulating the
discharge of materials into the environment or otherwise relating to the
protection of the environment.
In a letter dated October 15, 1992 the office of the Attorney General of
the State of Ohio advised Cor Tec, a division of Dyrotech Industries, Inc.
which is a subsidiary of the company, that Cor Tec's plant facility in
Washington Court House, Ohio, had operated numerous air contaminant sources in
its manufacturing process which emitted air pollutants for an extended period
of time without the required state permits and in some instances in amounts
exceeding the limits allegedly allowed under applicable rules. The Ohio
Attorney General's office also alleged that certain contaminant sources at the
Cor Tec facility were installed without obtaining permits to install. The main
air contaminant in question is styrene, a volatile organic compound that is
alleged to be a carcinogen. In 1993, in full cooperation with the Ohio EPA,
Cor Tec constructed an emission control system in its plant at a cost exceeding
$700,000 which included the installation of a hood, vent and incinerator to
capture and incinerate the styrene emissions. At a meeting in Columbus, Ohio
on March 4, 1993 the Attorney General's office representing the Ohio EPA,
proposed that Cor Tec and the company sign a Consent Decree which would
include general injunctive relief and civil penalties in the amount of $4.6
million which Cor Tec has refused to do. In a letter dated November 9, 1995,
the Attorney General's office presented a reduced civil penalty demand for $1.8
million and, by letter dated December 9, 1996 the Attorney General's office
again threatened
/13
PART I (CONTINUED)
ITEM 3. LEGAL PROCEEDINGS (CONTINUED)
to commence suit in thirty (30) days (subsequently extended) unless Cor Tec
significantly increased its $50,000 offer to settle. Cor Tec has responded in
writing that, among other things, (i) the rule upon which the state's demands
are based was not adopted in accordance with applicable statutory directives
and is, therefore, unenforceable, (ii) Cor Tec has nevertheless complied with
the rule as it is currently applied by the state, (iii) the state has
considerable discretion in penalty calculation and the penalties sought by the
state against Cor Tec are wholly out of proportion with the nature of the
alleged violations and (iv) more lenient rules have been adopted for much
larger VOC emission sources located in more polluted urban areas and thus Cor
Tec's competitors have an advantage in the marketplace. On February 21, 1997,
the Attorney General's office on behalf of the Ohio EPA commenced a civil
action against Cor Tec in the Court of Common Pleas, Fayette County, Ohio
alleging among other things, failure to obtain various permits to install and
operate sources of contaminants and also alleging violation of air emission
standards, for the period 1974 to 1993. Penalties for $25,000 per day for each
day of violation have been demanded in the Complaint. The proceedings remain at
a very preliminary stage. Cor Tec continues to believe it has adequate
defenses to the allegations in the Complaint.
On July 12, 1985 the company received written notice from the United
States Environmental Protection Agency (the "EPA") that the EPA believes the
company may be a potentially responsible party ("PRP") under the Federal
Comprehensive Environmental Response Compensations and Liability Act of 1980
("CERCLA") to pay for investigation and corrective measures which may be
required to be taken at the Roebling Steel Company site in Florence Township,
Burlington County, New Jersey (the "Site") of which its former subsidiary, CF&I
Steel Corporation ("CF&I") was a past owner and operator prior to the enactment
of CERCLA. The stated grounds for the EPA's position was the EPA's belief that
the company had owned and/or operated the Site. The company had advised the EPA
that such was not the case and does not believe that it is responsible for any
testing or clean-up at the Site based on current facts.
The EPA has identified sources and areas of contamination at the
Roebling Site which must be examined for potential environmental damage. The
EPA has disclosed that two surface clean-ups have been performed at a cost in
excess of $19 million. IN July 1996, the EPA completed a third Focused
Feasibility Study which defined the nature of the contaminants and evaluated
appropriate remedial alternatives, and the EPA estimated the cost of its
preferred clean-up alternative at $38 million.
On November 7, 1990 CF&I filed a petition for reorganization and protection
under Chapter 11 of the United States Bankruptcy Code. In the bankruptcy
proceeding of CF&I, the EPA was allowed an unsecured claim against CF&I for
$27.1 million related to the EPA's environmental investigations and remediation
at the Roebling Site.
In June 1996 the company received a Section 104 request issued by the EPA under
CERCLA seeking information about the company's (and CF&I's) connection to the
Roebling Site. On August 26, 1996, the company filed its response to the
Section 104 Request and, to date, has received no further communications from
the EPA concerning the Roebling Site. Based on the facts and circumstances
summarized above, the company does not believe it is responsible for any portion
of the Roebling Site clean-up.
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 1997.
/14
PART I (CONTINUED)
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the registrant are as follows:
Officer
Name Position Business Experience Age Since
- ---- -------- ------------------- --- -----
Robert S. Evans Chairman and Chief Chairman and Chief 54 1974
Executive Officer Executive Officer of the company
since 1984 and previously
President of the company
L. Hill Clark President and President and Chief Operating 53 1994
Chief Operating Officer, previously Executive Vice
Officer President of the company,
President of Lear Romec,
and previously held
various positions within
Allied Signal Inc., a diversified
manufacturing company
Augustus I. duPont Vice President, Vice President and General 46 1996
General Counsel Counsel and Secretary of
and Secretary the company, previously Vice
President, General Counsel and
Secretary of Reeves Industries, Inc.,*
a manufacturer of apparel textiles
and industrial coated fabrics, from
May 1994 to December 1995; Vice
President, General Counsel and
Secretary of Sprague Technologies,
Inc., a manufacturer of electronic
components, from May 1987 to
December 1993
Bradley L. Ellis Vice President- Vice President-Chief 29 1997
Chief information Information Officer of the
Officer company, previously with the
Business systems consulting group
of Arthur Andersen LLP.
Anthony D. Pantaleoni Vice President Vice President - Environment, 43 1989
Environment, Health & Safety of the company
Health & Safety
Richard B. Phillips Vice President Vice President - Human 54 1987
Human Resources Resources of the company
David S. Smith Vice President- Vice President - Finance 41 1991
Finance and and Chief Financial Officer
Chief Financial of the company, previously
Officer Vice President - Corporate
Development of the company
Michael L. Raithel Controller Controller of the company 50 1985
PART I (continued)
/015
EXECUTIVE OFFICERS OF THE REGISTRANT(CONTINUED)
Gil A. Dickoff Treasurer Treasurer of the company, 36 1992
previously Assistant
Treasurer of the company
Certain Proceedings
- -------------------
* Reeves Industries, Inc., a corporation which Mr.duPont served as Vice
President, General Counsel and Secretary from May 1994 to December 1995,
filed a petition and Plan of Reorganization for a consensual debt
restructuring under Chapter 11 of the United States Bankruptcy Code on
November 21, 1997.
PART II
The information required by Items 5 through 8 is hereby incorporated by
reference to Pages 9 through 38 of the Annual Report to Shareholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS 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 6, 1998, which the company will file 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 6, 1998, which the company will file 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 6, 1998, which the company will file with
the Commission pursuant to Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated by reference to the
definitive proxy statement dated March 6, 1998, which the company will file with
the Commission pursuant to Regulation 14A.
/016
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
Page
----
(a)(1) The consolidated balance sheets of Crane Co. and subsidiaries as of
December 31, 1997 and 1996 and the related consolidated statements of
income, changes in common shareholders' equity and cash flows for the
years ended December 31, 1997, 1996 and 1995 and the financial review,
appearing on Pages 9 through 38 of Crane Co.'s Annual Report to
Shareholders which will be furnished with the company's proxy statement
as required by Regulation 14A, Rule 14a-3(c), are incorporated herein by
reference
(2) The following financial statement schedules are included in this report
on Form 10-K:
Independent Auditors' Report 20
Schedule II - Valuation and Qualifying Accounts 21
All other statements and 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.
Annual report to security holders:
Exhibit 13 Annual Report to shareholders for the year
ended December 31, 1997.
Subsidiaries of the Registrant:
Exhibit 21: Subsidiaries of the Registrant.
Consent of Experts and Counsel
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,
1997.
(c) Exhibits to Form 10-K:
(3) There is incorporated by reference herein:
(a) The company's Certificate of Incorporation contained in Exhibit
D (Certificate of Designation) to the company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1987.
(b) The company's By-laws contained in Exhibit A to the company's
Annual Report on Form 10-K for the fiscal year ended December
31, 1995.
(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 12, 1988.
(2) Amendment to Preferred Share Purchase Rights Agreement
contained in Exhibit 1 to the company's Report on Form 8-K
filed with the Commission on June 29, 1990.
PART IV (CONTINUED)
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(CONTINUED)
(b) There is incorporated by reference herein:
/017
1) Indenture dated as of April 1,1991 between the Registrant
and the Bank of New York contained in Exhibit 4 to
Registration Statement No. 33-39658.
(10) Material Contracts:
(iii)Compensatory Plans
There is incorporated by reference herein:
(a) The Crane Co. Restricted Stock Award Plan as amended through
May 6, 1996, contained in Exhibit A to the company's Form 10-Q
for the quarter ended March 31, 1996.
(b) The forms of Employment/Severance Agreement between the company
company and the executive officers (form I) and (form II) 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.
(c) The E.V.A. incentive compensation plan for executive officers
contained in Exhibit B to the company's annual report on Form
10-K for the fiscal year December 31, 1994.
(d) The Crane Co. Non-Employee Directors Restricted Stock Award
Plan as amended through May 10, 1993 contained in Exhibit B to
the company's annual report on Form 10-K for the fiscal year
ended December 31, 1994.
(e) 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.
(f) 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.
(g) The Crane Co. Stock Option Plan as amended as of February 27,
1995 contained in Exhibit 4(a) to the company's Registration
Statement No. 33-59389 on Form S-8 filed with the Commission on
May 17, 1995.
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.
/018
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 /s/ D. S. Smith
-------------------------
D. S. Smith
Vice President-Finance
Date 3/23/98
-------
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
/s/ R. S. Evans
-------------------------
R. S. Evans
Chairman, Chief Executive Officer and Director
Date 3/23/98
-------
/s/ D. S. Smith /s/ M. L. Raithel
------------------------------- -----------------------------
D. S. Smith M. L. Raithel
Vice President-Finance Controller
Date 3/23/98 Date 3/23/98
------- -------
DIRECTORS
/s/ M. Anathan, III /s/ E. T. Bigelow, Jr. /s/ R.S. Forte
- ------------------------ --------------------------- --------------------
M. Anathan, III E. T. Bigelow, Jr. R.S. Forte
Date 3/23/98 Date 3/23/98 Date 3/23/98
------- ------- -------
/s/ D.R. Gardner
- ------------------------ ------------------------ ----------------------
D.R. Gardner J. Gaulin D.C. Minton
Date 3/23/98 Date 3/23/98 Date 3/23/98
------- ------- -------
/s/ C.J. Queenan, Jr. /s/ B. Yavitz
- ------------------------------- ----------------------------
C.J. Queenan, Jr. B. Yavitz
Date 3/23/98 Date 3/23/98
------- -------
/19
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS OF CRANE CO.:
We have audited the consolidated financial statements of Crane Co. and
subsidiaries as of December 31, 1997 and 1996, and for each of the three years
in the period ended December 31, 1997 and have issued our report thereon dated
January 21, 1998; such financial statements and report are included in the 1997
Annual Report to Shareholders and are incorporated herein by reference. Our
audits also included the consolidated financial statement schedule of Crane Co.,
listed in Item 14. This financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion on this
schedule based on our audits. In our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
DELOITTE & TOUCHE LLP
Stamford, Connecticut
January 21, 1998
Balance at Additions Balance
Beginning Charged to at End
Description of Year Cost & Expenses Deductions of Year
- ----------- ------- --------------- ---------- -------
Year Ended December 31, 1997:
Allowance for doubtful accounts $5,271 $ 2,986 $ 2,482 $5,775
Allowance for cash discounts,
returns and allowances 1,292 16,641 16,844 1,089
------ ------- ------- ------
$6,563 $19,627 $19,326 $6,864
====== ======= ======= ======
Year Ended December 31, 1996:
Allowance for doubtful accounts $4,003 $ 3,173 $ 1,905 $5,271
Allowance for cash discounts,
returns and allowances 1,443 14,931 15,072 1,292
------ ------- ------- -------
$5,436 $18,104 $16,977 $6,563
====== ======= ======= ======
Year Ended December 31, 1995:
Allowance for doubtful accounts $4,977 $ 2,810 $ 3,784 $4,003
Allowance for cash discounts,
returns and allowances 1,847 13,799 14,213 1,433
------ ------- ------- ------
$6,824 $16,609 $17,997 $5,436
====== ======= ======= ======
/21